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, 1997August 1, 1998
                               --------------              

Commission file no. 1-10299
                    WOOLWORTH CORPORATION-------

                               VENATOR GROUP, INC.
                              --------------------
             (Exact name of registrant as specified in its charter)


              New York                                   13-3513936
- --------------------------------             ---------------------------------- 
(State or other jurisdiction of              (I.R.S.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, 1997:134,914,08228, 1998: 135,524,566
                                                                 -----------  


2



                               WOOLWORTH CORPORATION

                                      INDEXVENATOR GROUP, INC.

                                TABLE 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 Loss..............................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...8-14


Part II.  Other Information

          Item 1.     Legal Proceedings                                        13Proceedings......................................14

          Item 4.     Submission of Matters to a Vote of Security Holders   13-14Holders...14-15

          Item 6.     Exhibits and Reports on Form 8-K                         14

                   Signature                                                158-K.......................15

                      Signature..............................................16

                      Index to Exhibits                                     16-18

                                       -2-Exhibits...................................17-18


                                        i

3



                         PART I - FINANCIAL INFORMATION
                         ------------------------------

Item 1.  FINANCIAL STATEMENTS
WOOLWORTH CORPORATION- -----------------------------


                               VENATOR GROUP, INC.
                               ------------------                   


                      CONDENSED CONSOLIDATED BALANCE SHEETS
                      -------------------------------------             
                                  (in millions)
August 1, July 26, July 27, January 25,31, 1998 1997 1996 1997 ---- ---- ----1998 -------- -------- ---------- (Unaudited) (Unaudited) (Audited)(1) ASSETS ------ Current Assets:assets Cash and cash equivalentsequivalents..................$ 77 $ 69 $ 97 $ 328116 Merchandise inventoriesinventories.....................1,406 1,216 1,259 1,0661,159 Net assets of discontinued operationsoperations....... 10 209 268 2367 Other current assetsassets........................ 228 174 205 202 ------- ------- -------177 ----- ------ ------ 1,721 1,668 1,829 1,8321,459 Property and equipment, netnet....................1,214 903 1,032 9831,053 Deferred charges and other assetsassets.............. 716 737 592 524 ------- ------- -------670 ----- ------ ------ $3,651 $ 3,308 $ 3,453 $ 3,339 ======= ======= =======3,182 ===== ===== ===== LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------ Current Liabilities:liabilities Short-term debtdebt............................$ 451 $ 38 $ 137 $ --- Accounts payable 352 360 286 Accrued liabilities 526 350 427and accrued liabilities.... 747 646 662 Current portion of reserve for discontinued operations................... 27 232 72 Current portion of long-term debt and obligations under capital leasesleases.......... 23 14 17 15 ------- ------- -------22 ----- ------ ------ $1,248 930 864 728756 Long-term debt and obligations under capital leasesleases........................ 536 568 605 575535 Deferred taxes and other liabilities 721 779 702liabilities........... 586 654 602 Reserve for discontinued operations............ 18 67 18 Shareholders' Equity: Preferred stock -- -- --Equity Common stock and paid-in capitalcapital............ 327 311 297 299317 Retained earningsearnings...........................1,015 870 891 1,050 Foreign currency translation adjustment (55) 52 22 Minimum pension liability adjustment (37) (35) (37) ------- ------- -------1,033 Accumulated other comprehensive loss........ (79) (92) (79) ----- ------ ------ Total shareholders' equityequity.....................1,263 1,089 1,205 1,334 Commitments ------- ------- -------1,271 Commitments....................................----- ------ ------ $3,651 $ 3,308 $ 3,453 $ 3,339 ======= ======= =======3,182 ===== ===== =====
See accompanying notesAccompanying Notes to Condensed Consolidated Financial Statements. -3-(1) The Condensed Consolidated Balance Sheet as of January 31, 1998 has been summarized from the Registrant's audited Consolidated Balance Sheet as of that date. 1 4 WOOLWORTH CORPORATIONVENATOR GROUP, INC. -------------------- CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS ----------------------------------------------- (Unaudited) (in millions, except per share amounts)
Thirteen weeks ended Twenty-six weeks ended ---------------------------- ------------------------------------------------ ---------------------- August 1, July 26, July 27,August 1, July 26, July 27,1998 1997 19961998 1997 1996 ---- ---- ---- ----------- ------- ------- ------- Sales $ 1,465 $ 1,500 $ 1,6072,931 $ 3,039 $ 3,177 Cost and Expenses:expenses Cost of sales ................. 1,052 1,037 1,0952,098 2,111 2,214 Selling, general and administrative expenses .... 380 370 416771 758 831 Depreciation and amortization . 47 43 4491 84 89 Interest expense, net ......... 9 11 1521 22 32 Other income .................. (3) (2) (22) (6) (6) (7) ------- ------- ------- ------- 1,485 1,459 1,5642,959 2,969 3,159 ------- ------- ------- ------- Income (loss) from continuing operations before income taxes (20) 41 43(28) 70 18 Income tax expense (benefit) .... (7) 15 17(10) 27 7 ------- ------- ------- ------- Income (loss) from continuing operations . (13) 26 26(18) 43 11 Loss from discontinued operations, net of income taxestax benefits of $8 $2,and $19 and $7,million, respectively ............... -- (12) (4)-- (28) (11) Loss on disposal of discontinued operations, net of income taxestax benefit of $115 million .... -- (195) -- (195) --------- ------- -------- ------- Net income (loss)loss ........................