1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
F O R M 10 - Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 26, 1997May 2, 1998
Commission file no. 1-10299
WOOLWORTH CORPORATION
(Exact name of registrant as specified in its charter)
New York 13-3513936
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
233 Broadway, New York, New York 10279-0003
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (212) 553-2000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES x NO
--- ---
Number of shares of Common Stock outstanding at August 29, 1997:134,914,082June 1, 1998: 135,285,656
2
WOOLWORTH CORPORATION
INDEXTABLE OF CONTENTS
Page No.
--------
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets 3Sheets...................1
Condensed Consolidated Statements
of Operations 4Operations......................................2
Condensed Consolidated Statements
of Comprehensive Income............................3
Condensed Consolidated Statements
of Retained Earnings 5Earnings...............................4
Condensed Consolidated Statements
of Cash Flows 6Flows......................................5
Notes to Condensed Consolidated
Financial Statements 7-9Statements.............................6-8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-13Operations...8-12
Part II. Other Information
Item 1. Legal Proceedings 13
Item 4. Submission of Matters to a Vote of Security Holders 13-14Proceedings......................................12
Item 6. Exhibits and Reports on Form 8-K 14
Signature 158-K.......................12
Signature..............................................13
Index to Exhibits 16-18
-2-Exhibits...................................14-15
i
3
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
WOOLWORTH CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions)
JulyMay 2, April 26, July 27, January 25,31,
1998 1997 1996 19971998
---- ---- ----
(Unaudited) (Unaudited) (Audited)
ASSETS
Current Assets:assets
Cash and cash equivalents equivalents.....................................$ 6976 $ 9775 $ 328116
Merchandise inventories 1,216 1,259 1,066.......................................1,298 1,175 1,159
Net assets of discontinued operations 209 268 236......................... 11 229 7
Other current assets 174 205 202
------- ------- -------
1,668 1,829 1,832.......................................... 224 169 177
----- ----- -----
1,609 1,648 1,459
Property and equipment, net 903 1,032 983.....................................1,115 940 1,053
Deferred charges and other assets 737 592 524
------- ------- -------............................... 688 619 670
----- ----- -----
$3,412 $ 3,3083,207 $ 3,453 $ 3,339
======= ======= =======3,182
===== ===== =====
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:liabilities
Short-term debt debt...............................................$ 38253 $ 137-- $ --
Accounts payable 352 360 286.............................................. 348 343 327
Accrued liabilities 526 350 427........................................... 308 314 335
Current portion of reserve for discontinued operations ........ 52 -- 72
Current portion of long-term debt and obligations
under capital leases ........................................ 21 14 17 15
------- ------- -------
930 864 72822
----- ----- -----
$ 982 671 756
Long-term debt and obligations
under capital leases 568 605 575.......................................... 537 570 535
Deferred taxes and other liabilities 721 779 702............................ 592 675 602
Reserve for discontinued operations ............................. 18 -- 18
Shareholders' Equity:
Preferred stock -- -- --Equity
Common stock and paid-in capital 311 297 299.............................. 322 302 317
Retained earnings 870 891 1,050.............................................1,028 1,051 1,033
Foreign currency translation adjustment (55) 52 22....................... (22) (25) (34)
Minimum pension liability adjustment .......................... (45) (37) (35) (37)
------- ------- -------(45)
----- ----- -----
Total shareholders' equity 1,089 1,205 1,334..................................1,283 1,291 1,271
Commitments ------- ------- ------------ ----- -----
$3,412 $ 3,3083,207 $ 3,453 $ 3,339
======= ======= =======3,182
===== ===== =====
See accompanying notesAccompanying Notes to Condensed Consolidated Financial Statements.
-3-1
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WOOLWORTH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in millions, except per share amounts)
Thirteen weeks ended
Twenty-six weeks ended
---------------------------- ----------------------------
July--------------------
May 2, April 26,
July 27, July 26, July 27,1998 1997 1996 1997 1996
---- ----
---- ----
Sales ..........................................................$1,466 $ 1,500 $ 1,607 $ 3,039 $ 3,1771,539
Cost and Expenses:expenses
Cost of sales 1,037 1,095 2,111 2,214................................................ 1,046 1,074
Selling, general and administrative expenses 370 416 758 831................. 391 388
Depreciation and amortization 43................................ 44 84 8941
Interest expense ............................................. 12 11 15 22 32
Other income (2) (6) (6) (7)
------- ------- ------- -------
1,459 1,564 2,969 3,159
------- ------- ------- -------................................................. (19) (4)
----- -----
1,474 1,510
===== =====
Income (loss) from continuing operations
before income taxes 41 43 70 18........................................ (8) 29
Income tax expense 15 17 27 7
------- ------- ------- -------(benefit) ................................... (3) 12
----- -----
Income (loss) from continuing operations 26 26 43 11....................... (5) 17
Loss from discontinued operations, net of income
taxes of $8, $2, $19 and $7, respectively (12) (4) (28) (11)
Loss on disposal of discontinued operations,
net of income taxes of $115 (195)$11 million ....................................... -- (195) --(16)
----- -----
Net income (loss) ..............................................$ (181)(5) $ 22 $ (180) $ --
======= ======= ======= =======
Per common1
===== =====
Basic earnings per share:
Income (loss) from continuing operations ...................$(0.04) $ 0.19 $ 0.19 $ 0.32 $ 0.080.13
Loss from discontinued operations $ (1.54) $ (0.02) $ (1.66) $ (0.08)
------- ------- ------- -------.......................... -- (0.12)
----- -----
Net income (loss) ..........................................$(0.04) $ (1.35) $ 0.17 $ (1.34) $ --
======= ======= ======= =======0.01
===== =====
Weighted-average common shares outstanding 134.5 133.3 134.3 133.2(in millions) ....... 135.1 134.1
Diluted earnings per share:
Income (loss) from continuing operations ...................$(0.04) $ 0.13
Loss from discontinued operations .......................... -- (0.12)
----- -----
Net income (loss) ..........................................$(0.04) $ 0.01
===== =====
Weighted-average common shares assuming dilution (in millions) 135.1 135.2
See accompanying notesAccompanying Notes to Condensed Consolidated Financial Statements.
