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 27, 199626, 1997
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 incorporation (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 Xx NO
--- ---
Number of shares of Common Stock outstanding at August 23, 1996: 133,483,99229, 1997:134,914,082
2
WOOLWORTH CORPORATION
INDEX
Page No.
--------
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements
of Operations 4
Condensed Consolidated Statements
of Retained Earnings 5
Condensed Consolidated Statements
of Cash Flows 6
Notes to Condensed Consolidated
Financial Statements 7 - 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8 - 12
Part II. Other Information
Item 1. Legal Proceedings 13
Item 4. Submission of Matters to a Vote of Security Holders 13 - 14
Item 6. Exhibits and Reports on Form 8-K 14
Signature 15
Index of Exhibits 16 - 18
Page No.
--------
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements
of Operations 4
Condensed Consolidated Statements
of Retained Earnings 5
Condensed Consolidated Statements
of Cash Flows 6
Notes to Condensed Consolidated
Financial Statements 7-9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-13
Part II. Other Information
Item 1. Legal Proceedings 13
Item 4. Submission of Matters to a Vote of Security Holders 13-14
Item 6. Exhibits and Reports on Form 8-K 14
Signature 15
Index to Exhibits 16-18
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PART I - FINANCIAL INFORMATION
Item 1. Financial StatementsFINANCIAL STATEMENTS
WOOLWORTH CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions)
July 26, July 27, July 29, Jan. 27,January 25,
1997 1996 1995 1996
-------- -------- --------1997
---- ---- ----
(Unaudited) (Unaudited) (Audited)
ASSETS
ASSETS
CURRENT ASSETSCurrent Assets:
Cash and cash equivalents $ 8069 $ 10597 $ 13328
Merchandise inventories 1,491 1,804 1,3641,216 1,259 1,066
Net assets of discontinued operations 209 268 236
Other current assets 234 345 241174 205 202
------- ------- -------
1,805 2,254 1,618
PROPERTY AND EQUIPMENT, NET 1,136 1,518 1,225
DEFERRED CHARGES AND OTHER ASSETS 644 705 6631,668 1,829 1,832
Property and equipment, net 903 1,032 983
Deferred charges and other assets 737 592 524
------- ------- -------
$ 3,5853,308 $ 4,4773,453 $ 3,5063,339
======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIESCurrent Liabilities:
Short-term debt $ 38 $ 137 $ 860 $ 69--
Accounts payable 419 475 321352 360 286
Accrued liabilities 413 366 426526 350 427
Current portion of long-term debt and obligations
under capital leases 19 25 2514 17 15
------- ------- -------
988 1,726 841
LONG-TERM DEBT AND OBLIGATIONS
UNDER CAPITAL LEASES 611930 864 728
Long-term debt and obligations
under capital leases 568 619
DEFERRED TAXES AND OTHER LIABILITIES 781 826 817
SHAREHOLDERS' EQUITY605 575
Deferred taxes and other liabilities 721 779 702
Shareholders' Equity:
Preferred stock -- -- --
Common stock and paid-in capital 311 297 290 290299
Retained earnings 870 891 964 8911,050
Foreign currency translation adjustment (55) 52 113 8322
Minimum pension liability adjustment (37) (35) (10) (35)(37)
------- ------- -------
Total shareholders' equity 1,089 1,205 1,357 1,229
CONTINGENCIES (Legal Proceedings)1,334
Commitments
------- ------- -------
$ 3,5853,308 $ 4,4773,453 $ 3,5063,339
======= ======= =======
See accompanying Notesnotes to Condensed Consolidated Financial Statements.