$ (13) $ (181) $ 22(18) $ (180) $ -- ======= ======= ======= ======= Per commonBasic earnings per share: Income (loss) from continuing operations .................$ (0.09) $ 0.19 $ 0.19(0.13) $ 0.32 $ 0.08 Loss from discontinued operations $................. -- (1.54) $ (0.02) $-- (1.66) $ (0.08) ------- ------- ------- ------- Net income (loss)loss ...................$ (0.09) $ (1.35) $ 0.17(0.13) $ (1.34) $ -- ======= ======= ======= ======= Weighted-average common shares outstanding ................ 135.4 134.5 133.3135.3 134.3 133.2Diluted earnings per share: Income (loss) from continuing operations ................$ (0.09) $ 0.19 $ (0.13) $ 0.32 Loss from discontinued operations ................ -- (1.52) -- (1.64) ------- ------- ------- ------- Net loss ................... (0.09) $ (1.33) $ (0.13) $ (1.32) ======= ======= ======= ======= Weighted-average common shares assuming dilution ... 135.4 136.0 135.3 135.6
See accompanying notesAccompanying Notes to Condensed Consolidated Financial Statements. -4-2 5 WOOLWORTH CORPORATIONVENATOR GROUP, INC. --------------------- CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS ------------------------------------------------------- (Unaudited) (in millions)
Thirteen weeks ended Twenty-six weeks ended -------------------- ---------------------- August 1, July 26, August 1, July 26, 1998 1997 1998 1997 -------- ------- -------- -------- Net loss ........................ $ (13) $(181) $ (18) $ (180) Other comprehensive loss, net of tax: Foreign currency translation adjustments (pre-tax $(19), $(46), $0, and $(124), respectively) .. (12) (30) -- (77) ----- ----- ----- ------ Comprehensive loss .............. $ (25) $(211) $ (18) $ (257) ===== ===== ===== =====
See Accompanying Notes to Condensed Consolidated Financial Statements. 3 6 VENATOR GROUP, INC. ------------------- CONDENSED CONSOLIDATED STATEMENTS OF RETAINED EARNINGS ------------------------------------------------------ (Unaudited) (in millions)
Twenty-six weeks ended ---------------------- August 1, July 26, July 27,1998 1997 1996 ---- ----------- ------- Retained earnings at beginning of yearyear.....$ 1,033 $ 1,050 $ 891 Net income (loss)loss ................................... (18) (180) -- Cash dividends declared: Preferred stock (1996 - $1.10 per share) -- -- ------- ------------- ------ Retained earnings at end of interim periodperiod.$ 1,015 $ 870 $ 891 ======= ============= ======
See accompanying notesAccompanying Notes to Condensed Consolidated Financial Statements. -5-4 6 WOOLWORTH CORPORATION7 VENATOR GROUP, INC. -------------------- CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS ----------------------------------------------- (Unaudited) (in millions)
Twenty-six weeks ended -------------------------------------------------- August 1, July 26, July 27,1998 1997 1996 ---- ------------ ------- From Operating Activities: Net income (loss)loss ............................................$ (18) $ (180) $ -- Adjustments to reconcile net income (loss)loss to net cash provided by (used in)used in operating activities: Non-cash charge for discontinued operations, 310net of tax .................................... -- 195 Discontinued operations activitiesactivity ................ (45) (11) -- Depreciation and amortization ................... 91 84 92 Net gain on sales of real estate ................ (1) (4) (13)Net gain on sales of assets and investments ..... (19) -- Deferred income taxes (138) (16)........................... (4) (23) Change in assets and liabilities, net of acquisition: Merchandise inventories ......................... (243) (153) (91) Accounts payable and other liabilities .......... 91 63 121 Change in netNet assets of discontinued operations ........... (3) 27 44 Other, net ...................................... (123) (111) (121) ------- ------------ ----- Net cash provided by (used in)used in operating activities ............. (274) (113) 16 ------- ------------ ----- From Investing Activities: Proceeds from sales of real estate .................. 7 19 21 Capital expenditures ................................ (233) (56) (36) Payments for businessbusinesses acquired, net of cash acquired (29) (140) -- Proceeds from sales of assets and investments ....... 22 -- 19 ------- ------------ ----- Net cash provided by (used in)used in investing activities ............. (233) (177) 4 ------- ------------ ----- From Financing Activities: Increase in short-term debt ......................... 451 38 69 Reduction in long-term debt and capital lease obligations ....................................... (3) (1) (9) Issuance of common stock ............................ 10 11 6 Dividends paid -- -- ------- ------------ ----- Net cash provided by financing activities ......... 458 48 66 ------- ------------ ----- Effect of exchange rate fluctuations on Cash and Cash Equivalents ........................ 10 (17) (3) ------- ------------ ----- Net change in Cash and Cash Equivalents ................ (39) (259) 83 Cash and Cash Equivalents at beginning of year ......... 116 328 14 ------- ------------ ----- Cash and Cash Equivalents at end of interim period .....$ 77 $ 69 $ 97 ======= ============ ===== Cash paid during the period: InterestInterest.............................................$ 25 $ 22 Income taxes.........................................$ 32 Income taxes10 $ 46 $ 9