-4-2
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WOOLWORTH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(in millions)
Thirteen weeks ended
--------------------
May 2, April 26,
1998 1997
---- ----
Net income (loss)...............................................$ (5) $ 1
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments,
pre-tax $19 and $(78) million, respectively............ 12 (47)
----- -----
Comprehensive income (loss).....................................$ 7 $ (46)
===== =====
See Accompanying Notes to Condensed Consolidated Financial Statements.
3
6
WOOLWORTH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
(Unaudited)
(in millions)
Twenty-sixThirteen weeks ended
----------------------
July--------------------
May 2, April 26,
July 27,1998 1997 1996
---- ----
Retained earnings at beginning of year ........................$ 1,050 $ 8911,033 $1,050
Net income (loss) (180) --
Cash dividends declared:
Preferred stock (1996 - $1.10 per share) -- --
------- -------............................................... (5) 1
----- -----
Retained earnings at end of interim period .....................$ 870 $ 891
======= =======1,028 $1,051
===== =====
See accompanying notesAccompanying Notes to Condensed Consolidated Financial Statements.
-5-4
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WOOLWORTH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in millions)
Twenty-sixThirteen weeks ended
----------------------------
July--------------------
May 2, April 26,
July 27,1998 1997 1996
---- ----
From Operating Activities:
Net income (loss)............................................$ (180)(5) $ --1
Adjustments to reconcile net income (loss) to net cash
provided by
(used in)used in operating activities:
Non-cash charge for discontinued operations 310 --
Discontinued operations activities (11) --
Depreciation and amortization 84 92amortization............................ 44 41
Net gain on sales of real estateassets and investments.............. (19) (4) (13)
Deferred income taxes (138) (16)taxes.................................... (2) (2)
Change in assets and liabilities, net of acquisition:
Merchandise inventories (153) (91)inventories.................................. (127) (95)
Other current assets..................................... (50) 31
Accounts payable 63 121
Change in net assets of discontinued operations 27 44and accrued expenses.................... (10) (36)
Discontinued operations.................................. (24) 7
Other, net (111) (121)
------- -------net............................................... (23) (32)
----- -----
Net cash provided by (used in)used in operating activities (113) 16
------- -------activities........................ (216) (89)
----- -----
From Investing Activities:
Proceeds from sales of real estate 19 21.......................... 3 12
Capital expenditures (56) (36)expenditures......................................... (82) (25)
Payments for businessbusinesses acquired, net of cash acquiredacquired....... (29) (140) --
Proceeds from sales of assets and investments -- 19
------- -------investments................ 22 -
----- -----
Net cash provided by (used in)used in investing activities (177) 4
------- -------activities...................... (86) (153)
----- -----
From Financing Activities:
Increase in short-term debt 38 69debt.................................. 253 -
Reduction in long-term debt and capital lease obligationsobligations.... (1) (9)(1)
Issuance of common stock 11 6
Dividends paid -- --
------- -------stock..................................... 5 3
----- -----
Net cash provided by financing activities 48 66
------- -------activities.................. 257 2
----- -----
Effect of exchange rate fluctuations
on Cash and Cash Equivalents (17) (3)
------- -------Equivalents................................. 5 (13)
----- -----
Net change in Cash and Cash Equivalents (259) 83Equivalents......................... (40) (253)
Cash and Cash Equivalents at beginning of yearyear.................. 116 328
14
------- ------------ -----
Cash and Cash Equivalents at end of interim period period..............$ 6976 $ 97
======= =======75
===== =====
Cash paid during the period:
Interest Interest......................................................$ 222 $ 321
Income taxes taxes..................................................$ 463 $ 933
See accompanying notesAccompanying Notes to Condensed Consolidated Financial Statements.
-6-5
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WOOLWORTH CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
should be read in conjunction with the Notes to Consolidated Financial
Statements contained in the 1996 Annual Report to Shareholders of Woolworth
Corporation (the "Registrant"), portions of which Annual Report are incorporated
by reference in the Registrant's Annual Report on Form 10-K for the year ended January
25, 1997,31, 1998, as filed with the Securities and Exchange Commission (the "SEC"). on
April 21, 1998. Certain items included in these statements are based on
management's estimates. In the opinion of management, all material adjustments,
which are of a normal recurring nature, necessary for a fair presentation of the
results for the interim period have been included. The results for the twenty-sixthirteen
weeks ended July 26, 1997May 2, 1998 are not necessarily indicative of the results expected
for the year.
Discontinued Operations
On July 17, 1997, the Registrant announced that it iswas exiting its 400
store domestic Woolworth general merchandise business.business and recorded a charge to
earnings of $310 million before-tax or $195 million after-tax, for the loss on
disposal of discontinued operations. The loss from discontinued operations
recorded through July 17, 1997 was $47 million before-tax or $28 million
after-tax. The Registrant expects to
convertis in the process of converting approximately 100130 of
itsthe prime locations to Foot Locker, Champs Sports, and other athletic or
specialty formats. The Registrant expects to close itshas successfully converted and opened 56
stores through May 2, 1998. The remaining domestic Woolworth general merchandise
stores as well as the division's distribution center in Denver, Pennsylvania
bywere closed in November 1997.
The results of operations for all periods presented for thisthe domestic
Woolworth general merchandise business have been classified as discontinued
operations in the Condensed Consolidated Statements of Operations. Sales from
discontinued operations for the second
quarters of 1997 and 1996 were $198 million and $249 million, respectively.