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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 26, July 27, July 29,26, July 27,
July 29,1997 1996 19951997 1996
1995
-------- -------- -------- ------------ ---- ---- ----
SALESSales $ 1,8561,500 $ 1,9221,607 $ 3,6763,039 $ 3,716
COSTS AND EXPENSES
Costs3,177
Cost and Expenses:
Cost of sales 1,273 1,334 2,568 2,6391,037 1,095 2,111 2,214
Selling, general and administrative expenses 491 532 983 1,078370 416 758 831
Depreciation and amortization 50 59 100 11843 44 84 89
Interest expense 19 33 39 6511 15 22 32
Other income (14) (17) (14) (32)(2) (6) (6) (7)
------- ------- ------- -------
1,819 1,941 3,676 3,8681,459 1,564 2,969 3,159
------- ------- ------- -------
INCOME (LOSS) BEFORE INCOME TAXES 37 (19) -- (152)Income from continuing operations
before income taxes 41 43 70 18
Income tax expense (benefit) 15 (8) -- (61)17 27 7
------- ------- ------- -------
NET INCOME (LOSS)Income from continuing operations 26 26 43 11
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) -- (195) --
Net income (loss) $ (181) $ 22 $ (11)(180) $ -- $ (91)
======= ======= ======= =======
Per common share:
Income from continuing operations $ 0.19 $ 0.19 $ 0.32 $ 0.08
Loss from discontinued operations $ (1.54) $ (0.02) $ (1.66) $ (0.08)
------- ------- ------- -------
Net income (loss) per share
Primary$ (1.35) $ 0.17 $ (0.09)(1.34) $ -- $ (0.69)
======= ======= ======= =======
Fully diluted $ 0.17 $ * $ -- $ *
======= =======
Number ofWeighted-average common shares used to
calculate earnings per share
Primaryoutstanding 134.5 133.3 134.3 132.7 133.7 132.7
Fully diluted 134.9 * 134.5 *133.2
* Fully diluted earnings per share is not presented as it produces an
anti-dilutive result.
See accompanying Notesnotes to Condensed Consolidated Financial Statements.
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WOOLWORTH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
(Unaudited)
(in millions)
Twenty-six weeks ended
----------------------------------------------
July 26, July 27,
July 29,1997 1996
1995
-------- ------------ ----
RETAINED EARNINGS AT BEGINNING OF YEARRetained earnings at beginning of year $ 8911,050 $ 1,055891
Net income (loss) - (91)(180) --
Cash dividends declared:
Preferred Stockstock (1996 - $0.55$1.10 per share - -share) -- --
------- -------
RETAINED EARNINGS AT END OF PERIODRetained earnings at end of interim period $ 891870 $ 964891
======= =======
See accompanying Notesnotes to Condensed Consolidated Financial Statements.
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WOOLWORTH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in millions)
Twenty-six weeks ended
--------------------------------------------------
July 26, July 27,
July 29,1997 1996
1995
-------- ------------ ----
FROM OPERATING ACTIVITIESFrom Operating Activities:
Net income (loss) $-- $ (91)(180) $ --
Adjustments to reconcile net lossincome (loss) to net cash provided by
(used in) operating activities:
Non-cash charge for discontinued operations 310 --
Discontinued operations activities (11) --
Depreciation and amortization 100 118
Gain84 92
Net gain on sales of real estate (4) (13) (32)
Deferred income taxes (138) (16) (56)
Change in assets and liabilities, net of acquisitions:
Increaseacquisition:
Merchandise inventories (153) (91)
Accounts payable 63 121
Change in merchandise inventories (143) (133)
Increase in accounts payable 103 105net assets of discontinued operations 27 44
Other, net (18) (107)
----- -----(111) (121)
------- -------
Net cash provided by (used in) operating activities 13 (196)
----- -----
FROM INVESTING ACTIVITIES
Capital expenditures (47) (68)(113) 16
------- -------
From Investing Activities:
Proceeds from salesales of real estate 19 21
86Capital expenditures (56) (36)
Payments for business acquired, net of cash acquired (140) --
Proceeds from salesales of assets 19 33
Purchase ofand investments -- (74)
----- -----19
------- -------
Net cash used inprovided by (used in) investing activities (7) (23)
----- -----
FROM FINANCING ACTIVITIES(177) 4
------- -------
From Financing Activities:
Increase in short-term debt 38 69 4
Increase in long-term debt -- 263
Reduction in long-term debt and capital lease obligations (11) (12)(1) (9)
Issuance of common stock 11 6 7
Dividends paid -- (20)
----- -------
------- -------
Net cash provided by financing activities 64 242
----- -----
EFFECT OF EXCHANGE RATE CHANGES ON CASH
AND CASH EQUIVALENTS48 66
------- -------
Effect of exchange rate fluctuations
on Cash and Cash Equivalents (17) (3)
10
----- -----
NET CHANGE IN CASH AND CASH EQUIVALENTS 67 33
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 13 72
----- -----
CASH AND CASH EQUIVALENTS AT END OF PERIOD------- -------
Net change in Cash and Cash Equivalents (259) 83
Cash and Cash Equivalents at beginning of year 328 14
------- -------
Cash and Cash Equivalents at end of interim period $ 8069 $ 105
===== =====97
======= =======
Cash Paid Duringpaid during the Period:period:
Interest $ 22 $ 32
Income taxes $ 57
Income Taxes46 $ 9 $ 10
See accompanying Notesnotes to Condensed Consolidated Financial Statements.
