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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549-1004
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934 (Fee Required)
For the 52-Week Period Ended Commission File
December 31, 1994 No. 0-17540
MONTGOMERY WARD HOLDING CORP.
(Exact name of registrant as specified in its charter)
DELAWARE 36-3571585
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
Montgomery Ward Plaza, Chicago, Illinois 60671-0042
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, including area code: (312) 467-2000
Securities registered pursuant to Section 12(b) of the Act
Title of each class Name of each exchange
on which registered
Not Applicable None
Securities registered pursuant to Section 12(g) of the Act:
Class A Common Stock, Series 1, $.01 Par Value
(Title of class)
Class A Common Stock, Series 2, $.01 Par Value
(Title of class)
Voting Trust Certificates representing Shares of Class A Common
Stock, Series 1, $.01 Par Value
(Title of class)
Voting Trust Certificates representing Shares of Class A Common
Stock, Series 2, $.01 Par Value
(Title of class)
Class B Common Stock, $.01 Par Value
(Title of class)
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein, and
will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. .
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 .
At March 22, 1995, there were 19,204,435 shares of Class A Common
Stock and 25,000,000 shares of Class B Common Stock of the
Registrant outstanding.
Part III incorporates information by reference from the proxy
statement for the annual meeting of shareholders to be held on May
12, 1995.
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PART I
Item 1. Business.
General
Montgomery Ward Holding Corp., a Delaware corporation formerly
named BFB Acquisition Corp. (the Company or MW Holding), and its
wholly-owned subsidiary, Montgomery Ward & Co., Incorporated
(Montgomery Ward), are engaged in retail merchandising and direct
response marketing (including insurance) in the United States. See
Note 20 to the Consolidated Financial Statements for financial
information regarding these segments.
Founded in 1872 and incorporated in Illinois in 1968, Montgomery
Ward is one of the nation's largest retail merchandising
organizations. As of December 31, 1994, Montgomery Ward and its
indirectly, wholly-owned subsidiary Lechmere, Inc., a Massachusetts
corporation (Lechmere), operated 402 retail stores in 43 states
with approximately 29 million square feet of selling space. In
addition, Montgomery Ward operated 13 liquidation centers which
sell overstock merchandise, 22 distribution facilities and 112
product service centers.
Montgomery Ward offers life and health insurance, revolving
credit insurance, club products and other consumer services through
Signature Financial/Marketing, Inc., a Delaware corporation
(Signature), and through Signature's subsidiaries (collectively,
with Signature, the Signature Group). Signature is one of the
largest direct marketing companies in the United States.
Merchandising
Montgomery Ward has grown to become one of the largest privately
held retailers in the United States with over $7 billion in annual
revenues. The Company is among the largest retailers in the
country in electronics, appliances, furniture and fine jewelry. It
is also one of the largest retailers of many prominent name brands,
including Sony, Maytag, General Electric, La-Z-Boy, Sealy, Lee,
Munsingwear and Bugle Boy.
Montgomery Ward's specialty concepts combine a focus on specific
customer needs, dominant merchandise assortments, updated
presentation and aggressive marketing strategies. The specialty
categories within Montgomery Ward are the following:
Product Category Specialty Concept
Appliances and Electronics Electric Avenue and
Electric Avenue & More
Home Furnishings Home Ideas and Rooms & More
Automotive Auto Express
Apparel Apparel Store and Kids Store
Jewelry Gold 'N Gems
Item 1. Business. (continued)
Merchandising (continued)
Each specialty strategy has its own business structure which
focuses on its specific competition, customer preferences and
merchandising, marketing and customer service priorities. However,
being a leading national retailer with multiple specialty concepts
provides the Company with significant buying and cost leverage.
Electric Avenue is a combined consumer electronics and appliance
superstore offering all major product categories, including video,
audio, home office, telephones, electronic games and kitchen,
laundry and other major appliances. Electric Avenue has a
significant national brand name assortment, including Sony, Maytag,
General Electric, Panasonic, IBM, Apple, Bose, Nintendo and Sega.
Its national brands are supplemented with proprietary brands,
exclusive to Montgomery Ward for certain electronic and appliance
categories, featuring the Bell + Howell and Admiral names under
trademark licensing agreements.
Home Ideas offers a full complement of home furnishings:
furniture, bedding, home accessories, kitchen accessories and
domestic soft goods. The Rooms & More concept offers accessorized
furniture room groupings to provide customers the convenience of
coordinated furniture pieces and accessories aggressively priced
through tiered discounts on the purchase of multiple pieces. The
broad name brand selection includes Bassett, Lane and La-Z-Boy, and
the Company is one of the few retailers to offer all four major
mattress brands (Simmons, Sealy, Serta and Spring Air). The
success of the Home Ideas and Rooms & More specialty concepts has
resulted in Montgomery Ward becoming one of the four largest
furniture retailers in the United States.
Auto Express focuses on the sale and installation of tires,
batteries, brakes and shocks. Montgomery Ward is a major retailer
of Michelin, B.F. Goodrich, Bridgestone, Monroe and NAPA products.
Auto Express supplements its dominant merchandise offering with a
strong commitment to customer service and a focus on those services
it is capable of delivering at a high performance level. Auto
Express adds creditability to its service commitment through its
marketing pledges which include price matching guarantees, service
time guarantees and a "No Excuses" refund/replacement guarantee for
30 days following service.
The Apparel Store and Kids Store offers womens', mens',
childrens' and intimate apparel as well as footwear and
accessories. Each category carries merchandise dominance and
delivers a focused, contemporary and coordinated offering which
matches middle income casual and career lifestyles. An impressive
offering of prominent name brands has been built, including Lee,
Item 1. Business. (continued)
Merchandising (continued)
Bugle Boy, Playtex, Bestform and Converse. In addition, the
Company's creation of a product development organization has
enabled it to develop proprietary brands for certain product
categories, such as Munsingwear mens' apparel, Ship N Shore womens'
apparel and Bike athletic and activewear apparel.
Gold 'N Gems is a jewelry specialty concept which sells diamonds,
gem stones, gold and watches. Gold 'N Gems emphasizes exceptional
values through a wide range of price points. Montgomery Ward has
become one of the largest fine jewelry retailers in the country.
Montgomery Ward currently operates 340 full line stores featuring
all of the specialty concepts and 62 stores featuring a variety of
other formats, including 28 Lechmere stores and 6 Electric Avenue
& More stores. Full line Montgomery Ward stores average
approximately 75,000 square feet of selling space.
Montgomery Ward's retail business is seasonal, with one-third of
the sales traditionally occurring in the fourth quarter. The
results of Montgomery Ward's operations are also subject to changes
in consumer demand associated with general economic conditions,
which is especially true with respect to demand for durable goods
and other "big ticket" merchandise.
Montgomery Ward's retail operations are supported by its
corporate buying division which has its principal office in
Chicago, and includes foreign purchasing offices in Italy, Hong
Kong, Taiwan, Japan, Singapore and Korea. In addition to its
buying staff, the corporate buying division employs designers and
technical teams to ensure quality control of Montgomery Ward's
merchandise.
The Company considers logistics to be important to its operations
and continued to invest in logistics during 1994. A new
distribution center in Phoenix, Arizona was opened in May, 1994 to
service Montgomery Ward's western territory. The new Phoenix
facility, along with the facilities opened in Tampa in 1993,
Baltimore in 1992 and southern California in 1991, incorporates
distribution management systems which are more dynamic in tracking
merchandise and facilitating inventory planning and customer
service.
Corporate Expansion
In March 1994, Montgomery Ward acquired Lechmere, a chain of
northeast-based superstores. The Company's acquisition of Lechmere
adds substantial volume to a highly successful specialty segment of
Item 1. Business. (continued)
Corporate Expansion (continued)
the Company's business. The addition of Lechmere to Montgomery
Ward's sales base contributed to an over 27% increase and record
volume of over $4 billion in its sales of home-oriented products
(home furnishings, home office, electronics and appliances).