See accompanying notesAccompanying Notes to Condensed Consolidated Financial Statements. -6-5 7 WOOLWORTH CORPORATION8 VENATOR GROUP, INC. ------------------- 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. The Condensed Consolidated Statement of Comprehensive Loss was prepared in conformity with the accounting principles and was not required for the year ended January 31, 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-six weeks ended July 26, 1997August 1, 1998 are not necessarily indicative of the results expected for the year. Name Change - ----------- The Registrant (formerly Woolworth Corporation) changed its name to Venator Group, Inc. effective June 11, 1998. 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 remaining domestic Woolworth general merchandise stores as well as the division's distribution center in Denver, Pennsylvania were closed in November 1997. The Registrant expects to convertis in the process of converting approximately 100150 of itsthe prime locations to Foot Locker, Champs Sports, and other athletic or specialty formats. The Registrant expects to close its remaininghas successfully converted and opened 88 stores as well as the division's distribution center in Denver, Pennsylvania by November 1997.through August 1, 1998. 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 1997 second quarters of 1997quarter and 1996year-to-date periods were $198 million and $249$427 million, respectively. Sales from discontinued operations for the year-to-date periods ended July 26, 1997 and July 27, 1996 were $427 million and $499 million, respectively. 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
August 1, July 26, Jan. 31, 1998 1997 1998 ------ ------- ------- Assets............................... $ 17 $ 358 $ 28 Liabilities.......................... 7 149 21 ---- ---- ---- Net assets of discontinued operations $ 10 $ 209 $ 7 ==== ==== ====
The net assets of discontinued operations $209 $268 $236 ==== ==== ==== Theas of August 1, 1998 and January 31, 1998 consisted primarily of fixed assets. As of July 26, 1997, the net assets consistconsisted primarily of inventory and fixed assets. Liabilities consistfor all periods presented consisted primarily of amounts due to vendors. 6 9 Disposition activity related to the discontinued operations reserve for the periodquarter and year-to-date periods ended August 1, 1998 was approximately $25 million and $45 million, respectively. The remaining reserve balance at August 1, 1998 was $45 million. Earnings Per Share - ------------------ Statement of July 17, 1997Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share" 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 Twenty-six weeks ended -------------------- ---------------------- August 1, July 26, August 1, July 26, (in millions) 1998 1997 1998 1997 -------- ------- -------- ------- Weighted-average common shares outstanding.................... 135.4 134.5 135.3 134.3 Incremental common shares issuable -- 1.5 -- 1.3 Weighted-average common shares ----- ----- ----- ----- assuming dilution.............. 135.4 136.0 135.3 135.6 ===== ===== ===== =====
Incremental common shares were not included in the computation for the quarter and year-to-date periods ended August 1, 1998 since their inclusion in periods when the Registrant reported a net loss would be antidilutive. For the thirteen and the twenty-six weeks ended July 26, 1997, options with an exercise price greater than the average market price are not included in the computation of diluted earnings per share and would not have a material impact on diluted earnings per share. Comprehensive Income - -------------------- The Registrant adopted SFAS No. 130, "Reporting Comprehensive Income," 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. 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 shareholders' equity. Accumulated other comprehensive loss was a reductioncomprised of the reserveforeign currency translation adjustments of approximately $11 million.$34 million and minimum pension liability adjustments of $45 million at August 1, 1998 and January 31, 1998. Reclassifications - ----------------- Certain balances in prior periods have been reclassified to conform with the presentation adopted in the current period. -7-7 810 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 byOn June 29, 1998, the SEC or its staffannounced that any violationsit had accepted the Registrant's Offer of law have occurred.Settlement in resolution of an administrative proceeding arising from the inquiry. In the opinionOffer of management,Settlement, the resultRegistrant admitted that during its 1993 fiscal year it violated Sections 13(a) and 13(b) (2) (A) and (B) of the inquiry will not have a material adverse effect onSecurities Exchange Act of 1934, 15 U.S.C. Sections 78m(a) and 78m(b) (2) (A) - (B), and SEC rules 13a-13 and 12b-20 promulgated thereunder, and the financial positionSEC found that the Registrant had committed those violations and ordered that the Registrant cease and desist from any violation of those provisions. Apart from this direction to cease and desist, no monetary or results of operations ofother relief against the Registrant. The information in this section on Legal Proceedings is current as of September 4, 1997. -8- 9Registrant was awarded. 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 and annual 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. In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," which is effective for fiscal quarters of fiscal years beginning after June 15, 1999 and therefore, effective for the Registrant in 2000. SFAS No. 