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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 19951996 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 27, 1996,25, 1997, as filed with the Securities and Exchange Commission (the
"SEC"). 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 thirteen and
twenty-six weeks
ended July 26, 1997 are not necessarily indicative of the results expected for
the year.
Merchandise Inventories
DomesticDiscontinued Operations
On July 17, 1997, the Registrant announced that it is exiting its
domestic Woolworth general merchandise inventories valued onbusiness. The Registrant expects to
convert approximately 100 of its prime locations to Foot Locker, Champs Sports,
and other athletic or specialty formats. The Registrant expects to close its
remaining stores as well as the last-in, first-out basis
atdivision's distribution center in Denver,
Pennsylvania by November 1997.
The results of operations for all periods presented for this 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 periods ended July 26,
1997 and July 27, 1996 July 29, 1995 and January 27, 1996 are stated, respectively,
at $102 million, $100were $427 million and $102$499 million, less than the amounts that wouldrespectively.
The Condensed Consolidated Balance Sheets and Condensed Consolidated
Statements of Cash Flows have been determined onrestated for discontinued operations. The
following is a summary of the first-in, first-out basis.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
==== ==== ====
The assets consist primarily of inventory and fixed assets. Liabilities
consist primarily of amounts due to vendors.
Disposition activity related to the discontinued operations reserve for
the period of July 17, 1997 to July 26, 1997 was a reduction of the reserve of
approximately $11 million.
Reclassifications
Certain balances in prior periods have been reclassified to conform
with the presentation adopted in the current
period.
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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 Stockcommon 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 Stockcommon stock or options on the
Registrant's Common Stockcommon 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.
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8 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 have 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. These actions are all at a preliminary stageIn the opinion of proceedings.
Accordingly, the outcomes cannot be predicted with any degree of certainty. As a
result, the Registrant cannot determine ifmanagement, the results of the litigation willthis
action would not have a material adverse effect on the Registrant'sfinancial position or
results of operations liquidity or financial position.of the Registrant.
During 1994, the staff of the SEC initiated an inquiry relatedrelating to the
matters that were reviewed by the Special Committee of the Board of Directors 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. ThereIn the opinion of management, the result of
the inquiry will not have been noa material developmentsadverse effect on the financial position or
results of operations of the Registrant.
The information in this section on Legal Proceedings is current as of September
4, 1997.
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Recent Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standard ("SFAS") No. 128, "Earnings
per Share", which is effective for financial statements issued for periods
ending after December 15, 1997 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", 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. 130 establishes
standards for reporting and display of comprehensive income and its components
in the inquiry to date.financial statements. A revised presentation 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.
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 1997 second quarter decreased 6.7 percent to $1,500
million compared with $1,607 million for the 1996 second quarter decreased 3.4 percentprincipally due
to $1,856
million compared to $1,922 million for the 1995 second quarter. Comparable-store
sales decreased by 0.2 percent. Sales were negatively impacted by the
unseasonably cooler weather in several markets and the operation of 290423 fewer stores. Excluding the effect of foreign currency fluctuations and
sales from disposed operations, sales remained level for the quarter.
Comparable-store sales decreased by 0.92.5 percent. Total Specialty segment sales
increased 1.8 percent in the second quarter and comparable-store sales decreased
1.5 percent. International General Merchandise segment sales decreased 17.4
percent for the second quarter increased 3.0 percent and comparable-store sales
increased 2.9 percent. Total General Merchandiseof 1997 as compared with the second quarter sales decreased
10.6 percent compared to the same period of
1995 while comparable-store1996. Comparable-store sales
decreased 5.0 percent. The decrease in the International General Merchandise segment
primarily
relates to lower sales indecreased 5.3 percent during the United States and Germany.
Year-to-date 1996period. Excluding the impact of foreign
currency fluctuations, sales decreased 1.1by 6.6 percent, as compared with the
second quarter of 1996.