Lechmere offers extensive selections of hardline merchandise and
currently operates 28 stores averaging approximately 50,000 square
feet of selling space. Lechmere has built a strong customer
franchise and is believed to be the marketshare leader in the
greater Boston area in many of the products it sells. It offers a
comprehensive selection of nationally recognized brands which are
now being supplemented with Montgomery Ward's successful
proprietary brands. Leverage opportunities from the acquisition
are being realized through added buying volume and expense
consolidation.
In 1994, Montgomery Ward opened 16 new stores (including 4
Lechmere stores), and has opened 90 new stores (including the 4
Lechmere stores referenced earlier), since 1985. The ongoing store
opening program has resulted in such stores representing a
significant portion, 22%, of the Company's total stores. Six of
the new store openings in 1994 were Montgomery Ward's newest
specialty format, Electric Avenue & More. This new retail concept
combines Montgomery Ward's most successful strategies, Electric
Avenue, Rooms & More and Gold 'N Gems, with Lechmere's strong
offering in entertainment and housewares to create a dominant home-
oriented product offering. Electric Avenue & More is designed for
mid-size markets with populations of 150,000 to 300,000 and for a
superstore format of approximately 65,000 gross square feet.
Montgomery Ward has substantial buying and operating leverage
compared to the more limited competition in these markets. Given
the favorable performance of the Electric Avenue & More stores
opened in 1994, the Company plans to increase the Electric Avenue
& More openings going forward. In addition, the Company is
planning to continue opening full line Montgomery Ward stores in
regional shopping centers and Lechmere stores in the northeast
United States.
In August 1994, Montgomery Ward introduced "The Electric Avenue
& More Program", a home shopping program carried on ValueVision, a
home-shopping television program. The test was the first
television shopping program produced for a major national retailer
of consumer electronics and appliances. "The Electric Avenue &
More Program" generated strong sales of high quality, brand name,
big ticket merchandise and offered customers the convenience of
using the Montgomery Ward credit card to finance their purchases.
In December 1994, Montgomery Ward announced its plan to purchase an
equity interest in ValueVision International, Inc., through an
agreement allowing Montgomery Ward to acquire up to 49% ownership
Item 1. Business. (continued)
Corporate Expansion (continued)
of the company, should ValueVision achieve certain growth targets
in the number of cable homes that carry its programming.
ValueVision also reached a 7-year, non-cancelable agreement with
Time Warner Cable Company to launch ValueVision programming in 2.5
million homes. After this addition, 14 million homes will be able
to receive ValueVision programs, and 3.4 million of these will be
able to receive programming 24 hours per day. See Note 19 to the
Consolidated Financial Statements.
In July, 1994, Montgomery Ward, through a subsidiary, became a
limited partner in Merchant Partners Limited Partnership. The
purpose of this partnership is to invest in new and emerging growth
businesses and leveraged buy-outs to achieve a superior rate of
return. Montgomery Ward made a capital contribution of $1 million
to Merchant Partners Limited Partnership in 1994. Additional
funding may be required within limitations set forth in the limited
partnership agreement. The cumulative maximum capital contribution
is $40 million.
Montgomery Ward considers acquisitions, particularly those that
would generate synergies with existing businesses, to be an area of
growth for the Company and is actively seeking such opportunities.
Direct Marketing
Montgomery Ward offers life and health insurance, revolving
credit insurance, club products and other consumer services through
the Signature Group. As a recognized leader in sophisticated
segmentation scoring models, Signature is among the premier direct
marketers in the country. During 1994, Signature made 380 million
direct mail solicitations and 50 million telemarketing
presentations from its 13 telemarketing centers located throughout
the United States. At year-end 1994, Signature had 10.4 million
policyholders and club memberships, a 33% increase over year-end
1993.
The Company believes that Signature has the broadest major
product offering among direct marketers. Its legal services club
is the largest United States provider of voluntary legal services,
it operates the second largest national auto club in the country,
and it has a unique dental plan which offers discounted and free
dental services for a monthly fee. Signature has developed a
substantial network of service providers to support these clubs.
Its dispatch towing network for Auto Club members exceeds 6,500
towing companies with a fleet of over 32,000 tow trucks. Its legal
plan network includes 2,200 attorneys with thirteen years average
experience and the dental plan includes 7,900 dentists with sixteen
years average experience.
Item 1. Business. (continued)
Direct Marketing (continued)
Signature has marketing rights to the 8.8 million promotable
accounts in the Montgomery Ward credit card file, and Montgomery
Ward credit cardholders comprise the majority of Signature's
customers. The size and customer dynamics of the Montgomery Ward
file have allowed Signature to attain economies of scale which have
lowered its marketing and operating costs. Signature also markets
its products and services to the customers of more than 50 other
entities, providing 28.3 million promotable accounts, including
some of the nation's largest financial institutions, oil companies
and retailers. Signature's major clients include Chemical Bank,
First National Bank of Chicago, Mobil, Chase, Texaco, Associates,
USAA and CUNA, and revenues from these clients have grown to 31% of
its revenues.
Following successful introduction in Chicago and Minneapolis in
1993 of Signature's newest product, Dining a la Card, the Company
expanded into 15 major markets, including the West Coast, by year-
end 1994. Dining a la Card provides cash payments and marketing
opportunities to participating restaurants in exchange for future
restaurant purchase credits. The Dining Member receives a direct
monthly cash rebate equal to 20% of their entire bill, including
taxes and gratuity, at participating restaurants. Dining a la Card
then automatically withdraws its purchase credits from the
restaurant. The Company expects to continue expanding Dining a la
Card to additional markets in 1995.
In April 1994, Signature acquired Greater California Dental Plan
Services, Inc. and National Dental Services, Inc., California-based
companies which provide dental referral services and added
approximately 250,000 members to its dental services plan. Through
acquisition of these companies, Signature will be able to expand
its customer base into new demographic and geographic markets.
In October 1994, Signature acquired the North American operations
of Credit Card Sentinel, which offers protection for lost or stolen
credit cards. Signature is now the second largest credit card
registration company in the United States and Canada.
See Note 20 to the Consolidated Financial Statements for
restrictions on dividends which may be paid by insurance
subsidiaries of Signature.
Item 1. Business. (continued)
Specialty Catalog
In 1991, Montgomery Ward, through two newly formed subsidiaries,
became a 50% partner in Montgomery Ward Direct L.P. (MW Direct), a
specialty catalog business. The other 50% partners are subsid-
iaries of Fingerhut Companies, Inc. MW Direct generated $188
million in revenues in 1994, compared to $116 million in 1993, an
increase of 62%. These revenues are not included in the Company's
revenues. Following testing of a variety of specialty catalogs in
its first years of operation, Montgomery Ward Direct announced in
February 1995 that it will focus its marketing efforts on its most
successful specialty segment, its Home Catalog. In addition, it
will continue to produce and distribute gifts and certain seasonal
specialty merchandise catalogs which leverage Fingerhut's
resources. These changes, which would reduce revenues in the
short-term, are expected to enhance Montgomery Ward Direct's
profitability and strategically position it for future growth.
Competition and Regulation
The sale of merchandise by Montgomery Ward and Lechmere is
conducted under highly competitive conditions. Buying and selling
are each done in open competitive markets. Montgomery Ward's
stores are in competition with specialty stores, department stores
and other types of retail outlets in the areas in which they
operate. The Company believes that dominance of merchandise
assortments, brand names, competitive pricing and availability of
services such as credit, delivery, installation and repair, are the
principal factors which differentiate competitors. The Company
believes it competes effectively with respect to all of these
factors despite strong competitive pressures. To meet competition,
Montgomery Ward is continuously striving to improve the efficiency
and effectiveness of its operations and to modernize and specialize
its facilities.
Signature's insurance operations are highly regulated and
conducted under highly competitive conditions. To date, Signature
has been able to compete effectively with other companies which
offer programs similar to those provided by Signature. Signature
also competes with traditional methods of marketing that enjoy
widespread consumer acceptance, including unaffiliated dentists and
lawyers. Insurance companies operate pursuant to specific state
statues as well as rules and regulations promulgated by various
state insurance departments and are required to file reports with
such agencies at least quarterly.