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. The Registrant is in the process of evaluating SFAS No. 133 to determine its impact on the consolidated financial statements. Item 2. Management's Discussion and Analysis of Financial Condition and - ------------------------------------------------------------------------ Results of Operations As discussed more fully in the footnotes to the Condensed Consolidated Financial Statements, the Registrant announced that it is 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 19971998 second quarter decreased 6.72.3 percent to $1,500$1,465 million as compared with $1,607$1,500 million for the 1996 second quarter principally due to 423 fewer stores.of 1997, reflecting foreign currency fluctuations and a comparable-store sales decrease of 6.0 percent. Excluding the effect of foreign currency fluctuations and sales from disposed operations, sales remained level for the quarter. Comparable-store sales decreased 2.5 percent.1998 second quarter were essentially flat as compared with the corresponding prior-year period. Total Specialty segment sales increased 1.8 percent infor the 1998 second quarter andremained unchanged while comparable-store sales decreased 1.5 percent.6.1 percent, as compared with the corresponding prior-year period. International General Merchandise segment sales decreased 17.4 percent for the 1998 second quarter of 1997 as compared with the second quarter of 1996. Comparable-store sales in the International General Merchandise segment decreased 5.38.8 percent during the period. Excluding the impact of foreign currency fluctuations,and comparable-store sales decreased by 6.65.8 percent, as compared with the second quarter of 1996. Year-to-date 1997 salescorresponding prior-year period. 8 11 Sales for the 1998 twenty-six weeks ended August 1, 1998 decreased 4.33.6 percent to $3,039$2,931 million as compared with $3,177$3,039 million for 1996.the same period a year earlier. Excluding the effect of foreign currency fluctuations and sales from disposed operations, sales increased 2.5decreased 1.1 percent as compared with 1996.1997. Comparable-store sales decreased 1.46.4 percent as compared with the corresponding year-earlierprior-year period. Selling, general and administrative expenses ("SG&A") increased $10 million and $13 million for the thirteen and twenty-six weeks ended August 1, 1998 as compared with the corresponding prior-year periods. The increases primarily reflect 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 in the first quarter of 1998, and a $9 million charge primarily related to the shutdown of the Registrant's Eagle Rock footwear operations, consisting of four manufacturing facilities and an administrative office in the second quarter of 1998. These increases were partially offset by decreases in net pension and net postretirement benefit expense of $9 million. The decrease primarily reflects the amortization of the plans' unrecognized gains and losses over the average remaining life expectancy of inactive participants, who now comprise the majority of the plans' participants. Previously, the unrecognized gains and losses were amortized over the average remaining service period of active participants. Second quarter operating profitresults from continuing operations (before corporate expense, interest expense and income taxes) of $74include a $3 million improvedloss for 1998 as compared with $72a profit of $74 million in the second quarter of 1996. This improvement relates to1997. For the disposition of unprofitable formats and reduced 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,August 1, 1998, operating profit declined to $25 million from $131 million in the corresponding prior-year period. Gross margin, as a percentage of sales, decreased approximately 270 basis points to 28.2 percent for the 1998 second quarter and decreased approximately 210 basis points to 28.4 percent for the 1998 year-to date period, as compared with the corresponding priorperiods a year periods reflects management'searlier. These declines primarily reflect a continuing effort to implement cost reduction initiatives. Cost ofdecline in sales as a percentage of sales increasedand an increase in markdowns as a result of inventory markdowns taken to keep inventory current. The Registrant reportedthe aggressive promotional selling environment currently prevailing in the athletic footwear and apparel industry. Interest expense, net of interest income, from continuing operationsdecreased $2 million for the thirteen weeks ended July 26, 19971998 second quarter and $1 million for the year-to-date period as compared with the corresponding prior-year periods. Interest income of $26approximately $7 million or $0.19 per share, unchanged fromrelated to a franchise tax settlement in the restated year-earlier period. For the twenty-six weeks ended July 26, 1997 income from continuing operations was $43 million, an increasesecond quarter of $32 million from the restated prior year period.1998 more than offset higher interest expense as a result of increased short-term borrowing levels. The Registrant reported a net loss for the quarterthirteen weeks ended August 1, 1998 of $13 million, or $0.09 per share, as compared with a net loss of $181 million or $1.35$1.33 per share for the corresponding prior-year period, which includesincluded an after-tax chargeloss of $207 million or $1.54$1.52 per share for discontinued operations. This compares toFor the twenty-six weeks ended August 1, 1998 the Registrant reported a net incomeloss of $22$18 million, or $0.17$0.13 per share, for the corresponding year-earlier period. The Registrant reportedas compared with a net loss of $180 million or $1.34$1.32 per share for the corresponding prior-year period, which included an after-tax loss of $223 million or $1.64 per share for discontinued operations. The Registrant ended the second quarter with 7,262 stores consisting of 6,749 specialty stores and 513 international general merchandise stores. This compares with 6,929 stores, adjusted for dispositions, at the end of the corresponding prior-year period. During the twenty-six weeks ended July 26, 1997 compared with break-even results for the corresponding year-earlier period. As of July 26, 1997,August 1, 1998, the Registrant operated a totalopened 347 stores, closed or disposed of 7,117 stores consisting of 6,555 Specialty322 stores and 562 International General Merchandiseremodeled or relocated 194 stores. This compares to 7,540Of the 347 stores excluding discontinued operations, consistingopened, 90 stores represented the first quarter acquisition of 6,933 Specialty stores and 607 International General Merchandise stores operated at July 27, 1996.Athletic Fitters stores. 9 12 SALES The following table summarizes sales for continuing operations by segment and by geographic area:
Thirteen weeks ended Twenty-six weeks ended ---------------------------- ------------------------------------------------ ---------------------- (in millions) August 1, July 26, July 27,August 1, July 26, July 27,By Segment: 1998 1997 19961998 1997 1996 ---- ---- ---- ------------ ------- -------- -------- By segment: Specialty: Athletic Group Group...............$ 859871 $ 838858 $ 1,7661,773 $ 1,6761,763 Northern GroupGroup................ 85 86 79159 160 145 Specialty Footwear 129 132 250 254Footwear............ 107 119 214 232 Other Specialty............... 83 83 158 155 ------ ------ ------ ------ Specialty 85 89 161 168 ------- ------- ------- ------- Specialty total 1,159 1,138 2,337 2,243 ------- ------- ------- ------- International General Merchandise: Germany 305 369 631 739 Other 36 44 69 81 ------- ------- ------- -------total.................. 1,146 1,146 2,304 2,310 ------ ------ ------ ------ International General Merchandise total311 341 413608 700 820 ------- ------- ------- ------------- ------ ------ ------ Disposed operations -- 56 2 114 ------- ------- ------- -------operations.............. 8 13 19 29 ------ ------ ------ ------ $ 1,465 $ 1,500 $ 1,6072,931 $ 3,039 $ 3,177 ======= ======= ======= ============= ====== ====== ====== By geographic area: Domestic Domestic.....................$ 940935 $ 912937 $ 1,9281,919 $ 1,835 International 560 639 1,109 1,2281,923 International................. 522 550 993 1,087 Disposed operations -- 56 2 114 ------- ------- ------- -------operations........... 8 13 19 29 ------ ------ ------ ------ $ 1,465 $ 1,500 $ 1,6072,931 $ 3,039 $ 3,177 ======= ======= ======= ============= ====== ====== ======
-10- 11 Specialty - --------- Athletic Group sales increased by 2.51.5 percent and by 0.6 percent for the 1998 second quarter and year-to-date periods, as compared with the corresponding periods a year earlier. These increases were primarily due to 343 additional stores and the positive impact from store remodelings. On a comparable-store basis sales declined by 7.7 percent for both the 1998 second quarter and the year-to-date periods primarily due to over-supplied athletic footwear in the marketplace, as well as decreased sales in the licensed product categories. Excluding the impact of foreign currency fluctuations, Northern Group sales increased by 0.9 percent and by 1.8 percent for the second quarter and year-to-date periods, respectively. The increase reflects new store openings, particularly in the United States, offset by comparable-store sales decreases of 4.7 percent and 5.4 percent for the second quarter and year-to-date periods, respectively. These increases were primarily due to 145 store openingsSpecialty Footwear 1998 second quarter and year-to-date sales decreased 10.1 percent and 7.8 percent as well ascompared with the corresponding prior-year periods. Excluding the impact of foreign currency fluctuations in the Australian operations, sales fromdeclined by 4.9 percent and by 2.3 percent for the first1998 second quarter acquisition of Eastbay, Inc. ("Eastbay"). Comparable-storeand year-to-date periods, respectively. On a comparable-store basis, sales decreased by 2.63.6 percent for the second quarter and remained levelby 2.4 percent for the year-to-date period. Northern Group sales increasedThese decreases were primarily due to the closure of 43 under-performing stores in the U.S. Kinney Shoe format since the second quarter 1997, offset in part by 8.9 percent and 10.3comparable-store increases in the Australian operations of 1.8 percent for the second quarter and 3.2 percent for the year-to-date periods, respectively. Comparable-storeperiod. Other Specialty 1998 second quarter and year-to-date comparable-store sales increased for bothby 7.2 percent and by 6.3 percent, as compared with the quartercorresponding prior-year periods. The increase primarily relates to the Afterthoughts format, reflecting positive customer responses to increased private-label product 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 tosuccess of the sales increase. The 2.3 percent decline in Specialty Footwear's second quarter sales, which resulted from closing 115 stores, was 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. For the year-to-date period, Specialty Footwearformat's larger-store design. 10 13 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 4.58.8 percent and 4.2 percent for the 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 to the closure of 98 under-performing stores related to ongoing formats. International General Merchandise German general merchandise sales decreased by 17.3 percent and 14.613.1 percent for the second quarter and year-to-date periods, respectively. Excluding the impact of foreign currency fluctuations, sales decreased 5.2by 4.0 percent and 2.2by 8.5 percent for the second quarter and year-to-date periods, respectively. Comparable-store sales decreased by 4.5 percent and 4.85.8 percent for the second quarter and by 7.2 percent for the year-to-date periods, respectively.period. These decreases reflect the overall difficulties of the German retail industry in the current recession and the negative impact of the increase in VAT rates in Germany as of April 1998. 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) August 1, July 26, July 27,August 1, July 26, July 27,By Segment: 1998 1997 19961998 1997 1996 ---- ---- ---- ------------ ------- -------- -------- By Segment: Specialty Specialty.....................$ 8318 $ 9685 $ 14140 $ 135148 International General MerchandiseMerchandise.................. (13) (9) (18)(14) (12) (30)Net gain on sales of real estate.................. 1 -- 1 4 Disposed operations............ (9) (2) (2) (9) ----- ----- ----- ----- $ (3) $ 74 $ 25 $ 131 ===== ===== ===== ===== By geographic area: Domestic......................$ 14 $ 74 $ 45 $ 142 International.................. (9) 2 (19) (6) Net gain on sales of real estate 1 -- 61 4 6 Disposed operations -- (12)operations............ (9) (2) (31) ------- ------- ------- -------(2) (9) ----- ----- ----- ----- $ (3) $ 74 $ 7225 $ 131 $ 80 ======= ======= ======= ======= By geographic area: Domestic $ 74 $ 81 $ 141 $ 132 International -- (3) (12) (27) Net gain on sales of real estate -- 6 4 6 Disposed operations -- (12) (2) (31) ------- ------- ------- ------- $ 74 $ 72 $ 131 $ 80 ======= ======= ======= ============ ===== ===== =====