Sales from discontinued operations for the year-to-date periodsperiod ended JulyApril 26, 1997 and July 27, 1996 were $427 million and $499 million, respectively.$229 million.
The Condensed Consolidated Balance Sheets and Condensed Consolidated
Statements of Cash Flows have been restated for discontinued operations. The
following is a summary of the net assets of discontinued operations:
July 26, July 27, Jan. 25,
1997 1996 1997
---- ---- ----
Assets $358 $400 $373
Liabilities 149 132 137
---- ---- ----
Net assets of discontinued operations $209 $268 $236
==== ==== ====
May 2, April 26, Jan. 31,
1998 1997 1998
---- ---- ----
Assets .............................. $ 21 $351 $ 28
Liabilities ......................... 10 122 21
--- --- ---
Net assets of discontinued operations $ 11 $229 $ 7
=== === ===
The assets consistas of May 2, 1998 and January 31, 1998 consisted primarily
of fixed assets. The assets as of April 26, 1997 consisted primarily of
inventory and fixed assets. Liabilities consistconsisted primarily of amounts due to
vendors. During the period from July 17, 1997 through May 2, 1998, proceeds from
disposals related to the discontinued operations were $261 million which were
primarily from the sale of merchandise inventories.
Disposition activity related to the discontinued operations reserve for
the period ended May 2, 1998 was approximately $20 million and the remaining
reserve balance at May 2, 1998 was $70 million.
Comprehensive Income
The Registrant has adopted Statement of July 17, 1997Financial Accounting Standards
No. 130, "Reporting Comprehensive Income," ("SFAS No. 130") in the first quarter
of 1998. SFAS No. 130 establishes standards for reporting and display of
comprehensive income and its components in the financial statements.
6
9
Comprehensive income is a more inclusive financial reporting methodology that
includes the disclosure of certain financial information that has not been
recognized in the calculation of net income or loss, such as foreign currency
translations and changes in minimum pension liability which are recorded
directly to July 26, 1997 wasshareholders' equity.
Earnings Per Share
The Registrant has adopted Statement of Financial Accounting Standards
No. 128, "Earnings per Share," ("SFAS No. 128"). SFAS No. 128 requires the
presentation of basic earnings per share and diluted earnings per share. Basic
earnings per share is computed as net earnings divided by the weighted-average
number of common shares outstanding for the period. Diluted earnings per share
reflects the potential dilution that could occur from common shares issuable
through stock-based compensation including stock options, restricted stock
awards and other convertible securities.
A reconciliation of weighted-average common shares outstanding to
weighted-average common shares assuming dilution follows:
Thirteen weeks ended
--------------------
(in millions) May 2, April 26,
1998 1997
---- ----
Weighted-average common shares outstanding........... 135.1 134.1
Incremental commons shares issuable.................. - 1.1
----- -----
Weighted-average common shares assuming dilution..... 135.1 135.2
===== =====
Options with an exercise price greater than the average market price
were not included in the computation of diluted earnings per share and would not
have a reduction ofmaterial impact on diluted earnings per share. Incremental common shares
were not included in the reserve of
approximately $11 million.quarter ended May 2, 1998 since to do so would be
antidilutive.
Reclassifications
Certain balances in prior periods have been reclassified to conform
with the presentation adopted in the current period. -7-
8As discussed above, all
financial statements have been restated to reflect the discontinuance of the
domestic general merchandise business in July 1997.
Legal Proceedings
Between March 30, 1994 and April 18, 1994, the Registrant and certain
of its present and former directors and officers were named as defendants in
lawsuits brought by certain shareholders claiming to represent classes of
shareholders that purchased shares of the Registrant's common stock during
different periods between January 1992 and March 1994.
These class action complaints purport to present claims under the
federal securities and other laws and seek unspecified damages based on alleged
misleading disclosures during the class periods.
On April 29, 1994, United States Senior District Judge Richard Owen
entered an order consolidating 25 actions, purportedly brought as class actions,
commenced against the Registrant and certain officers and directors of the
Registrant in the United States District Court for the Southern District of New
York, under the caption In re Woolworth Corporation Securities Class Action
Litigation. Plaintiffs served an Amended and Consolidated Class Action
Complaint, to which the defendants responded. On February 17, 1995, Judge Owen
entered an order for certification of the action as a class action on behalf of
all persons who purchased the Registrant's common stock or options on the
Registrant's common stock from May 12, 1993 to March 29, 1994 inclusive,
pursuant to a stipulation among the parties. On March 13, 1997, the parties'
representatives engaged in a mediation proceeding with a view toward settling
the issues in dispute. On June 23, 1997, a proposed settlement of the class
action was reached by the parties that provides for the payment to the class of
$20 million. The settlement is subject to final approval of the court which has
scheduled a settlement hearing for September 29, 1997. The amount of the
settlement, net of amounts to be paid by insurance carriers under relevant
insurance policies, has been reserved by the Registrant. In the opinion of
management, the settlement, if approved by the court, would not have a material
adverse effect on the financial position or results of operations of the
Registrant.
Five separate state-court derivative actions filed in April 1994 were
consolidated under the caption In re Woolworth Corporation Derivative Litigation
and are now pending in the Supreme Court of the State of New York, County of New
York. Plaintiffs served a Consolidated Complaint on behalf of the plaintiffs in
these five actions together with the plaintiff in the former federal derivative
action Sternberg v. Woolworth Corp., which has been dismissed. Defendants moved
to dismiss the Consolidated Complaint, and on April 27, 1995, the court granted
defendants' motion, with leave to the plaintiffs to replead. On June 7, 1995,
plaintiffs served a Consolidated Amended Derivative Complaint. On June 27, 1995,
defendants moved to dismiss the Consolidated Amended Derivative Complaint with
prejudice. On April 10, 1996, the court granted defendants' motion with
prejudice. Plaintiffs filed a notice of appeal from the dismissal to the
Appellate Division, First Department. On June 5, 1997, the court affirmed the
dismissal of this action. Plantiffs' time to appeal the dismissal has expired
and there have been no further proceedings. There is one federal derivative
action pending in the United States District Court for the Southern District of
New York under the caption Rosenbaum v. Sells et al. There have been no material
developments in this action. In the opinion of management, the results of this
action would not have a material adverse effect on the financial position or
results of operations of the Registrant.