Telemarketing and direct mail solicitations are regulated at
state and federal levels, and management believes that these
activities will increasingly be subject to such regulation. Such
Item 1. Business. (continued)
Competition and Regulation (continued)
regulation may limit Signature's ability to solicit new members or
to offer more products and services to existing members and may
materially adversely affect Signature's business and revenues.
The requirements of environmental protection laws and regulations
have not had a material effect upon Montgomery Ward's operations.
Compliance may, in certain cases, lengthen the lead time of
expansion plans and could increase construction and operating
costs.
Account Purchase Agreement
Montgomery Ward extends credit to its customers under an open-end
revolving credit plan. Montgomery Ward's private label credit card
sales were 55.9% and 57.4% of total sales for 1994 and 1993,
respectively. Bankcard sales were an additional 14.9% and 13.3% of
total sales for 1994 and 1993, respectively. Prior to June 22,
1988, Montgomery Ward financed the receivables under its revolving
credit plan by the sale of such receivables to a wholly-owned
subsidiary, Montgomery Ward Credit Corporation (Montgomery Ward
Credit). On June 22, 1988, Montgomery Ward Credit became a wholly-
owned subsidiary of General Electric Capital Corporation (GE
Capital).
On June 24, 1988, Montgomery Ward and Montgomery Ward Credit
entered into an Account Purchase Agreement pursuant to which
Montgomery Ward Credit purchases receivables from time to time
from, and provides services to, Montgomery Ward. Under this
agreement, Montgomery Ward Credit has the exclusive right to
operate the Montgomery Ward private label credit card system and
the obligation to purchase for their face value (and Montgomery
Ward is obligated to sell) all the receivables generated by the
Montgomery Ward private label credit card system, including those
generated through MW Direct, up to $6 billion at any time
outstanding. If Montgomery Ward desires to sell its customer
receivables at a time when Montgomery Ward Credit owns $6 billion
or more of such receivables, alternative arrangements, such as the
sale of receivables to banks or other financial institutions, would
be required unless Montgomery Ward Credit agrees to purchase the
excess. As of December 31, 1994, there were $5.2 billion of
Montgomery Ward private label credit card receivables owned by
Montgomery Ward Credit and the average outstanding amount of such
receivables owned by Montgomery Ward Credit during 1994 was $4.9
billion.
Pursuant to the Account Purchase Agreement, Montgomery Ward
Credit bears certain credit promotion expenses, while Montgomery
Item 1. Business. (continued)
Account Purchase Agreement (continued)
Ward retains certain specified in-store service responsibilities
with respect to credit operations. Decisions regarding certain
credit matters are determined by a management committee with
representatives from each party. Under the Account Purchase
Agreement, Montgomery Ward is required to pay Montgomery Ward
Credit the excess interest costs on a monthly basis if a blended
interest rate applicable to Montgomery Ward Credit's finance costs
with respect to the receivables exceeds 10% per annum. To date,
the blended interest rate has been less than 10%.
Under the Account Purchase Agreement, Montgomery Ward and
Montgomery Ward Credit have made certain arrangements with respect
to credit losses. Previously, credit losses were shared.
Effective January 1, 1994, Montgomery Ward bears the entire risk of
credit losses until such time as Montgomery Ward or Montgomery Ward
Credit elects to revert to the prior loss sharing arrangement.
Montgomery Ward's remaining liability for credit losses for 1991
through 1994, and its liability for credit losses for 1995 through
1997, may be deferred, and such deferred credit losses are payable
by Montgomery Ward to Montgomery Ward Credit in early 1998. To the
extent these deferred credit losses, less the deferred amount of
finance charges (other then incremental finance charges) described
below exceeds $300 million at any time, such excess is to be paid
annually in cash. The Company does not expect such amounts for the
period through 1997 to exceed the $300 million limitation.
Interest on Montgomery Ward's deferred liability for credit losses
is payable at a rate equal to rates on comparable borrowings of
Montgomery Ward.
In exchange for Montgomery Ward's agreement to allow Montgomery
Ward Credit to increase finance charge rates in selected states,
Montgomery Ward receives a share of incremental finance charges.
These incremental finance charges are deferred and payable by
Montgomery Ward Credit to Montgomery Ward in early 1998, together
with interest at the same rate as amounts owed by Montgomery Ward
to Montgomery Ward Credit. Incremental finance charges are
generated only on purchases subsequent to the date such finance
charge rates are increased. In the event that, due to the increase
in finance charge rates, certain refunds are required to be made,
Montgomery Ward and Montgomery Ward Credit have agreed to share the
financial risk. In addition, legislation has from time to time
been introduced in certain states which, if enacted, may impose
limitations on the ability to implement or maintain all or a
portion of such rate increases, in which case Montgomery Ward's
share of rate increases may be substantially reduced.
In addition to sharing incremental finance charges, beginning
in 1994, until such time as Montgomery Ward or Montgomery Ward
Item 1. Business. (continued)
Account Purchase Agreement (continued)
Credit elects to revert to the prior loss sharing arrangements,
with respect to each fiscal year, Montgomery Ward Credit will make
a payment (subject to the deferral for 1994 through 1997) to
Montgomery Ward of a share of all finance charges in an amount
equal to (a) if credit losses are 5% or less of average gross
receivables, the lesser of 3.9% of average gross receivables or the
actual credit losses; (b) if credit losses are greater than 5% but
less than or equal to 8% of average gross receivables, 3.9% of
average gross receivables plus 50% of the amount by which actual
credit losses exceed 5% of average gross receivables; or (c) if
credit losses exceed 8% of average gross receivables, 5.4% of
average gross receivables plus the amount by which credit losses
exceed 8% of average gross receivables. Nothwithstanding the
foregoing, in certain circumstances the amounts payable to
Montgomery Ward by Montgomery Ward Credit with respect to its share
of all finance charges are limited as follows: in the event that
total finance charges billed by Montgomey Ward Credit during a
fiscal year less Montgomery Ward's share of the incremental finance
charges are less than the amount which would otherwise be payable
to Montgomery Ward by Montgomery Ward Credits as it's share of the
finance charges as computed above, the payments by Montgomery Ward
Credit to Montgomery Ward will be reduced to the amount of such
total finance charges less such incremental finance charges.
In connection with the foregoing arrangements, the Company has
executed notes for the deferred credit losses which totalled $161
million with respect to credit losses from 1991 through 1994. The
incremental finance charge amount owed by Montgomery Ward Credit to
Montgomery Ward as of the end of 1994 was $24 million. See Note 4
to the Consolidated Financial Statements.
Montgomery Ward Credit has the right of first refusal to
implement certain new financing programs proposed by Montgomery
Ward.
The Account Purchase Agreement will be in effect until December
31, 2005 and thereafter from year to year unless either party gives
to the other not less than ten years prior notice of its election
to terminate. Except upon the occurrence of certain events of
default, the Account Purchase Agreement may generally not be
terminated by either party prior to December 31, 2005. GE Capital
has guaranteed Montgomery Ward Credit's obligations under the
Account Purchase Agreement.
Under the terms of a Letter Agreement dated June 24, 1988 among
Signature, Montgomery Ward Credit and Montgomery Ward, Montgomery
Ward Credit purchases the customer accounts receivable of Signature
Item 1. Business. (continued)
Account Purchase Agreement (continued)
on terms similar to those contained in the Account Purchase
Agreement, except for certain fees. In 1994, Signature paid
approximately $5 million to Montgomery Ward Credit for
administrative services provided by Montgomery Ward Credit in
connection with Signature products.
Associates
At December 31, 1994, Montgomery Ward and its subsidiaries
employed the equivalent of 58,600 full-time associates. During
certain seasons, temporary associates are added and peak employment
is approximately 72,600 associates during the Christmas season.