Year-to-date 1997 sales decreased 4.3 percent to $3,676$3,039 million as
compared to $3,716with $3,177 million for 1995.1996. Excluding the effect of foreign currency
fluctuations and sales from disposed operations, sales increased 0.32.5 percent as
compared with 1996. Comparable-store sales decreased 1.4 percent as compared
with corresponding year-earlier period.
Second quarter operating profit from continuing operations (before
corporate expense, interest expense and comparable-storeincome taxes) of $74 million improved as
compared with $72 million in the second quarter of 1996. This improvement
relates to 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
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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 0.3 percent during the year-to-date period.
Fiscal 1996 second quarter operating results of $69 million improved by
$39 million over the comparable prior year operatingas a result of $30 million.inventory markdowns taken to keep inventory current.
The improvement stems directlyRegistrant reported income from the continuing implementation of the
Registrant's strategic plan which includes reducing inventory levels, lowering
expenses and the divestiture of non-strategic assets. Foroperations for the
thirteen weeks ended July 27, 1996, selling, general and administrative expenses declined by
$4126, 1997 of $26 million, compared toor $0.19 per share, unchanged
from the samerestated 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. Year-to-date selling,
general and administrative expenses were $95 million less than the first half
of 1995. These decreases reflect the ongoing success of the Registrant's cost
reduction initiatives. Included in the 1995 year-to-date results is a $38
million charge recorded in the first quarter related to the inventory
improvement program implemented to lower inventory levels and clear stores of
aged and discontinued merchandise for new product assortments.
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The Registrant reported a net loss
for the quarter of $181 million or $1.35 per share, which includes an after-tax
charge of $207 million or $1.54 per share for discontinued operations. This
compares to net income of $22 million, or $0.17 per share for the thirteen weeks ended July 27, 1996, compared tocorresponding
year-earlier period. The Registrant reported a net loss of $11$180 million, or
$0.09$1.34 per share, for the corresponding prior year period. The
Registrant reported break-even results for the twenty-six weeks ended July 27,
1996, an improvement from26, 1997 compared with
break-even results for the loss of $91 million or $0.69 per share for
corresponding 1995year-earlier period.
As of July 27, 1996,26, 1997, the Registrant operated a total of 7,9517,117 stores
consisting of 6,933 specialty6,555 Specialty stores and 1,018 general merchandise562 International General Merchandise
stores. This compares to 7,540 stores, compared to 8,241 storesexcluding discontinued operations,
consisting of 7,203 specialty6,933 Specialty stores and 1,038 general
merchandise607 International General Merchandise
stores operated as ofat July 29,1995.
The net gain on the divestiture of non-strategic real estate in the
second quarter totaled $13 million. This included a distribution center in
Greenville, SC whose closing was announced earlier this year and other real
estate operated by Woolworth Germany, Woolworth U.S., and Woolworth Canada.
In line with the Registrant's strategic plan to dispose of
underperforming businesses, the Registrant announced the closing of the
109-store Accessory Lady chain on May 2,27, 1996. All stores were closed by August
24, 1996. The Registrant took a charge of $8.3 million in the second quarter to
cover employee, wind-down and estimated lease costs. The Registrant intends to
redeploy approximately one-half of the stores to formats principally in the
Athletic Group and the Northern Group.
The Registrant entered into an agreement on June 24, 1996 to sell the
34-store Lady Plus chain in Germany. The charge for disposed operations includes
$5 million related to the sale of Lady Plus and its loss on operations through
disposal.