During 1994, the staff of the SEC initiated an inquiry relating to the
matters that were reviewed by the Special Committee ofestablished by the Board of
Directors in 1994 as well as in connection with trading in the Registrant's
securities by certain directors and officers of the Registrant. The SEC staff
has advised that its inquiry should not be construed as an indication by the SEC
or its staff that any violations of law have occurred. In the opinion of
management, the result of the inquiry will not have a material adverse effect on
the financial position or results of operationsoperation of the Registrant.
The information in this section on Legal Proceedings is current as of
September
4, 1997.
-8-June 9, 1998.
7
910
Recent Accounting Pronouncements
In FebruaryJune 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting StandardStandards ("SFAS") No. 128, "Earnings
per Share", which is effective for financial statements issued for periods
ending after December 15, 1997131, "Disclosures about
Segments of an Enterprise and therefore, effective for the Registrant for
the fiscal year ending January 31, 1998. SFAS No. 128 simplifies the standards
for computing earnings per share previously found in Accounting Principles Board
Opinion No. 15 and establishes new standards for computing and presenting
earnings per share. Application of SFAS No. 128 is not expected to have a
significant impact on the Registrant's earnings per share.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income",Related Information," which is effective for
financial statements issued for fiscal years beginning after December 15, 1997
and therefore, effective for the Registrant forin 1998. The Registrant will adopt
the fiscal year beginning February 1, 1998. SFAS No. 130 establishes
standards for reporting and displayprovisions of comprehensive income and its componentsthis standard in the financial statements. A revised presentationfourth quarter of information on the income
statement is required for comparative purposes.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information", which is effective for financial
statements issued for fiscal years beginning after December 15, 1997 and
therefore, effective for the Registrant for the fiscal year beginning February
1, 1998. SFAS No. 131
supersedes previously established standards for reporting operating segments in
the financial statements and requires disclosures regarding selected information
about operating segments in interim financial reports.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits," which is effective for fiscal
years beginning after December 15, 1997. This statement revises employers'
disclosures about pensions and other postretirement benefit plans. It does not
change the measurement or recognition of those plans.
Subsequent Event
On May 7, 1998, the Registrant announced that it had signed a
definitive merger agreement with The Sports Authority, Inc., whereby the
Registrant will acquire The Sports Authority, Inc. in a tax-free exchange of
shares valued at approximately $570 million, based upon the closing price of the
Registrant's common stock as of May 6, 1998, plus the assumption of
approximately $179 million of debt. The terms of the merger agreement provide
for the holders of The Sports Authority Inc.'s common stock to receive 0.8
shares of the Registrant's common stock in exchange for each of their shares.
The transaction, which is subject to approval by the shareholders of The Sports
Authority, Inc. and to customary regulatory approvals, is expected to be
completed in late summer 1998.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
As discussed more fully in the footnotesNotes to the Condensed Consolidated Financial
Statements, in July 1997 the Registrant announced that it iswas exiting its
domestic Woolworth general merchandise business. Accordingly, the results of
operations for all periods presented for this business have been classified as
discontinued operations and all financial statements have been restated.
Total sales for the 1997 second1998 first quarter decreased 6.74.7 percent to $1,500$1,466
million as compared with $1,607$1,539 million for the 1996 secondfirst quarter principally due
to 423 fewer stores.of 1997,
reflecting foreign currency fluctuations and a comparable-store sales decrease
of 6.4 percent. Excluding the effect of foreign currency fluctuations and sales
from disposed operations, sales remained leveldecreased 2.1 percent for the quarter.
Comparable-store sales decreased 2.5 percent. Total
Specialty segment sales increased 1.8decreased 0.5 percent in the secondfirst quarter and
comparable-store sales decreased 1.56.2 percent. International General Merchandise
segment sales decreased 17.417.3 percent for the secondfirst quarter of 19971998 as compared
with the secondfirst quarter of 1996. Comparable-store1997, while comparable-store sales in the International General Merchandise segment
decreased 5.37.1
percent during the period. Excluding the impact of foreign
currency fluctuations, sales decreased by 6.6 percent, as compared with the
second quarter of 1996.
Year-to-date 1997 sales decreased 4.3 percent to $3,039 million as
compared with $3,177 million for 1996. Excluding the effect of foreign currency
fluctuations, andInternational General Merchandise sales from disposed operations, sales increased 2.5decreased by 11.2 percent,
as compared with 1996. Comparable-store sales decreased 1.4 percent as compared
with corresponding year-earlier period.
Secondthe first quarter of 1997.
First quarter operating profit from continuing operations (before
corporate expense, interest expense and income taxes) of $74declined to $28 million improved as
compared with $72$57 million in the secondfirst quarter of 1996.1997. This improvement
relatesdecline is
primarily a result of lower sales and an increase in markdowns. Gross margin, as
a percentage of sales, decreased 160 basis points to 28.6 percent for the
disposition of unprofitable formats and reduced selling,quarter due to higher markdowns required to reduce inventory levels, reflecting
lower than anticipated sales. Selling, general and administrative expenses
("SG&A") partially offset by an increase in cost of
sales. The improvement in SG&A of $46 million and $73 million for the thirteen
-9-
10
and twenty-six weeks ended July 26, 1997, respectively, as compared with the
corresponding prior year periods reflects management's continuing effort to
implement cost reduction initiatives. Cost of sales, as a percentage of sales, increased 150 basis points to 26.7 percent
in the first quarter of 1998 as compared with 25.2 percent in the first quarter
of 1997. This increase is due to the overall decline in sales, as well as costs
of $7 million associated with the shutdown of the Registrant's 83-store Canadian
Kinney Shoe and 11-store U.S. Randy River specialty footwear operations.