Approximately 2,650 Montgomery Ward and Lechmere associates are
covered by various collective bargaining agreements. The majority
of the agreements are currently in the process of negotiation with
the remaining contracts expiring in 1995. Montgomery Ward has
experienced no major labor-related interruption or curtailment of
operations during the last 15 years.
Item 2. Properties.
At December 31, 1994, the Company owned or leased 509 retail,
distribution and other operating facilities. The Company's
properties are located throughout the continental United States and
cover approximately 60 million square feet.
These properties are summarized as follows:
Number of Approximate
Use Locations Total Square Feet
Montgomery Ward
Retail Stores:
Full Line . . . . . . . . .340 44,215,000
Limited Line. . . . . . . 34 1,652,000
Lechmere Retail
Stores. . . . . . . . . . 28 2,543,000
Corporate Office
Complex . . . . . . . . . . 1 2,975,000
Miscellaneous Operating
Locations . . . . . . . . .106 8,256,000
Total Locations. . . . .509 59,641,000
Owned and leased retail stores include approximately 29 million
square feet of selling space and 19 million square feet devoted to
storage, office and related uses. Miscellaneous operating
locations include warehouses, office buildings and distribution
centers, but exclude vacant land parcels and properties held for
disposition. See Note 12 to the Consolidated Financial Statements
for information with respect to leased properties.
Item 2. Properties. (continued)
The nationwide scope of Montgomery Ward's operations helps
minimize the impact of changes in the economies of specific regions
on the overall performance of its retail stores and allows
Montgomery Ward to merchandise to a variety of demographic
profiles. The regional distribution of Montgomery Ward and
Lechmere retail stores as of December 31, 1994 is indicated in the
following table:
State Total
Alabama 3
Arizona 11
Arkansas 5
California 57
Colorado 13
Connecticut 4
Florida 22
Georgia 3
Idaho 1
Illinois 36
Indiana 8
Iowa 6
Kansas 6
Kentucky 2
Louisiana 6
Maine 1
Maryland 16
Massachusetts 13
Michigan 16
Minnesota 10
Missouri 10
Montana 2
Nebraska 2
Nevada 3
New Hampshire 6
New Mexico 3
New York 18
North Carolina 4
North Dakota 1
Ohio 5
Oklahoma 5
Oregon 8
Pennsylvania 14
Rhode Island 1
South Carolina 5
Tennessee 2
Texas 45
Vermont 1
Virginia 17
Washington 3
West Virginia 5
Wisconsin 2
Wyoming 1
402
Item 3. Legal Proceedings.
The Company and its subsidiaries are engaged in various
litigation and have a number of unresolved claims. While the
amounts claimed are substantial and the ultimate liability with
respect to such litigation and claims cannot be determined at this
time, management is of the opinion that such liability, to the
extent not provided for through insurance or otherwise, is not
likely to have a material impact on the financial condition or the
results of operations of the Company.
In 1979, a suit entitled "United States v. Midwest Solvent
Recovery, Inc., et.al." (Civil Action Number H-79-556) was
initiated by the United States Department of Justice on behalf of
the Environmental Protection Agency in the U.S. District Court for
the Northern District of Indiana, and an Amended Complaint was
filed in January 1984. This suit is against Standard T Chemical
Company, Inc., a Delaware corporation and wholly-owned subsidiary
of Montgomery Ward (Standard T), and others involving two waste
disposal sites and seeks reimbursement for the cost of surface
clean-up, investigation studies concerning possible contamination
of the soil and ground water and remedial action. In January 1990,
the United States filed a second Amended Complaint seeking inter
alia, treble damages and monetary sanctions. Standard T has signed
a consent decree, whereby it was obligated to provide a financial
assurance up to $3 million for remediation of the site and paid
civil penalties in the amount of $.1 million. The Company
currently anticipates that its obligation will not exceed those
amounts.
In 1985, the New York Environmental Protection Agency brought an
action for remediation of a site in Staten Island, New York against
the owner of the property. The owner asserted that Montgomery Ward
and Standard T, among others, generated wastes that were disposed
of at the site. Standard T is in the process of completing the
cleanup of this site and has purchased the site from the owner for
$1.45 million.
In February 1986, Standard T, along with approximately 330 other
companies, was notified by the United States Environmental
Protection Agency that the agency was mandating a remediation of
the contamination of the American Chemical Services, Inc. (A.C.S.)
site located in Griffith, Indiana, under authority vested in it by
the Comprehensive Environmental Response, Compensation and
Liability Act of 1980. Standard T and a Montgomery Ward paint
factory were each identified as a Potentially Responsible Party
(PRP), under the terms of the Act because of their alleged status
as generators of hazardous waste ultimately disposed of at the
A.C.S. site. The Company will pay its proportionate share of the
Item 3. Legal Proceedings. (continued)
costs of the studies, and may ultimately pay a share of the costs
of abating the contamination of the A.C.S. property. One estimate
by the EPA of future costs is $69 million with the Company alleged
to be responsible for 2 to 2 1/2% of total costs. However, these
costs cannot be estimated with any degree of accuracy at this time.
Thus, the Company is currently not in a position to estimate the
range or amount of potential exposure in this matter with a high
degree of certainty.
On or about December 10, 1990, the Company was served with a
Complaint and Notice of Opportunity for Hearing (Complaint),
alleging certain violations by the Company of the Federal Toxic
Substances Control Act (TSCA). The Complaint contains twenty-two
counts and alleges that the Company violated various regulations
concerning the use, disposal, storage and marking of
polychlorinated biphenyls (PCBs) at a warehouse facility located in
Kansas City, Missouri. The Complaint seeks a total civil penalty
of $.3 million.
Standard T and Montgomery Ward are also involved at various
stages with several other sites where Standard T and Montgomery
Ward have been notified or sued as a PRP. The potential liability
related to these sites cannot be estimated at this time.
Item 4. Submission of Matters to a Vote of Security Holders.
Pursuant to a Proxy Statement dated October 17, 1994, the
stockholders of the Company were asked to execute consents in lieu
of a special meeting of the stockholders of the Company. All of
the stockholders of record of the Company executed and returned the
consents before October 20, 1994. Pursuant to the consent, the
stockholders (i) approved a Certificate of Amendment to the
Certificate of Incorporation of the Company, authorizing 2,000,000
additional shares of Class A Common Stock, Series 3, and revising
the Certificate of Incorporation to conform the size of the Board
of Directors to its current membership; and (ii) approved an
amendment to the Montgomery Ward & Co., Incorporated Stock
Ownership Plan (the "Plan") reserving the 2,000,000 newly
authorized shares of Class A Common Stock, Series 3, of the
Company, for issuance under the Plan.
EXECUTIVE OFFICERS OF THE REGISTRANT
Listed below are the names and ages of the executive officers of
the Company as of March 17, 1995, and the positions each has held
during the past five years:
Bernard F. Brennan, 56, has been Chief Executive Officer
and a director of the Company since February 9, 1988, Chairman
since June 17, 1988 and was President from February 9, 1988 through
September 10, 1992. Mr. Brennan has been Chief Executive Officer
and a director of Montgomery Ward since May 13, 1985 and became
Chairman of Montgomery Ward on June 24, 1988. He served as
President of Montgomery Ward from May 13, 1985 through September
10, 1992. Mr. Brennan has been a director of Itel Corporation
since 1988 and a director of ANTEC Corporation since October 1993.
Richard M. Bergel, 59, has been Vice Chairman of the Company
since June 25, 1993 and a director since June 24, 1988. Prior
thereto he was Executive Vice President from June 17, 1988 through
June 24, 1993. Mr. Bergel has been Vice Chairman, Operations and
Catalog of Montgomery Ward since June 25, 1993. Prior thereto, he
was Executive Vice President and President of Specialty Catalogs of
Montgomery Ward from June 16, 1991 to June 24, 1993. He was
President of Store Operations from March 3, 1989 through June 15,
1991. Mr. Bergel has been President of MW Direct since October 21,
1991 and Chairman and Chief Executive Officer of Lechmere since
March 30, 1994.