SALES
The following table summarizes sales for continuing operations by segment and by
geographic area:
Thirteen weeks ended Twenty-six weeks ended
-------------------- -------------------------------------------------- ----------------------------
(in millions) July 27, July 29,26, July 27, July 29,26, July 27,
1997 1996 19951997 1996
1995
-------- -------- -------- ------------ ---- ---- ----
By segment:
Specialty:
Athletic Group $ 840859 $ 803 $1,680 $1,587838 $ 1,766 $ 1,676
Northern Group 86 79 160 145
Specialty Footwear 174 179 327 340129 132 250 254
Other Specialty 92 105 173 196
Northern Group 79 64 145 119
------ ------ ------ ------85 89 161 168
------- ------- ------- -------
Specialty total 1,185 1,151 2,325 2,242
------ ------ ------ ------1,159 1,138 2,337 2,243
------- ------- ------- -------
International General Merchandise:
Germany 305 369 411631 739
772
United States 242 274 486 538
Other 54 59 100 111
------ ------ ------ ------36 44 69 81
------- ------- ------- -------
International General Merchandise total 665 744 1,325 1,421
------ ------ ------ ------341 413 700 820
------- ------- ------- -------
Disposed operations 6 27 26 53
------ ------ ------ ------
$1,856 $1,922 $3,676 $3,716
====== ====== ====== ======
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-- 56 2 114
------- ------- ------- -------
$ 1,500 $ 1,607 $ 3,039 $ 3,177
======= ======= ======= =======
By geographic area:
Domestic $1,152 $1,156 $2,316 $2,297$ 940 $ 912 $ 1,928 $ 1,835
International 698 739 1,334 1,366560 639 1,109 1,228
Disposed operations 6 27 26 53
------ ------ ------ ------
$1,856 $1,922 $3,676 $3,716
====== ====== ====== ======-- 56 2 114
------- ------- ------- -------
$ 1,500 $ 1,607 $ 3,039 $ 3,177
======= ======= ======= =======
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Specialty Segment
The Athletic Group and Northern Group turned in strong second quarter
performances.
Athletic Group sales increased by 2.5 percent and 5.4 percent for the
second quarter and year-to-date periods, respectively. These increases were
primarily due to 145 store openings as well as sales 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 second quarter and the year-to-date periods by 4.6 percent and
5.95.1 percent, respectively, overrespectively. Store openings in Northern Reflections, a women's
casual sportswear store, and Northern Getaway, a children's apparel store also
contributed to the corresponding prior year periods. Northern Groupsales 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 Footwear
sales decreased by 1.6 percent, while comparable-store sales increased 1.9
percent. Other Specialty sales, adjusted for dispositions, decreased by 23.44.5
percent and 21.84.2 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 14.6
percent for the second quarter and year-to-date periods, respectively. Specialty Footwear second quarter sales decreased by 2.8 percent
compared to the prior year period while year-to-date sales decreased by 3.8
percent. These declines were attributable to store closures, principally in the
Kinney format.
Other Specialty second quarter sales, adjusted for dispositions,
decreased by 12.4 percent from $105 million to $92 million. For the year-to-date
period, sales declined 11.7 percent to $173 million. This decline in sales was
mainly due to the closure of 153 underperforming stores related to ongoing
formats coupled with second quarter and year-to-date comparable-store sale
declines.
General Merchandise
German general merchandise second quarter sales decreased by 10.2
percent, while comparable-store sales declined by 3.1 percent. Year-to-date
period sales have declined 4.3 percent while comparable-store sales declined 2.5
percent. Excluding
the impact of foreign currency fluctuations, sales decreased by 3.95.2 percent and 1.0 percent for the quarter and year-to-date periods,
respectively. Sales were impacted by the unseasonably cooler weather in Germany
coupled with difficult economic conditions.
United States general merchandise sales decreased for both the second
quarter and the year-to-date period by by 11.7 percent and 9.7 percent,
respectively. These declines are mainly due to the continued competitive
pressures in the retail industry coupled with the closure of underperforming
stores under the Registrant's store closing program.
A decline in sales was experienced by both the Mexican and Canadian
operations for the second quarter as well as the year-to-date period. Sales in
this group fell by $5 million, or 8.52.2
percent for the second quarter and $11
million, or 9.9year-to-date periods, respectively.
Comparable-store sales decreased by 4.5 percent for the year-to-date period. Excluding the negative
impact of foreign currency fluctuations, sales declined 4.1and 4.8 percent for the second
quarter and 6.7 percent year-to-date. Cooler weather conditions and 16
fewer stores contributed to these declines.
-10-
11year-to-date periods, respectively.