-11- 12 Specialty - --------- The Specialty segment's operating profit decreased by $13 million, or 13.578.8 percent as compared with the 1996 second quarter. The decrease was primarily due to changes in merchandise mix and increased markdowns within the Athletic Group. A shift in consumer preferences has contributed to the decisions to take those markdowns and to reposition the Registrant's merchandise assortmentby 73.0 percent for the fourth quarter. Year-to-date operating profits increased $6 million or 4.4 percentthirteen and twenty-six weeks ended August 1, 1998 as compared with the corresponding period of 1996, which is primarilyprior-year periods. The declines in Athletic Group sales contributed to higher than anticipated inventory levels and increased promotional markdowns to keep the product assortment current. Operating results for Specialty Footwear and the Northern Group for the 1998 second quarter and year-to-date periods also decreased due to sales declines and gross margin increases achieved by the Athletic Group in the first quarter of 1997. Theincreased markdowns. Other Specialty Footwear segment improved operating results throughimproved by 40.0 percent and by 33.3 percent for the 1998 second quarter and year-to-date periods, respectively, as compared with the corresponding prior-year periods predominantly related to the Afterthoughts format. Included in disposed operations for the twenty-six weeks ended August 1, 1998 is a $19 million gain from the sale of the Registrant's six-store nursery chain. This gain is offset by a $21 million loss for the shutdown of the Canadian Kinney Shoe, U.S. Randy River and Eagle Rock specialty footwear operations, including $8 million in operating losses. This is part of the Registrant's continuing expense reduction initiatives.program to reduce its investment in non-strategic businesses. The Northern Group improvedprior-year amount represents the operating results predominately through increased sales and higher margins.of these operations. 11 14 International General Merchandise - --------------------------------- The International General Merchandise segment's operating loss improvedincreased by $9$4 million and $18by $2 million for the quarter and year-to-date periods as compared with the1998 second quarter and year-to-date periods, of 1996, respectively.respectively, as compared with the corresponding prior-year periods. The Registrant's German operations have significantly lowered itsincreased operating loss through reduced expenses by operatingis primarily attributable to severance costs in Germany in connection with a more flexible, smaller workforce.the ongoing improvement of its personnel structure. 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 $274 million for the twenty-six weeks ended August 1, 1998, as compared with $113 million in the corresponding prior-year period, which principally reflects an additional $90 million used to purchase inventories. These additional inventory purchases contributed to a $28 million increase in accounts payable and other liabilities. Increased inventory reflects lower than anticipated sales and seasonal increases associated with the back to school season. Additionally, under the Registrant's new store and remodeling program, inventory was received for approximately 375 new and remodeled stores which are scheduled for completion in August and September. Net cash used in investing activities totaled $233 million for the twenty-six weeks ended August 1, 1998, as compared with $177 million used during the corresponding prior-year period. Cash used in investing activities for the twenty-six weeks ended July 26, 1997 as compared with cash provided of $16 million in the comparable prior-year period. The increase in cash used resulted from the timing of inventory purchases. The Condensed Consolidated Statements of Cash Flows have been restated for discontinued operations for the prior period. Net cash used in investing activities amounted to $177 million for the twenty-six weeks ended July 26, 1997, as compared with cash provided of $4 million during the corresponding period in 1996. The increase in cash used for investing was predominantly 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$177 million of which $25 million relates to the Woolworth conversion stores, as compared towith the corresponding prior-year second quarter;period; approximately $285$545 million of capital expenditures are planned for the 1997 fiscal year as compared with $134$284 million in 1996. Inventories decreased $43 million1997. Increased inventory levels contributed 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 Accountsaccounts payable at July 26, 1997 decreasedAugust 1, 1998 by $8 million as compared with the 1996 second quarter and increased by $66 million to $352 million as compared with the year-end level. The increase from January 25, 1997 coincides with the seasonal increase in inventory. Short-term debt decreased $99$114 million as compared with July 27, 1996 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 seasonal working capital needs. Interest expense for 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 ofand by $139 million as compared with January 31, 1998. Short-term debt at August 1, 1998 increased by $451 million and by $413 million as compared with January 31, 1998 and July 26, 1997. The increases in short-term