Bernard W. Andrews, 53, has been President and a director of the
Company since January 28, 1994. Mr. Andrews has been President and
Chief Operating Officer of Montgomery Ward since January 28, 1994.
Prior thereto, he served as Executive Vice President of Operations
of Circuit City Stores, Incorporated from March 1991 to January
1994, and Executive Vice President of Marketing of Circuit City
Stores from October 1990 to February 1991. He was Executive Vice
President and President of Marketing of Montgomery Ward from May
18, 1990 through June 16, 1990 and Executive Vice President and
President of Home and Automotive Group from August 18, 1986 to May
17, 1990.
Spencer H. Heine, 52, has been an Executive Vice President,
Secretary and General Counsel of the Company since September 30,
1991 and a director since May 15, 1992. Prior thereto, he was
Senior Vice President, Secretary and General Counsel of the Company
from June 17, 1988 through September 29, 1991. Mr. Heine has been
Executive Vice President, Secretary and General Counsel of
Montgomery Ward and President-Montgomery Ward Properties since
April 12, 1994. Prior thereto, Mr. Heine served as Executive Vice
President, Legal and Financial Services of Montgomery Ward from
September 30, 1991 through April 11, 1994. He served as Senior
Vice President-Legal and Real Estate from March 28, 1990 through
Executive Officers of the Registrant (continued)
September 29, 1991. Mr. Heine was Chairman and Chief Executive
Officer of Signature from March 8, 1993 through April 11, 1994.
Prior thereto, he also served as President of Signature since
September 30, 1991.
Robert A. Kasenter, 48, has been an Executive Vice President of
the Company since February 21, 1992. Prior thereto, he was a
Senior Vice President of the Company from June 17, 1988 through
February 20, 1992. Mr. Kasenter has served as Executive Vice
President, Human Resources of Montgomery Ward since January 27,
1992 and was Senior Vice President-Human Resources and Customer
Satisfaction from June 23, 1988 to January 26, 1992.
Edwin G. Pohlmann, 47, has been an Executive Vice President since
September 30, 1991 and served as Chief Financial Officer of the
Company from September 30, 1991 to August 30, 1992. Prior thereto,
he was Senior Vice President and Chief Accounting Officer from May
18, 1990 to September 29, 1991, and Senior Vice President-Finance
from June 17, 1988 through May 17, 1990. Mr. Pohlmann has been
Executive Vice President, Merchandise and Store Operations of
Montgomery Ward since November 16, 1993. Prior thereto, he was
Executive Vice President, Merchandise Control from June 25, 1993
through November 15, 1993, Executive Vice President, Stores and
Finance of Montgomery Ward from January 27, 1992 to June 24, 1993
and prior thereto, Executive Vice President and Chief Financial
Officer since September 30, 1991. He served as Senior Vice
President-Store Operations of Montgomery Ward from June 16, 1991
through September 29, 1991 and was Senior Vice President-Finance of
Montgomery Ward from March 1, 1988 through June 15, 1991.
John L. Workman, 43, has been Executive Vice President, Chief
Financial Officer and Assistant Secretary of the Company since
January 28, 1994. Prior thereto, he served as Senior Vice
President, Chief Financial Officer and Assistant Secretary from
August 31, 1992 through January 27, 1994 and Vice President and
Assistant Secretary from May 15, 1992 through August 30, 1992. Mr.
Workman has been Executive Vice President and Chief Financial
Officer of Montgomery Ward since January 28, 1994 and served as
Senior Vice President and Chief Financial Officer from August 31,
1992 to January 27, 1994. Prior thereto, he served as Vice
President and Corporate Controller from January 16, 1991 through
August 30, 1992 and Corporate Controller from August 2, 1988
through January 15, 1991.
Tommy T. Cato, 53, served as an Executive Vice President of the
Company from May 15, 1992 until his current leave of absence which
began on February 4, 1994. Mr. Cato was Executive Vice President-
Logistics and Product Service of Montgomery Ward from November 8,
1990 until February 4, 1994 and was Senior Vice President-Logistics
Executive Officers of the Registrant (continued)
from March 3, 1989 until November 7, 1990. Mr. Cato is also on a
leave of absence from Montgomery Ward.
Richard C. Rusthoven, 54, served as an Executive Vice President
of the Company from May 15, 1992 until his current leave of absence
which began on November 1, 1992. Mr. Rusthoven was Executive Vice
President-Apparel of Montgomery Ward from February 20, 1992 through
October 31, 1992 and was Senior Vice President-Apparel from July 3,
1991 to February 19, 1992. He served as Vice President and General
Merchandise Manager, Men's Apparel, Footwear and Accessories
from June 6, 1990 to July 2, 1991. Prior thereto, he served
as President and Chief Operating Officer of Baddour, Inc., parent
company of Fred's Dollar Stores in Memphis, Tennessee from March
1990 to June 1990, and President and Chief Executive Officer,
Gentlemen's Warehouse from August 1989 to March 1990. Mr.
Rusthoven is also on a leave of absence from Montgomery Ward.
Carol J. Harms, 41, has been a Vice President and Treasurer of
the Company since January 1, 1989. Ms. Harms has been Vice
President and Treasurer of Montgomery Ward since May 1, 1988.
Robert F. Connolly, 51, has been Executive Vice President,
Apparel of Montgomery Ward since February 2, 1994. Prior thereto,
he was Senior Vice President and General Merchandise Manager,
Women's and Intimate Apparel, Accessories, Health and Beauty Aids
and Sundries of Wal-Mart Stores, Incorporated from August 1989 to
December 1993.
Gene C. McCaffrey, 49, has been Executive Vice President
Marketing, Sales Promotion and Business Development of Montgomery
Ward since November 30, 1994. Mr. McCaffrey served as Executive
Vice President-Marketing from August 4, 1992 to November 29, 1994,
Senior Vice President-Advertising from November 11, 1991 to August
3, 1992, Senior Vice President and General Merchandise Manager,
Intimates, Footwear and Accessories from September 19, 1991 to
November 10, 1991 and Senior Vice President-Merchandise Planning
from July 3, 1991 to September 18, 1991. Prior thereto, he served
as Vice President-Merchandise Planning from February 19, 1991 to
July 2, 1991, Vice President-Apparel Planning and Field
Merchandising from October 11, 1990 to February 18, 1991 and Vice
President-Apparel Planning and Product Development from July 28,
1989 to October 10, 1990.
G. Joseph Reddington, 53, has been a director of the Company and
of Montgomery Ward since September 22, 1994. Mr. Reddington has
been Chairman and Chief Executive Officer of Signature since April
12, 1994. Prior thereto, he was President of Sears Canada, Inc.
from 1989 until his retirement in December 1993. Mr. Reddington
has been a director of TransWorld Airlines since August 1993 and a
director of Loblaw Companies Ltd. since August 1994.
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters.
There is no established public trading market for the Common
Stock of the Company. All shares are subject to restrictions on
transfers contained in the Stockholders' Agreement dated as of June
17, 1988, as amended and restated (Stockholders' Agreement), or the
Terms and Conditions (Terms and Conditions) imposed under the
Montgomery Ward & Co., Incorporated Stock Ownership Plan (Stock
Ownership Plan). It is not expected that a market will develop in
the near term.
Transfers of shares of Class A Common Stock are restricted for
a period of three years from certain applicable dates under the
Stockholders' Agreement and the Terms and Conditions. Transfers of
Class A shares purchased other than pursuant to the Stock Ownership
Plan are restricted for a period of three years from the holder's
first acquisition of any such shares, while transfers of shares
received under the Stock Ownership Plan are restricted for a period
of three years after the award of such shares, exercise of purchase
rights for such shares or grant of options with respect to such
shares, as applicable. After the applicable three-year periods,
limited transfers of such shares which have become vested in
accordance with the Stockholders' Agreement or the Terms and
Conditions, as applicable, are permitted, subject to certain rights
of first refusal. All of the Class B shares and virtually all of
the outstanding Class A shares are eligible for transfer.