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) July 27, July 29,26, July 27, July 29,26, July 27,
1997 1996 19951997 1996
1995
-------- -------- -------- ------------ ---- ---- ----
By Segment:
Specialty $ 83 $ 96 $ 36141 $ 131 $ 16135
International General Merchandise (26) (16) (47) (62)(9) (18) (12) (30)
Net gain on sales of real estate 13 17 13 32-- 6 4 6
Disposed operations (14) (7) (28) (35)
----- ----- ----- ------- (12) (2) (31)
------- ------- ------- -------
$ 6974 $ 3072 $ 69131 $ (49)
===== ===== ===== =====80
======= ======= ======= =======
By geographic area:
Domestic $ 7174 $ 4181 $ 113141 $ 14132
International (1) (21) (29) (60)-- (3) (12) (27)
Net gain on sales of real estate 13 17 13 32-- 6 4 6
Disposed operations (14) (7) (28) (35)
----- ----- ----- ------- (12) (2) (31)
------- ------- ------- -------
$ 6974 $ 3072 $ 69131 $ (49)
===== ===== ===== =====80
======= ======= ======= =======
-11-
12
Specialty
Segment
Specialty segment's operating profit decreased by $13 million, or 13.5
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 assortment for the
fourth quarter. Year-to-date operating profits increased $6 million or 4.4
percent as compared with the corresponding period of 1996, which is primarily
due to sales and gross margin increases achieved by the Athletic Group in the
first quarter of 1997.
The Specialty Footwear segment improved operating results 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 improved
by $60$9 million and $115$18 million overfor the 1995quarter and year-to-date periods as
compared with the second quarter and year-to-date periods of 1996, respectively.
This was
primarily due to the specialty businesses' expense reduction combined with
increased sales achieved by the Athletic Group . Specialty operating results for
1995 included a $16 million first quarter charge to reduce aged and discontinued
merchandise, as part of theThe Registrant's inventory improvement program.
General Merchandise
Total General Merchandise second quarter operating results decreased
by $10 million compared to the second quarter of 1995, mainly attributable to
declines in the United States. German operational results for the quarter were
comparable with 1995 second quarter operating results, despite a second quarter
1996 $10 million charge for early retirement costs relating to workforce
reduction programs being implemented. Year-to-date operating results show
improvement compared to 1995. U.S. general merchandise operations have significantly lowered its operating loss
through reduced losses through expense control. Germany and other countries'expenses by operating results
reflect modest year-to-date loss reductions. General Merchandise operating
results for 1995 includewith a first quarter $22 million charge to reduce aged and
discontinued merchandise.more flexible, smaller workforce.
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.
-11-
12
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided byused in operating activities was $13$113 million for the
twenty-six weeks ended July 27, 1996,26, 1997, as compared to $196with cash provided of $16
million used in the comparable prior-year period. The increase in cash provided during 1996 compared to
1995 primarily reflects improved operating results, produced byused resulted
from the Registrant'stiming of inventory and cost reduction programs.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 $7$177 million for the
twenty-six weeks ended July 27, 1996,26, 1997, as compared to $23with cash provided of $4
million during the corresponding period in 1995.1996. The reduced utilizationincrease in cash used for
investing was due to the January 30, 1997 cash acquisition of cash in 1996 reflects
a reduction in capital expendituresEastbay and
a reduction in proceeds from the sale
of real estate and other assets.increased new store development spending for existing formats. Capital
expenditures increased by $20 million as compared to the prior-year second
quarter; approximately $285 million of approximately $176
millioncapital expenditures are planned for the
full1997 fiscal year 1996, an increase of $28as compared with $134 million over
earlier plans. This relates principally to the acceleration of Athletic Group
store growth and logistics improvements.in 1996.
Inventories declined $313decreased $43 million to $1,491$1,216 million atas of July 27, 1996,26,
1997, from the level ata restated $1,259 million as of July 29, 1995, but increased $127 million from the level at
January 27, 1996. The decrease from the
second quarter of 19951996 reflects the Registrant's successfulmerchandise improvement efforts
as well as the sale of Silk & Satin, Lady Plus, Rubin and Moderna chains. The
$150 million increase in inventory improvement programlevels 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 million as compared
with the 1996 second quarter and increased by $66 million to $352 million as
compared with the reduction of
inventories as a result of the divestiture of the Drug Mart and Accessory Lady
chains.year-end level. The increase from January 27, 1996 levels is a normal25, 1997 coincides
with the seasonal increase prior to peak selling periods, and is financed by short-term debt and accounts
payable.
Accounts payable of $419 million decreased by $56 million compared to
the second quarter 1995 and increased $98 million compared to January 27,1996.
These changes are directly associated with inventory levels.in inventory.
Short-term debt decreased $723$99 million as compared with July 27, 1996
due to July 29, 1995 levels
andrepayment using cash generated from operations. Short-term debt increased
by $68$38 million from the year-end level attributable to $137 million. The
decrease from July 29, 1995 primarily reflects the refinancingfinancing of short-term
debt through the issuance of $90 million of long-term debt combined with lower
levels necessary to finance inventories. Aggregate debt has declined $686
million from the prior year. The Registrant was also able to reduce debt levels
by selling non-strategic assets and continuing cost reduction programs.