debt were principally due to the significant capital expenditures required for the Registrant's aggressive new store and remodeling program and the acquisition of the Athletic Fitters stores for $29 million in February 1998. Lower than expected sales and higher than anticipated inventory levels also contributed to the increases in short-term borrowing levels. On June 22, 1998, the Registrant entered into an agreement to sell its Corporate Headquarters building in New York, the Woolworth Building. The transaction is expected to be completed in October 1998. As previously announced, the Registrant and The Sports Authority, Inc. have signed a definitive merger agreement pursuant to which The Sports Authority would become a wholly-owned subsidiary of the Registrant through a pooling of interests. There is a provision in the merger agreement that provides that for the transaction to be put to a vote of the shareholders of The Sports Authority, the Registrant's average stock price is at least $20.50 per share during one or more specified measuring periods prior to December 31, 1998. The transaction is subject to approval by The Sports Authority shareholders. 12 15 IMPACT OF YEAR 2000 - ------------------- The Year 2000 ("Y2K") issue is the result of computer programs being written using two digits, rather than four, to define the applicable year. Mistaking "00" for the year 1900 could result in miscalculations and errors and cause significant business interruptions for the Registrant, as well as lower financingfor the government and most other companies. The Registrant has instituted a plan to assess its state of readiness for Y2K, to remediate those systems that are non- compliant and to assure that material third parties will be Y2K compliant. State of Readiness - ------------------ The Registrant has assessed all mainframe, operating and application systems (including point of sale) for Y2K readiness, giving the highest priority to those information technology applications (IT) systems that are considered critical to its business operations. At present, approximately 60 percent of the IT systems have been remediated. The Registrant anticipates the completion of all remediation of the IT systems by the end of 1998. Extensive testing of the remediated systems will be performed throughout 1999 for implementation during that year. Apart from the Y2K issue, the Registrant had developed and installed throughout its business units beginning in 1997 a comprehensive information computer system ("ECLIPSE"), encompassing merchandising, logistics, finance and human resources. The ECLIPSE project was undertaken for business reasons unrelated to Y2K. However, the installation of ECLIPSE eliminates the need to reprogram or replace certain existing software for Y2K compliance. The Registrant is presently compiling an inventory of its non-IT systems, which include those systems containing embedded chip technology commonly found in buildings and equipment connected with a buildings' infrastructure. Once the inventory is complete, the systems will be prioritized and assessed for compliance. Preliminary investigations of the embedded chip systems indicate that Y2K will not affect systems such as heating, ventilation and security in most store locations. Ongoing testing and implementation of any remediation required for the non- IT systems will be performed throughout 1999. Material Third Parties - ---------------------- Key vendors and service providers have been identified, and management intends to meet with these third parties to discuss the status of their compliance and to distribute a comprehensive compliance questionnaire. Approximately 20 vendors are considered key vendors of the Registrant. Y2K Costs - --------- The Registrant is utilizing both internal and external resources to address the Y2K issue. Internal resources reflect the reallocation of IT personnel to the Y2K project from other IT projects. In the opinion of management, the deferral of such other projects will not have a significant adverse affect continuing operations. The total estimated direct cost, excluding ECLIPSE, to remediate the Y2K issue is not expected to be material to the Registrant's results of operations or financial condition. All costs, resulting from renegotiationexcluding ECLIPSE, are being expensed as incurred. Contingency Plan/Risks - ---------------------- The Registrant is in the process of developing contingency plans for those areas which might be affected by Y2K. Although the full consequences are unknown, the failure of either the Registrant's critical systems or those of its material third parties to be Y2K compliant would result in the interruption of its business, which could have a material adverse affect on the results of operations or financial condition of the Registrant. 13 16 DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS - ----------------------------------------------- Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements within the meaning of the federal securities laws. All statements, other than statements of historical facts, which address activities, events or developments that the Registrant expects or anticipates will or may occur in the future, including such things as future capital expenditures, expansion, strategic plans, growth of the Registrant's credit agreement. Shareholders' equity at July 26, 1997 decreased $245 million frombusiness and operations, Y2K related actions, and other such matters are forward-looking statements. These forward-looking statements are based on many assumptions and factors including effects of currency fluctuations, consumer preferences and economic conditions worldwide, and the level at January 25, 1997. This decrease was primarily attributableability of the Registrant to implement, in a timely manner, the programs and actions related to the after-tax charge for discontinued operations of $195 million andY2K issue. Any changes in foreign currency exchange rates.such assumptions or factors could produce significantly different results. 