Montgomery Ward declared and paid common stock dividends of $22 million
and preferred stock dividends of $2 million to the Company in 1994, which
declared and paid common stock dividends of $22 million and
preferred stock dividends of $2 million in 1994. For information
concerning limitations on the amount of dividends which Montgomery
Ward may pay, see Note 11 to the Consolidated Financial Statements.
Future payments of dividends, if any, are dependent upon future
levels of earnings and capitalization.
As of March 22, 1995, there were three holders of record of Class
A Common Stock, Series 1, one such holder of Class A, Common Stock,
Series 2, and one such holder of Class B Common Stock. No shares
of Class A Common Stock, Series 3, were outstanding as of that
date. As of March 22, 1995, there were 122 holders of record of
Voting Trust Certificates representing beneficial ownership in
shares of Class A Common Stock, Series 1, of which 946,785 shares
are pledged as collateral for notes issued to effect the repurchase
of shares. See Note 14 to the Consolidated Financial Statements.
There were 274 holders of record of Voting Trust Certificates
representing beneficial ownership in shares of Class A Common
Stock, Series 2.
Item 6. Selected Financial Data
The following summary of certain financial information for each
of the five fiscal years in the period ended December 31, 1994 has
been derived from the Consolidated Financial Statements of MW
Holding. Such information for each fiscal year should be read in
conjunction with the Consolidated Financial Statements and notes
thereto and the report of Arthur Andersen LLP beginning on page 27.
As of and for the
52-Week 53-Week 52-Week
Period Ended Period Ended Period Ended
Dec. 29, Dec. 28, Jan. 2, Jan. 1, Dec. 31,
1990 1991 1993 1994 1994
(Dollars in millions, except per share amounts)
Total
Revenues $5,595 $5,674 $5,806 $6,029 $7,038
Net Income
(a) 153 135 100 101 117
Net Income
Applicable
to Common
Share-
holders(a) 140 122 92 101 115
Net Income
per Class A
Common
Share (a) 2.79 2.40 2.01 2.29 2.68
Total
Assets 3,906 3,948 3,485 3,835 4,540
Long-Term
Debt 651 521 125 213 228
Obligations
Under
Capital
Leases 111 104 95 89 81
Total Share-
holders'
Equity 421 520 553 607 687
Redeemable
Preferred
Stock 90 90 - - 75
Cash Divi-
dends per
Common
Share - - .25 .50 .50
(a) 1992 amounts are presented before cumulative effect of
changes in accounting principles. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" for a discussion of the significant impact of
these changes.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
The following discussion and analysis of results of operations
for the Company compares 1994 to 1993, as well as 1993 to 1992.
Montgomery Ward is on a 52- or 53-week fiscal year basis. As a
result, 1994 and 1993 are 52-week years, and 1992 is a 53-week
year. All dollar amounts are in millions, and all income and
expense items and gains and losses are shown before income taxes,
unless specifically stated otherwise.
The Company's retail business is seasonal, with one-third of the
sales traditionally occurring in the fourth quarter.
Results of Operations: 1994 Compared with 1993
Consolidated net income increased $16, or 16%, from the prior
year. Consolidated net income applicable to common shareholders
for 1994 was $115, which was 14% greater than the prior year.
Consolidated total revenues (net sales and direct response
marketing revenues, including insurance) were $7,038 compared with
$6,029 in 1993. Net sales increased $944, or 17%. Sales on a
comparable store basis, which reflects only the stores in operation
for both 1994 and 1993, increased 3%. Non-comparable sales include
Lechmere sales of $694. Lechmere was acquired on March 30, 1994.
Non-comparable sales also include the sales of six "Electric Avenue
& More" stores opened during 1994. This new specialty power format
combines the appliances/electronics (Electric Avenue), furniture
(Rooms & More) and fine jewelry (Gold 'N Gems) specialty formats.
The stores, which include an expanded assortment, contain
Montgomery Ward's and Lechmere's most successful merchandise
categories in a format designed for mid-sized markets.
Direct response marketing revenues increased $65, or 16%, to
$465. The increase was primarily due to increased clubs membership
and insurance policyholder levels.
Gross margin (net sales less cost of goods sold) dollars,
including Lechmere, were $1,484, an increase of $111, or 8%, from
1993. This increase was due to the gross margin impact of the
increased sales ($273), partially offset by the decrease in the
margin rate on sales ($107), increased occupancy costs related to
new store openings ($40) and increased buying and other expenses
($15). The decrease in the margin rate was impacted by a heavier
emphasis in appliances and electronics and the lower margin rates
that accompany these businesses (which includes Lechmere) and
continued competitive pressures.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations. (continued)
Results of Operations: 1994 Compared with 1993 (continued)
Operating, selling, general and administrative expenses increased
$142, or 9%, from the prior year. Excluding Lechmere's expenses,
operating, selling, general and administrative expenses increased
by $37. The increase was due to the impact of new store openings
of $48 and increased benefits and losses of direct response
operations of $9, partially offset by increased income generated
from the sale of product service contracts of $18 (See Note 9 to
the Consolidated Financial Statements) and decreased other
operating and administrative costs of $2.
Net interest expense increased $15, or 35%, from the prior year.
The increase is due to a combination of increased borrowings,
primarily due to the acquisition of Lechmere, as well as increased
rates in 1994.
Income tax expense was $62, or 34% of income before income taxes,
for 1994 as compared to $59, or 37% of income before income taxes,
for 1993. The decrease in the effective income tax rate was caused
by an income tax adjustment due to the settlement of issues with
the Internal Revenue Service for the 1988 through 1990 tax years.
Results of Operations: 1993 Compared with 1992
Net income applicable to common shareholders before applying the
cumulative impact of accounting changes on retained earnings as of
December 29, 1991 increased by $9, or 10%. Consolidated net income
in 1993 was $101, an increase of $41, or 68%, from the prior year.
Net income for 1992 reflects a charge of $40 for the cumulative
effect of changes in accounting principles as a result of adoption
of Financial Accounting Standards Board (FASB) Statements No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions"
and No. 109, "Accounting for Income Taxes". Income tax expense of
$59 increased $9, or 18%, from 1992, of which $2 was due to the
impact of the increase in the Federal income tax rate from 34% to
35%.
Consolidated total revenues were $6,029, compared with $5,806 in
1992. Net sales increased $202, or 4%, over 1992, with an increase
of $303, or 6%, from prior year net of the impact of the 53rd week
in 1992. Apparel sales increased 1%, and hardlines sales
experienced increases of 6%. Net of the impact of the 53rd week in
1992, apparel sales increased 2%, and hardlines sales increased 8%.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations. (continued)
Results of Operations: 1993 Compared with 1992 (continued)
Management believes merchandise sales increases reflect the
positive impact of new strategic programs implemented throughout
Montgomery Ward. Sales on a comparable store basis, which reflect
only the stores in operation for 1993 and 1992, increased 2%.
Direct response marketing revenues increased $21, or 6%, to $400.
The increase was primarily due to increased clubs membership
levels.
Gross margin dollars were $1,373, a decrease of $7, or 1%, from
last year. This decrease was primarily due to the decrease in the
margin rate on sales ($57) and increased occupancy costs primarily
as a result of new store openings ($10) and increased buying and
other expenses ($2), partially offset by the gross margin impact
of the increased sales ($62). The strong sales increase in
Electric Avenue of 11% had an impact on the overall Company margin
rate as Electric Avenue generally has lower margin rates than other
merchandise categories.
Operating, selling, general and administrative expenses increased
$6 from the prior year. This increase was attributable to the
impact of new store openings of $33, increased provision for
estimated costs to be incurred in connection with the Account
Purchase Agreement of $17, increased payroll and operating costs of
$10. These increases were partially offset by decreased health
care and insurance costs of $21, decreased advertising and other
promotional costs of $19, increased product service income of $10,
and decreased benefits and losses of direct response operations of
$4.