Excluding this charge, SG&A remained relatively consistent with the
corresponding prior-year period.
8
11
Included in other income is a result$19 million gain recorded during the
first quarter of inventory markdowns taken1998 resulting from the sale of the Registrant's six-store
nursery chain as part of its continuing program to keep inventory current.reduce its investment in
non-strategic businesses. The Registrant reported income from continuing operations fornet gain on the thirteen weekssale of non-strategic real estate
in the first quarter ended JulyApril 26, 1997 totaled $4 million, which primarily
related to the sale of $26 million, or $0.19 per share, unchanged
from the restated year-earlier period. For the twenty-six weeks ended July 26,
1997 income from continuing operations was $43 million, an increase of $32
million from the restated prior year period.real estate located in Germany.
The Registrant reported a net loss for the quarterthirteen weeks ended May 2,
1998 of $181$5 million, or $1.35$0.04 per share, which includes an after-tax
charge of $207 million or $1.54 per share for discontinued operations. This
compares toas compared with net income of $22$1
million, or $0.17$0.01 per share for the corresponding
year-earlier period.first quarter of 1997 which includes a $16
million, or $0.12 per share, loss from discontinued operations.
The Registrant reported a net loss of $180 million, or
$1.34 per share, forended the twenty-six weeks ended July 26, 1997 comparedfirst quarter with break-even results for the corresponding year-earlier period.
As of July 26, 1997, the Registrant operated a total of 7,1177,247 stores consisting of
6,555 Specialty6,722 specialty stores and 562 International General Merchandise525 international general merchandise stores. This compares to 7,540During
the first quarter, the Registrant opened 178 stores, excluding discontinued operations,
consistingclosed or disposed of 6,933 Specialty168
stores and 607 International General Merchandiseremodeled or relocated 63 stores. Of the 178 stores operated at July 27, 1996.opened during the
quarter, 90 stores represented the first quarter acquisition of Athletic Fitters
stores.
SALES
The following table summarizes sales for continuing operations by segment and
by
geographic area:
Thirteen weeks ended
Twenty-six weeks ended
---------------------------- ------------------------------------------------
(in millions) JulyMay 2, April 26,
July 27, July 26, July 27,1998 1997 1996 1997 1996
---- ----
---- ----
By segment:
Specialty:
Athletic Group Group..............................................$ 859902 $ 838 $ 1,766 $ 1,676905
Northern Group 86 79 160 145Group.............................................. 74 74
Specialty Footwear 129 132 250 254Footwear.......................................... 108 114
Other Specialty............................................. 78 75
----- -----
Specialty 85 89 161 168
------- ------- ------- -------
Specialty total 1,159 1,138 2,337 2,243
------- ------- ------- -------total................................................. 1,162 1,168
----- -----
International General Merchandise:
Germany 305 369 631 739
Other 36 44 69 81
------- ------- ------- -------
International General Merchandise total 341 413 700 820
------- ------- ------- -------Merchandise............................... 297 359
----- -----
Disposed operations -- 56 2 114
------- ------- ------- -------
$ 1,500 $ 1,607 $ 3,039 $ 3,177
======= ======= ======= =======operations............................................. 7 12
----- -----
$1,466 $1,539
===== =====
By geographic area:
Domestic Domestic...................................................$ 940986 $ 912 $ 1,928 $ 1,835
International 560 639 1,109 1,228987
International.............................................. 473 540
Disposed operations -- 56 2 114
------- ------- ------- -------
$ 1,500 $ 1,607 $ 3,039 $ 3,177
======= ======= ======= =======operations........................................ 7 12
----- -----
$1,466 $1,539
===== =====
-10-
11
Specialty
Athletic Group first quarter sales decreased 0.3 percent as compared with
the first quarter of 1997, which reflects a decrease in comparable-store sales
of 7.7 percent. The decrease in the 1998 first quarter Athletic Group
comparable-store sales was due to soft apparel sales, notably in the licensed
product category, as compared with the corresponding prior-year period.
Excluding the impact of foreign currency fluctuations, the Northern Group's
sales increased by 2.5 percent and 5.42.3 percent for the secondfirst quarter, reflecting new store openings
and year-to-date periods, respectively. These increases werea comparable-store sales decrease of 6.3 percent as compared with the first
quarter of 1997.
9
12
Specialty Footwear first quarter sales decreased 5.3 percent, and by 1.1
percent on a comparable-store basis, as compared with the corresponding prior-
year period. The decrease is primarily due to 145 store openings as well asa sales decline from the first quarter
acquisition of Eastbay, Inc. ("Eastbay"). Comparable-store sales decreased by
2.6 percent for the second quarter and remained level for the year-to-date
period. Northern Group sales increased by 8.9 percent and 10.3 percent for the
second quarter and year-to-date periods, respectively. Comparable-store sales
increased for both the quarter and the year-to-date periods by 4.6 percent and
5.1 percent, respectively. Store openings in Northern Reflections, a women's
casual sportswear store, and Northern Getaway, a children's apparel store also
contributed to the sales increase.
The 2.3 percent decline in Specialty Footwear's second quarter sales,
which resulted from closing 115 stores, wasU.S.
Kinney Shoe format, offset by a comparable-store sales
increase of 2.0 percent. Sales declines in the Kinney format, particularly in
Canada, were mitigated by favorable comparable-store sales increases achieved by
store formats in Australia.
ForOther Specialty first quarter sales increased 4.0 percent, and by 5.1
percent on a comparable-store basis, as compared with the year-to-date period, Specialty Footwearcorresponding prior-
year period. The increase is primarily due to favorable comparable-store sales
increases in the Afterthoughts format.