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 8 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, 1997,11, 1998, in New York, New York.Watertown, Massachusetts. 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 19971998 Annual Meeting and Proxy Statement, both dated May 5, 1997.April 28, 1998. (b) Each of Jarobin Gilbert Jr., Margaret P. MacKimm and John J. Mackowski wereAllan Z. Loren was elected as a director in Class III for a three-yeartwo-year term ending at the annual meeting of shareholders of the Registrant in 2000. Each of Roger N. Farah, James E. Preston and Christopher A. Sinclair was elected as a director in Class I for a three-year term ending at the annual meeting in 2001. All of such individuals previously served as directors of the Registrant. J. Carter Bacot, Purdy Crawford, Roger N. Farah, Philip H. Geier Jr., Jarobin Gilbert Jr., Dale W. Hilpert, James E. PrestonMargaret P. MacKimm and Christopher A. Sinclair,John J. Mackowski, having previously been elected directors of the Registrant for terms continuing beyond the 19971998 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- 14Roger N. Farah 114,158,903 5,841,327 -- Allan Z. Loren 114,229,354 5,770,876 -- James E. Preston 114,184,187 5,816,043 -- Christopher A. Sinclair 101,191,554 18,808,676 -- (2) Amendments toAmendment of the Certificate of Incorporation and By-laws:to change the name the Registrant's name: Votes For Votes Against Abstentions Broker Non-Votes - ------------------------------ ------------- -------------- ---------------- 110,678,945 880,980 554,187 0----------- --------------- 94,158,905 24,356,846 1,484,479 -- 14 17 (3) Ratification of the appointment of KPMG Peat Marwick LLP as independent accountants for the fiscal year beginning January 26, 1997:February 1, 1998: Votes For Votes Against Abstentions Broker Non-Votes - ------------------------------ ------------- ------------------------- ---------------- 111,585,116 209,116 319,880 0118,472,061 207,227 1,320,942 -- (4) Shareholder Proposal on reinstatementApproval of the dividend:1998 Stock Option and Award Plan: Votes For Votes Against Abstentions Broker Non-Votes - ----------------------------- ------------- ------------------------- ---------------- 13,000,515 85,662,822 975,725 12,475,050100,453,155 17,881,428 1,665,647 -- (5) Shareholder Proposal on German Operations: Votes For Votes Against Abstentions Broker Non-Votes -------- ------------ ----------- ---------------- 35,647,893 78,432,131 1,062,983 4,857,223 (6) Shareholder Proposal on Rights Plan: Votes For Votes Against Abstentions Broker Non-Votes --------- ------------ ----------- ---------------- 90,785,519 21,700,412 2,657,076 4,857,223 At the close of business on the record date of April 30, 1997,23, 1998, there were issued and outstanding 134,209,670135,251,929 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, 112,114,112120,000,230 shares of Common Stock. Such shares represented 83.5488.72 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 1617 through 18. 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, 1997May 7, 1998 (date of earliest event reported) reporting that it had signed a definitive merger agreement with The Sports Authority, Inc., whereby the Registrant will acquire The Sports Authority in a tax-free exchange of shares. The transaction is subject to approval by the shareholders of The Sports Authority, Inc. and to customary regulatory approvals. Additionally, the Registrant filed a report on Form 8-K dated June 11, 1998 (date of earliest event reported) reporting that the Board of Directors and the shareholders approved the proposal to change the name of the Registrant was exiting its domesticfrom Woolworth general merchandise business. -14-Corporation to Venator Group, Inc. effective as of June 11, 1998. 15 1518 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 CORPORATIONVENATOR GROUP, INC. -------------------- (Registrant) Date: September 4, 19971998 /s/ Bruce L. Hartman -------------------- BRUCE L. HARTMANReid Johnson ---------------- REID JOHNSON Senior Vice President and Controller (Principal Accounting Officer) -15-Chief Financial Officer 16 16 WOOLWORTH CORPORATION19 VENATOR GROUP, INC. ------------------- 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) to the July 26, 1997 Form 10-Q) and (d) June 11, 1998 (incorporated herein by reference to Exhibit 4.2(a) of the Registration Statement on Form S-8 (Registration No.333-62425) previously filed with the SEC). 3(ii) By-laws of the Registrant, as amended. 4(a)amended (incorporated herein by reference to Exhibit 4.2 of the Registration Statement on Form S-8 (Registration No. 333-62425) previously filed with the SEC). 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)to Exhibits 3 (i) 3(i)(a) and 3 (i) 3(i)(b) to thisthe July 26, 1997 Form 10-Q. 4(b)10-Q and Exhibit 4.2(a) to the Registration Statement on Form S-8 (Registration No. 333-62425) previously filed with the SEC). 4.2 Rights Agreement dated as of April 4, 1988, as amended JanuaryMarch 11, 1989,1998, between F.W. Woolworth Co. ("FWW")Venator Group, Inc. and Morgan Shareholder Services Trust Company (now, First Chicago Trust Company 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)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)No.33-43334) previously filed with the SEC). 4(e)17 20 4.5 Form of 8-1/81/2% 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, whichAugust 1, 1998 (which is submitted electronically to the SEC for information only and not filed. -17- 18filed). 27.2 Restated Financial Data Schedule - July 26, 1997 (which is submitted electronically to the SEC for information only and not filed). 99 Independent Accountants' Review Report. --------------------______________ * Not applicable -18-18 1921 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 - August 1, 1998. 27.2 Restated Financial Data Schedule - July 26, 1997. 99 Independent Accountants' Review Report.