The Registrant has a $1.0 billion three-year facility available
through May 1998.seasonal
working capital needs.
Interest expense for the second quarter of 1996,thirteen weeks ended July 26, 1997, decreased
$14$4 million
or 42.4 percent over the comparable 19951996 period. Interest expense for the
year-to-date period decreased $26 million, or 40.0 percent. The decrease from
the second quarter is$10 million. These declines were attributable to
the reduction in total debt levels of $686$139 million compared toas well as lower financing
costs resulting from renegotiation of the prior year period.Registrant's credit agreement.
Shareholders' equity at July 27, 199626, 1997 decreased $152$245 million from the
level at July 29, 1995. TheJanuary 25, 1997. This decrease includes a non-cash pre-taxwas primarily attributable to the
after-tax charge for discontinued operations of $241$195 million ($165 million after-tax) for the adoption of Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of"changes in
the fourth quarter of
1995.
On August 14, 1996, the Registrant announced that its Board of
Directors called for the redemption of all of the outstanding shares of the
Registrant's $2.20 Series A Convertible Preferred Stock ("Preferred Stock") on
October 23, 1996 at the redemption price of $45 per shares. Shares of Preferred
Stock may be converted into shares of the Registrant's Common Stock at the rate
of 5.68 shares of Common Stock for each share of Preferred Stock.
-12-
13foreign currency exchange rates.
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 pages 7
throughpage 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
13, 1996,12, 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 19961997 Annual Meeting and Proxy Statement, both dated May 6, 1996.5, 1997.
(b) Each of Jarobin Gilbert Jr., Margaret P. MacKimm and John J.
Carter Bacot, Purdy Crawford, Philip H. Geier, Jr. and
Dale W. Hilpert wasMackowski were elected as a director in Class IIIII for a three-year term ending
at the 1999 annual meeting of shareholders of the Registrant.Registrant in 2000. All of such
individuals previously served as directors of the Registrant. J. Carter Bacot,
Purdy Crawford, Roger N. Farah, Helen Galland, Jarobin Gilbert,Philip H. Geier Jr., Margaret P. MacKimm, John J. Mackowski,Dale W. Hilpert, James E.
Preston and Christopher A. Sinclair, having previously been elected directors of
the Registrant for terms continuing beyond the 19961997 annual meeting of
shareholders, continue in office as directors. Seymour H. Knox III, whose
term of office would have continued beyond the 1996 annual meeting, died on May
22, 1996. John W. AdamsHelen Galland retired as a
director at the 19961997 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
- -------------------- ----------- -------------- ----------------
J. Carter Bacot 112,993,247 1,488,421Abstentions 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
Purdy Crawford 113,015,187 1,466,481 0
Philip H. Geier, Jr. 112,994,002 1,487,666 0
Dale W. Hilpert 112,986,294 1,495,374 0
(2) Woolworth Corporation Directors' Stock Plan:
Votes For Votes Against Abstentions Broker Non-Votes
- -------------------- ------------- -------------- ----------------
109,591,653 3,765,064 1,124,951 0
(3) Amended and Restated Annual Incentive Compensation Plan:
Votes For Votes Against Abstentions Broker Non-Votes
- -------------------- ------------- -------------- ----------------
108,698,532 4,236,859 1,546,277 0
-13-
14
(4) Amended(2) Amendments to the Certificate of Incorporation and Restated Long-Term Incentive Compensation Plan:
Votes For Votes Against Abstentions Broker Non-Votes
- -------------------- ------------- -------------- ----------------
108,664,715 4,201,205 1,615,748By-laws:
Votes For Votes Against Abstentions Broker Non-Votes
- --------------------- ------------- -------------- ----------------
110,678,945 880,980 554,187 0
(5)(3) Ratification of the appointment of KPMG Peat Marwick LLP as independent
accountants for the fiscal year beginning January 28, 1996:
Votes For Votes Against Abstentions Broker Non-Votes
- -------------------- ------------- -------------- ----------------
113,413,923 545,226 522,51926, 1997:
Votes For Votes Against Abstentions Broker Non-Votes
- --------------------- ------------- -------------- ----------------
111,585,116 209,116 319,880 0
(6)(4) Shareholder Proposal regarding the spinoffon reinstatement of the Athletic Division:
Votes For Votes Against Abstentions Broker Non-Votes
- -------------------- ------------- -------------- ----------------
13,353,247 86,230,256 1,447,810 13,450,355
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 May 1, 1996,April 30, 1997, there
were issued and outstanding 133,083,673134,209,670 shares of the Registrant's Common Stock,
par value $.01 per share ("Common Stock"), and 97,240 shares of the Registrant's
$2.20 Series A Convertible Preferred Stock, par value $1.00 per share
("Preferred Stock"). There were represented at the
meeting, in person or by proxy, 114,421,973112,114,112 shares of Common Stock and 59,695 shares of Preferred Stock. Such shares
represented 85.9583.54 percent of the total number of shares of such classesclass 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 16
through 18. The exhibits which are in this report immediately follow the index.