International General Merchandise
International General Merchandise sales decreased by 1.6 percent, while comparable-store sales increased 1.9
percent. Other Specialty sales, adjusted for dispositions, decreased by 4.5
percent and 4.217.3 percent for the
first quarter and year-to-date periods, respectively.
Comparable-store sales declined by 0.9 percent and 1.7 percent, respectively.
The decline in Other Specialty sales were mainly due toas compared with the closure of 98
under-performing stores related to ongoing formats.
International General Merchandise
German general merchandise sales decreased by 17.3 percent and 14.6
percent for the second quarter and year-to-date periods, respectively.corresponding prior-year period. Excluding
the impact of foreign currency fluctuations, sales decreased 5.2 percent and 2.211.2 percent for
the second quarter and year-to-date periods, respectively.first quarter. Comparable-store sales decreased by 4.5 percent and 4.87.1 percent for the second
quarterfirst
quarter. Persistent high levels of unemployment and year-to-date periods, respectively.economic recession continue
to negatively impact sales.
OPERATING RESULTS
Operating results from continuing operations (before corporate expense, interest
expense, and income taxes) are as follows:
Thirteen weeks ended
Twenty-six weeks ended
---------------------------- ------------------------------------------------
(in millions) JulyMay 2, April 26,
July 27, July 26, July 27,1998 1997 1996 1997 1996
---- ----
---- ----
By Segment:
Specialty Specialty..................................................$ 8320 $ 96 $ 141 $ 13562
International General Merchandise (9) (18) (12) (30)Merchandise.......................... (1) (3)
Net gain on sales of real estate -- 6estate........................... - 4
6
Disposed operations -- (12) (2) (31)
------- ------- ------- -------operations........................................ 9 (6)
----- -----
$ 7428 $ 72 $ 131 $ 80
======= ======= ======= =======57
===== =====
By geographic area:
Domestic Domestic...................................................$ 7429 $ 81 $ 141 $ 132
International -- (3) (12) (27)67
International.............................................. (10) (8)
Net gain on sales of real estate -- 6estate........................... - 4
6
Disposed operations -- (12) (2) (31)
------- ------- ------- -------operations........................................ 9 (6)
----- -----
$ 7428 $ 72 $ 131 $ 80
======= ======= ======= =======57
===== =====
-11-10
1213
Specialty
The Specialty segment's operating profit decreased by $13$42 million, or
13.567.7 percent as compared with the 1996 second1997 first quarter. The decrease wasThis decline is primarily
due
to changesa result of lower sales and a decline in merchandise mix and increased markdownsgross margins within the Athletic
Group. A shiftThis decrease in consumer preferences has contributedgross margins reflect increased markdowns associated
with management strategy to the decisionskeep inventories current, as sales did not meet
expectations. Additionally, to take those
markdowns and to reposition the Registrant's merchandise assortment for the
fourth quarter. Year-to-date operating profits increased $6 million or 4.4
percent as compareda lesser extent, higher occupancy costs
associated with the corresponding periodincrease in the number of 1996, which is primarily
due to sales andstores negatively impacted gross
margin increases achieved by the Athletic Group in the
first quarter of 1997.and operating results.
The Specialty Footwear segment improved operating results by $1
million, or 7.7 percent as compared with the 1997 first quarter through
continuing expense reduction initiatives. The Northern Group improved operating results
predominately through increased sales and higher margins.
International General Merchandise
The International General Merchandise segment's operating loss improveddecreased by $9$3 million, and $18 million for the quarter and year-to-date periodsor 50.0 percent as compared with the second1997 first
quarter. Other Specialty operating results increased by $3 million, or 30.0
percent as compared with the 1997 first quarter.
Included in disposed operations for the first quarter of 1998 is a $19
million gain from the sale of the Registrant's six-store nursery chain. This
gain is offset by a $10 million loss for the shutdown of the Canadian Kinney
Shoe and year-to-date periodsU.S. Randy River specialty footwear operations, inclusive of 1996, respectively.$3 million
in operating losses. The Registrant's German operations have significantly lowered itsprior year amount represents the operating loss
through reduced expensesresults of
these operations.
International General Merchandise
Operating results in the International General Merchandise segment
improved by $2 million for the first quarter as compared with the 1997 first
quarter. The improvement in the International General Merchandise operating
profit compared with a more flexible, smaller workforce.the prior year is attributable to expense reductions.
SEASONALITY
The Registrant's businesses are highly seasonal in nature. Historically, the
greatest proportion of sales and net income is generated in the fourth quarter
and the lowest proportion of sales and net income is generated in the first
quarter, reflecting seasonal buying patterns. As a result of these seasonal
sales patterns, inventory increases in the third quarter in anticipation of the
strong fourth quarter sales.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities was $113$216 million for the twenty-sixthirteen
weeks ended July 26, 1997,May 2, 1998, as compared with cash provided of $16$89 million in the comparablecorresponding
prior-year period. This increase was due to lower-than-expected quarterly sales,
as well as additional inventory purchases related to the development of new
larger-size athletic formats. Inventories were $1,298 million as of May 2, 1998,
compared with $1,175 million as of April 26, 1997. The increase in inventory is
also attributable to the receipt of inventories for the recently acquired
Athletic Fitters stores and approximately 92 new store openings in May and June.
Also contributing to the decrease in cash used resulted
fromis an outlay for occupancy costs on
May 1 not reflected in the prior year due to the timing of inventory purchases. The Condensed Consolidated Statementsthe end of Cash Flows have been restated for discontinued operations for the
prior period.quarter.