Net interest expense of $43 decreased $2, or 4%, from the prior
year. The decrease in interest expense due to lower interest rates
on borrowings was offset by decreased investment income due to
lower investment balances and rates.
There was no preferred stock dividend requirement in 1993, as
there was no preferred stock outstanding during 1993.
Discussion of Financial Condition
Montgomery Ward is the only direct subsidiary of MW Holding and
therefore Montgomery Ward and its subsidiaries are MW Holding's
sole source of funds.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations. (continued)
Discussion of Financial Condition (continued)
Montgomery Ward has entered into a Long Term Credit Agreement
(Long Term Agreement) dated as of September 15, 1994 with various
lenders. The Long Term Agreement, which expires September 15,
1999, provides for a revolving facility in the principal amount of
$603. As of December 31, 1994, no borrowings were outstanding
under the Long Term Agreement. Concurrently, Montgomery Ward also
entered into a Short Term Credit Agreement (Short Term Agreement)
dated as of September 15, 1994 with various lenders. The Short
Term Agreement, which expires September 14, 1995, provides for a
revolving facility in the principal amount of $297. As of December
31, 1994, $144 was outstanding under the Short Term Agreement.
Proceeds from borrowings under the Long Term Agreement and the
Short Term Agreement (collectively, the Agreements) were used to
pay all borrowings outstanding under an Amended and Restated Credit
Agreement dated as of September 22, 1992 (Long Term Credit
Agreement), a Short Term Credit Agreement dated as of September 22,
1992 (Short Term Credit Agreement) and a Term Loan Agreement (Term
Loan Agreement) dated as of November 24, 1993 with various banks
and the agreements were terminated.
Under the Agreements, Montgomery Ward may select among several
interest rate options, including a rate negotiated with one or more
of the various lenders. The interest rates for the aforementioned
bank borrowings are based on market rates, and significant
increases in market interest rates will increase interest payments
required. A commitment fee is payable based upon the unused amount
of each facility, although under certain circumstances, an
additional fee may be payable to lenders not participating in a
negotiated rate loan.
During the fourth quarter of 1994, Montgomery Ward entered into
interest rate exchange and cap agreements with various banks to
offset the market risk associated with an increase in interest
rates under both the Long Term Agreement and the Short Term
Agreement. The aggregate notional principal amounts under the
interest rate exchange agreements are $100 in 1994, $175 in 1995
through 1997 and $75 in 1998 and 1999. Under the terms of the
interest rate exchange agreements, Montgomery Ward pays the banks
a weighted average fixed rate of 7.2% in the fourth quarter of
1994, 7.4% from 1995 through 1997 and 7.6% from 1998 through
1999 and will receive the one-month daily average London Inter-
bank Offered (LIBO) rate in each case multiplied by the notional
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations. (continued)
Discussion of Financial Condition (continued)
principal amount. The average aggregate notional principal amounts
under the various cap agreements are $63 in the fourth quarter of
1994, $154 in 1995, $158 in 1996 and $113 in 1997. Under the terms
of the cap agreements, Montgomery Ward receives payments from the
banks when the one-month daily average LIBO rate exceeds the 5.0%
cap strike rate in 1994, 5.5% cap strike rate in 1995, 6% cap
strike rate in 1996 and 7.0% cap strike rate in 1997. Such
payments will equal the amount determined by multiplying the
notional principal amount by the excess of the percentage rate, if
any, of the one-month daily average LIBO rate over the cap strike
rate.
The Agreements and the Note Purchase Agreements impose various
restrictions on Montgomery Ward, including the satisfaction of
certain financial tests which include restrictions on payments of
dividends. Under the terms of the Agreements, which are currently
the most restrictive of the financing agreements as to dividends,
distributions and redemptions, Montgomery Ward may not pay
dividends or make any other distributions to the Company or redeem
any common stock in excess of (1) $63 on a cumulative basis, plus
(2) 50% of Consolidated Net Income of Montgomery Ward (as defined
in the Agreements) after January 1, 1994, plus (3) any repayment by
the Company of any loan or advance made by Montgomery Ward to the
Company which was received after January 1, 1994, plus (4) capital
contributions received by Montgomery Ward after January 1, 1994,
plus (5) net proceeds received by Montgomery Ward from (a) the
issuance of capital stock including treasury stock but excluding
Debt-Like Preferred Stock (as defined in the Agreements), or (b)
any indebtedness which is converted into shares of capital stock
other than Debt-Like Preferred Stock of Montgomery Ward or the
Company, after January 1, 1994, plus (6) an adjustment of $45 for
1994 through 1996, $30 in 1997 and $15 in 1998. At December 31,
1994, Montgomery Ward could pay dividends and make other
distributions to the Company of $124 pursuant to the terms of the
Agreements. To date, Montgomery Ward has been in compliance with
all such financial tests.
On April 27, 1994, the Company issued 750 shares of a new series
of Senior Preferred Stock (Senior Preferred Stock) to GE Capital in
exchange for $75 in cash. The Company used the proceeds to acquire
750 shares of a new issue of Senior Preferred Stock of Montgomery
Ward (Montgomery Ward Preferred) for $75 and Montgomery Ward used
the proceeds to reduce short-term borrowings. The Montgomery Ward
Preferred constitutes Debt-Like Preferred Stock for purposes of the
dividend restrictions under the Agreements.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations. (continued)
Discussion of Financial Condition (continued)
Montgomery Ward acquired in a merger transaction all the stock
of LMR Acquisition Corporation (LMR), which owns 100% of the stock
of Lechmere, Inc. (Lechmere) on March 30, 1994. The aggregate
purchase price was comprised of an estimated price of $113 and a
contingent purchase price of up to $20 in cash and the issuance of
up to 400,000 shares of Class A Common Stock, Series 1 (or at the
option of Montgomery Ward, up to 400,000 shares of Class A Common
Stock, Series 3). The contingent price is dependent on Lechmere
achieving or exceeding a specified gross margin amount during the
period commencing February 27, 1994 and ending February 25, 1995.
Management believes that no payment of the contingent purchase
price will be required.
The closing price included a $10 promissory note (the Note) of
Montgomery Ward, which bears interest at a rate of 4.87% per annum.
Seventy-five percent of the accrued interest on and principal of
the Note are payable 540 days after the date of the Note and the
balance is payable three years after the date of the Note. The
Note, which is secured by a standby letter of credit, is to be
reduced upon the occurrence of certain specified circumstances.
As part of the closing, Montgomery Ward advanced approximately
$88 and assumed $3 of obligations to enable Lechmere to retire its
outstanding bank debt and subordinated debt. The purchase of and
advances to Lechmere were financed by the proceeds from borrowings
under the Short Term Credit Agreement, Long Term Credit Agreement
and the Term Loan Agreement.
The Company has repurchased 4,187,550 shares held by certain
former officers of the Company, Montgomery Ward and Signature and
their permitted transferees by making cash payments and issuing
installment notes in the aggregate of approximately $62. As of
December 31, 1994, the outstanding balance of these notes was $26.
See Note 14 to the Consolidated Financial Statements. These
installment notes bear interest at varying rates, are payable over
multi-year periods (generally three to five years) and are secured
by shares of Common Stock, the fair market value of which is equal
to the outstanding principal amount under each note. Under the
Agreements, Montgomery Ward expects to be able to advance the
Company sufficient funds to allow the Company to make the required
installment payments in 1995.
Currently available external sources of funds include $900 in
multi-year revolving loan commitments which were obtained in
September 1994 of which $297 will expire on September 14, 1995 and
$603 will expire on September 15, 1999. During 1994, the average
daily balance of borrowings under these commitments was $361.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations. (continued)
Discussion of Financial Condition (continued)
Under the laws and regulations applicable to insurance companies,
some subsidiaries of Signature are limited in the amount of
dividends they may pay. For information concerning limitations on
the amount of dividends Signature may pay, see Note 20 to the
Consolidated Financial Statements. During 1994, Signature paid
dividends aggregating $22.