(b) Reports on Form 8-K
There were no reportsThe Registrant filed a report on Form 8-K filed fordated July 17, 1997 (date of
earliest event reported) reporting that the three months ended July
27, 1996.Registrant was exiting its domestic
Woolworth general merchandise business.
-14-
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 6, 19964, 1997 /s/ Andrew P. Hines
-------------------
ANDREW P. HINES
SeniorBruce L. Hartman
--------------------
BRUCE L. HARTMAN
Vice President and Chief Financial OfficerController
(Principal Accounting Officer)
-15-
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 (incorporated herein by
reference to Exhibit 3(a) to the Registration
Statement on Form S-4 filed by the Registrant with
the Securities and Exchange Commission ("SEC") on
May 9, 1989 (Registration No. 33-28469) (the "S-4
Registration Statement").1989.
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 (incorporated herein by reference to
Exhibit 3(b) to the Registration Statement on Form
8-B filed by the Registrant with the SEC on August
7, 1989 (Registration No. 1-10299) (the "8-B
Registration Statement")) and (b) July 24,
1990 (incorporated herein by reference to Exhibit 4(a)
to the Quarterly Report on Form 10-Q for the
quarterly period endedand (c) July 28, 1990, filed by the
Registrant with the SEC on September 7, 1990 (the
"Form 10-Q")).9, 1997.
3(ii) By-laws of the Registrant, as amended (incorporated
herein by reference to Exhibit 3(ii) to the
Registrant's Annual Report on Form 10-K for the
year ended January 28, 1995, filed by the
Registrant with the SEC on April 24, 1995 (the
"1994 10-K")).amended.
4(a) 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) Exhibit
3(a)Exhibits 3 (i) (a) and 3 (i) (b) to the S-4 Registration Statement, (b) Exhibit
3(b) to the 8-B Registration Statement and (c)
Exhibit 4(a) to thethis
Form 10-Q).10-Q.
4(b) Rights Agreement dated as of April 4, 1988,
as amended January 11, 1989, between F.W.
Woolworth Co. ("FWW") and Morgan Shareholder
Services Trust Company (now, First Chicago
Trust Company of New York), as Rights Agent
(incorporated herein by reference to (a)
Exhibit 1 to the Registration Statement on
Form 8-A filed by FWW with the SECSecurities and
Exchange Commission ("SEC") on April 12, 1988
(Registration No. 1-238) and (b) the Form 8
Amendment to such Form 8-A filed
-16-
17 by FWW with
the SEC on January 13, 1989). 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
S- 4 Registration Statement)Statement on Form S-4 filed by
the Registrant with the SEC on May 9, 1989
(Registration No. 33-28469)).
4(c) 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) 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) Form of 8-1/2% Debentures due 2022
(incorporated herein by reference to Exhibit
4 to Registrant's Form 8-K dated January 16,
1992).
4(f) Purchase Agreement dated June 1, 1995 and
Form of 7% Notes due 2000 (incorporated
herein by reference to Exhibits 1 and 4,
respectively, to Registrant's Form 8-K dated
June 7, 1995).
4(g) 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
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 *
-17-
18
22 *
23 *
24 *
25 *
26 *
27 Financial Data Schedule, which is submitted
electronically to the SEC for information
only and not filed.
-17-
18
99 Independent Accountants' Review Report.
- ------------------------------
* Not applicable
-18-
19
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.
27 Financial Data Schedule.
99 Independent Accountants' Review Report.