Net cash used in investing activities amounted to $177totaled $86 million for the
twenty-sixthirteen weeks ended July 26, 1997,May 2, 1998, as compared with cash provided of $4$153 million used during the
corresponding prior-year period in 1996. The increase1997. Cash used in cash usedinvesting activities for
investingthe thirteen weeks ended April 26, 1997 was predominately due to the January 30, 1997first
quarter cash acquisition of Eastbay, and
increased new store development spendingInc. for existing formats.$140 million, in a transaction
accounted for as a purchase. Capital expenditures increased by $20 million as compared to the prior-year second
quarter; approximately $285 million of capital expenditures are planned for the
1997 fiscal year as compared with $134 million in 1996.
Inventories decreased $43 million to $1,216 million as of July 26,
1997, from a restated $1,259 million as of July 27, 1996. The decrease from the
second quarter of 1996 reflects the Registrant's merchandise improvement efforts
as well as the sale of Silk & Satin, Lady Plus, Rubin and Moderna chains. The
$150 million increase in inventory levels from January 25, 1997 is a seasonal
increase, as inventory levels are at their lowest in the fourth quarter.
-12-
13
Accounts payable at July 26, 1997 decreased by $8$57 million as
compared with the 1996 second quartercorresponding prior-year period, which represents the
Registrant's aggressive expansion and renovation program.
11
14
Short-term debt at May 2, 1998 increased by $66 million to $352$253 million as compared with
the April 26, 1997 and the year-end level.levels. The increase from January 25, 1997 coincides
with the seasonal increase in inventory.
Short-termshort-term debt decreased $99 million as compared with July 27, 1996was
due to repayment using cash generated from operations. Short-term debt increased by $38 million from the year-end level attributable to the financing of seasonalinvestment in working capital needs.
Interest expenseand increased capital
expenditures for new stores and the thirteen weeks ended July 26, 1997, decreased
$4 million over the comparable 1996 period. Interest expense for the
year-to-date period decreased $10 million. These declines were attributable to
the reduction in total debt levels of $139 millionWoolworth conversion stores, as well as lower financing
costs resulting from renegotiationthe
purchase of the Registrant's credit agreement.Athletic Fitters stores in February 1998.
Shareholders' equity at July 26, 1997 decreased $245May 2, 1998 increased by $12 million from
the level at January 25, 1997. This decrease was31, 1998 primarily attributable to the
after-tax charge for discontinued operations of $195 million and changes in foreign
currency exchange rates.
As mentioned in the Notes to the Condensed Consolidated Financial
Statements, the Registrant signed a definitive merger agreement with The Sports
Authority, Inc. whereby the Registrant will acquire The Sports Authority, Inc.
in a tax-free exchange of shares valued at approximately $570 million, based
upon the closing price of the Registrant's common stock as of May 6, 1998, plus
the assumption of approximately $179 million of debt.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
This information is incorporated by reference to the Legal Proceedings
section of the Notes to Condensed Consolidated Financial Statements on page 87 of
Part I, Item 1.
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Registrant's annual meeting of shareholders was held on June
12, 1997, in New York, New York. Proxies were solicited by management of the
Registrant pursuant to Regulation 14A under the Securities Exchange Act of 1934;
there was no solicitation in opposition to management's nominees as listed in
the Notice of 1997 Annual Meeting and Proxy Statement, both dated May 5, 1997.
(b) Each of Jarobin Gilbert Jr., Margaret P. MacKimm and John J.
Mackowski were elected as a director in Class III for a three-year term ending
at the annual meeting of shareholders of the Registrant in 2000. All of such
individuals previously served as directors of the Registrant. J. Carter Bacot,
Purdy Crawford, Roger N. Farah, Philip H. Geier Jr., Dale W. Hilpert, James E.
Preston and Christopher A. Sinclair, having previously been elected directors of
the Registrant for terms continuing beyond the 1997 annual meeting of
shareholders, continue in office as directors. Helen Galland retired as a
director at the 1997 annual meeting of shareholders, having reached the
mandatory retirement age for directors.
(c) The matters voted upon and the results of the voting were as
follows:
(1) Election of Directors:
Abstentions and
Name Votes For Votes Withheld Broker Non-Votes
- --------------------- ------------- -------------- ----------------
Jarobin Gilbert Jr. 109,756,782 2,357,330 0
Margaret P. MacKimm 109,788,879 2,325,233 0
John J. Mackowski 109,759,371 2,354,741 0
-13-
14
(2) Amendments to the Certificate of Incorporation and By-laws:
Votes For Votes Against Abstentions Broker Non-Votes
- --------------------- ------------- -------------- ----------------
110,678,945 880,980 554,187 0
(3) Ratification of the appointment of KPMG Peat Marwick LLP as independent
accountants for the fiscal year beginning January 26, 1997:
Votes For Votes Against Abstentions Broker Non-Votes
- --------------------- ------------- -------------- ----------------
111,585,116 209,116 319,880 0
(4) Shareholder Proposal on reinstatement of the dividend:
Votes For Votes Against Abstentions Broker Non-Votes
- --------------------- ------------- -------------- ----------------
13,000,515 85,662,822 975,725 12,475,050
At the close of business on the record date of April 30, 1997, there
were issued and outstanding 134,209,670 shares of the Registrant's Common Stock,
par value $.01 per share ("Common Stock"). There were represented at the
meeting, in person or by proxy, 112,114,112 shares of Common Stock. Such shares
represented 83.54 percent of the total number of shares of such class of stock
issued and outstanding on the record date.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
An index of the exhibits that are required by this item, and which are
furnished in accordance with Item 601 of Regulation S-K, appears on pages 1614
through 18.15. The exhibits which are in this report immediately follow the index.
(b) Reports on Form 8-K
The Registrant filed a report on Form 8-K dated July 17, 1997March 11, 1988 (date of
earliest event reported) reporting that the Board of Directors adopted a
shareholder rights plan substantially similar to the Registrant's previous
rights plan.
Additionally, the Registrant was exiting its domestic
Woolworth general merchandise business.
-14-filed a report on Form 8-K dated April 6,
1998 (date of earliest event reported) reporting that Allan Z. Loren had been
elected a director of the Registrant, effective April 8, 1998.
12
15
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WOOLWORTH CORPORATION
---------------------
(Registrant)
Date: September 4, 1997June 9, 1998 /s/ Bruce L. Hartman
--------------------
BRUCE L. HARTMANReid Johnson
-----------------
REID JOHNSON
Senior Vice President
and Controller
(Principal Accounting Officer)
-15-Chief Financial Officer
13
16
WOOLWORTH CORPORATION
INDEX OF EXHIBITS REQUIRED BY ITEM 6(a) OF FORM 10-Q
AND FURNISHED IN ACCORDANCE WITH ITEM 601 OF REGULATION S-K
Exhibit No. in Item 601
of Regulation S-K Description
----------------- -----------
1 *
2 *
3(i)(a) Certificate of Incorporation of the Registrant, as
filed by the Department of State of the State of
New York on April 7, 1989.1989 (incorporated herein by
reference to Exhibit 3(i)(a) to the Quarterly
Report on Form 10-Q for the quarterly period ended
July 26, 1997, filed by the Registrant with the
SEC on September 4, 1997 (the "July 26, 1997 Form
10-Q")).
3(i)(b) Certificates of Amendment of the Certificate of
Incorporation of the Registrant, as filed by the
Department of State of the State of New York on
(a) July 20, 1989 (b) July 24, 1990 and (c) July
9, 1997.1997 (incorporated herein by reference to
Exhibit 3(i)(b) of the July 26, 1997 Form 10-Q).
3(ii) By-laws of the Registrant, as amended.
4(a)amended
(incorporated herein by reference to Exhibit 3(ii)
of the July 26, 1997 Form 10-Q).
4.1 The rights of holders of the Registrant's equity
securities are defined in the Registrant's
Certificate of Incorporation, as amended
(incorporated herein by reference to: (a) Exhibits
3 (i) 3(i)(a) and 3 (i) 3(i)(b) to thisthe July 26, 1997 Form
10-Q.
4(b)10-Q).
4.2 Rights Agreement dated as of April 4, 1988,
as amended JanuaryMarch 11, 1989,1998,
between F.W.
Woolworth Co. ("FWW")Corporation and Morgan Shareholder
Services Trust Company (now, First Chicago
Trust CompanyRegistrant of New York),York, as Rights Agent
(incorporated herein by reference to (a)
Exhibit 14 to
the Registration Statement on
Form 8-A filed by FWW with the Securities and
Exchange Commission ("SEC") on April 12, 1988
(Registration No. 1-238) and (b) the Form 8
Amendment to such Form 8-A filed by FWW with
the SEC on January 13, 1989)8-K dated March 11, 1998).
The rights and
obligations of FWW under said Rights
Agreement were assumed by the Registrant
pursuant to an Agreement and Plan of Share
Exchange dated as of May 4, 1989, by and
between FWW and the Registrant (incorporated
herein by reference to Exhibit 2 to the
Registration Statement on Form S-4 filed by
the Registrant with the SEC on May 9, 1989
(Registration No. 33-28469)).
4(c)4.3 Indenture dated as of October 10, 1991
(incorporated herein by reference to Exhibit 4.1
to the Registration Statement on Form S-3
(Registration No. 33-43334) previously filed with
the SEC).
4(d)4.4 Forms of Medium-Term Notes (Fixed Rate and
Floating Rate).
-16-
17 (incorporated herein by reference
to Exhibits 4.4 and 4.5 to the Registration
Statement on Form S-3 (Registration No. 33-43334)
previously filed with the SEC).
4(e)14
17
4.5 Form of 8-1/8 1/2% Debentures due 2022 (incorporated
herein by reference to Exhibit 4 to the
Registrant's Form 8-K dated January 16, 1992).
4(f)4.6 Purchase Agreement dated June 1, 1995 and Form of
7% Notes due 2000 (incorporated herein by
reference to Exhibits 1 and 4, respectively, to
the Registrant's Form 8-K dated June 7, 1995).
4(g)4.7 Distribution Agreement dated July 13, 1995 and
Forms of Fixed Rate and Floating Rate Notes
(incorporated herein by reference to Exhibits 1,
4.1 and 4.2, respectively, to the Registrant's
Form 8-K dated July 13, 1995).
5 *
8 *
9 *
10 Amendment No. 1 dated as of July 16, 1997 to
the Credit Agreement dated April 9, 1997.*
11 Computation of Net Income (Loss) Per Common
Share.*
12 Computation of Ratio of Earnings to Fixed Charges.
13 *
15 Letter re: Unaudited Interim Financial Statements.
16 *
17 *
18 *
19 *
20 *
21 *
22 *
23 *
24 *
25 *
26 *
2727.1 Financial Data Schedule, whichMay 2, 1998 (which is
submitted electronically to the SEC for
information only and not filed.
-17-
18)
27.2 Restated Financial Data Schedule - April 26, 1997
(which is submitted electronically to the SEC for
information only and not filed.)
99 Independent Accountants' Review Report.
--------------------- -----------------
* Not applicable
-18-15
1918
Exhibits filed with this Form 10-Q:
Exhibit No. Description
- ----------- -----------
3 (i)(a) Certificate of Incorporation of the Registrant,
as filed by the Department of State of State of
New York on April 7, 1989.
3 (i)(b) Certificates of Amendment of the Certificate of
Incorporation of the Registrant.
3 (ii) By-laws of the Registrant, as amended.
10 Amendment No. 1 dated as of July 16, 1997 to the
Credit Agreement, dated April 9, 1997.
11 Computation of Net Income (Loss) Per Common Share.
12 Computation of Ratio of Earnings to Fixed Charges.
15 Letter re: Unaudited Interim Financial Statements.
2727.1 Financial Data Schedule.Schedule - May 2, 1998.
27.2 Restated Financial Data Schedule - April 26, 1997.
99 Independent Accountants' Review Report.