Future cash needs are expected to be satisfied by ongoing
operations, the sale of customer receivables to Montgomery Ward
Credit, borrowings under the Agreements, and the disposition of
capital assets related to facility closings. See "Business -
Account Purchase Agreement" for a discussion of the terms of the
sales of customer receivables by Montgomery Ward to Montgomery Ward
Credit.
Montgomery Ward and Lechmere's capital expenditures of $184 for
1994 were primarily related to opening 16 new stores, closing 2
stores, relocating 2 stores and implementing conversion strategies
in conventional retail stores and various merchandise fixture and
presentation programs. Montgomery Ward regularly reviews
opportunities for acquisitions and joint ventures and regards such
transactions as a possible source for future growth.
1994 1993 1992
Total Capital Expenditures . . .$ 184 $ 142 $ 146
Capital appropriations
authorized during the year . .$ 247 $ 149 $ 154
Cancellations of prior
year's appropriations. . . . .$(25) $(23) $(62)
Unexpended capital
appropriations at year-end . .$ 181 $ 143 $ 159
Montgomery Ward and Lechmere are not contractually committed to
spend all of the capital appropriations unexpended at December 31,
1994, but generally expect to do so.
On May 20, 1994, the Board of Directors declared a cash dividend
of $.50 per common share to shareholders of record on June 15,
1994, for a total of $22. This dividend was paid on June 23, 1994.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations. (continued)
Discussion of Financial Condition (continued)
Effective January 2, 1994, the Company adopted Statement of
Financial Accounting Standards No. 115, "Accounting for Certain
Investments In Debt and Equity Securities" (FAS No. 115). Under FAS
No. 115, all debt securities are classified as "available-for-sale"
and are stated at fair market value with all changes in unrealized
gains or losses included in Shareholders' Equity. The adoption of
FAS No. 115 increased Investments of insurance operations by $20,
Deferred income taxes by $7 and Unrealized gain on marketable
securities by $13 as of January 2, 1994 and had no impact on the
results of operations of the Company.
Item 8. Financial Statements.
Page
Report of Independent Public
Accountants . . . . . . . . . . . . . . . 28
Consolidated Balance Sheet at
December 31, 1994 and
January 1, 1994 . . . . . . . . . . . . . 31
For the 52-Week Periods Ended
December 31, 1994 and January 1,
1994 and the 53-Week Period
Ended January 2, 1993
Consolidated Statement of
Income. . . . . . . . . . . . . . . . . 29
Consolidated Statement of
Shareholders' Equity. . . . . . . . . . 32
Consolidated Statement of
Cash Flows. . . . . . . . . . . . . . . 35
Notes to Consolidated Financial
Statements. . . . . . . . . . . . . . . . 37
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders
of Montgomery Ward Holding Corp.:
We have audited the accompanying consolidated balance sheet of
MONTGOMERY WARD HOLDING CORP. (a Delaware Corporation) AND
SUBSIDIARY as of December 31, 1994 and January 1, 1994, and the
related consolidated statements of income, shareholders' equity and
cash flows for the fiscal years ended December 31, 1994, January 1,
1994 and January 2, 1993. These consolidated financial statements
are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of Montgomery Ward Holding Corp. and Subsidiary as of
December 31, 1994 and January 1, 1994 and the results of their
operations and their cash flows for the fiscal years ended December
31, 1994, January 1, 1994 and January 2, 1993, in conformity with
generally accepted accounting principles.
As discussed in Notes 6 and 8 to the consolidated financial
statements, effective December 29, 1991, the Company changed its
methods of accounting for postretirement benefits other than
pensions and income taxes.
Arthur Andersen LLP
Chicago, Illinois,
February 14, 1995
MONTGOMERY WARD HOLDING CORP.
CONSOLIDATED STATEMENT OF INCOME
(Millions of dollars)
52-Week 53-Week
Period Ended Period Ended
Dec. 31, Jan. 1, Jan. 2,
1994 1994 1993
Revenues
Net sales, including
leased and licensed
department sales. . . . $6,573 $5,629 $5,427
Direct response
marketing revenues,
including insurance . . 465 400 379
Total Revenues . . . . 7,038 6,029 5,806
Costs and Expenses
Cost of goods sold,
including net
occupancy and
buying expense. . . . . 5,089 4,256 4,047
Operating, selling,
general and adminis-
trative expenses,
including benefits
and losses of direct
response operations
(Note 16) . . . . . . . 1,712 1,570 1,564
Interest expense
(Note 17) . . . . . . . 58 43 45
Total Costs and
Expenses. . . . . . . 6,859 5,869 5,656
Income Before
Income Taxes . . . . . . 179 160 150
Income Tax Expense
(Note 8) . . . . . . . . 62 59 50
Net Income before
cumulative effect
of changes in
accounting principles. . 117 101 100
Cumulative Effect of
Changes in Accounting
Principles:
Income Taxes
(Note 8) . . . . . . . - - 50
Postretirement
Benefits, net
(Note 6) . . . . . . . - - (90)
Net Income . . . . . . . . 117 101 60
Preferred Stock
Dividend Requirements
(Note 13). . . . . . . . 2 - 8
Net Income Applicable to
Common Shareholders. . . $ 115 $ 101 $ 52
See notes to consolidated financial statements.
MONTGOMERY WARD HOLDING CORP.
CONSOLIDATED STATEMENT OF INCOME (Continued)
(Millions of dollars, except per share amounts)
52-Week 53-Week
Period Ended Period Ended
Dec. 31, Jan. 1, Jan. 2,
1994 1994 1993
Net Income Per Class A
Common Share before
cumulative effect of
changes in accounting
principles . . . . . . . .$2.68 $2.29 $2.01
Cumulative effect of
changes in accounting
principles . . . . . . . .$ - $ - $(.88)
Net Income per Class A
Common Share
(Note 14) . . . . . . . . .$2.68 $2.29 $1.13
Net Income Per Class B
Common Share before
cumulative effect of
changes in accounting
principles . . . . . . . .$2.30 $2.04 $ 1.87
Cumulative effect of
changes in accounting
principles . . . . . . . .$ - $ - $(.82)
Net Income per Class B
Common Share
(Note 14) . . . . . . . .$2.30 $2.04 $1.05
Cash Dividends declared
per Common Share
Class A . . . . . . . . $ .50 $ .50 $ .25
Class B . . . . . . . . $ .50 $ .50 $ .25
See notes to consolidated financial statements.
MONTGOMERY WARD HOLDING CORP.
CONSOLIDATED BALANCE SHEET
(Millions of dollars)
ASSETS
December 31, January 1,
1994 1994
Cash and cash equivalents. . . . . . . . . $ 33 $ 98
Short-term investments . . . . . . . . . . 3 19
Investments of insurance operations
(Note 3) . . . . . . . . . . . . . . . . 314 296
Total Cash and Investments . . . . . . . 350 413
Trade and other accounts receivable. . . . . 112 62
Accounts and notes receivable from
affiliates (Note 4). . . . . . . . . . . 6 4
Total Receivables. . . . . . . . . . . . 118 66
Merchandise inventories (Note 5) . . . . . .1,625 1,242
Prepaid pension contribution (Note 6). . . . 324 310
Properties, plants and equipment,
net of accumulated depreciation
and amortization (Note 7). . . . . . . . .1,399 1,263
Direct response and insurance
acquisition costs. . . . . . . . . . . . . 322 295
Other assets . . . . . . . . . . . . . . . 402 246
Total Assets . . . . . . . . . . . . . . . $4,540 $3,835
LIABILITIES AND SHAREHOLDERS' EQUITY
Short-term debt (Note 11). . . . . . . . . $ 144 $ -
Trade accounts payable . . . . . . . . . . .1,719 1,358
Federal income taxes payable (Note 8) . . . 14 7
Accrued liabilities and other
obligations (Notes 2, 4, 6, 9
and 14). . . . . . . . . . . . . . . . . 1,234 1,197
Insurance policy claim reserves
(Note 10). . . . . . . . . . . . . . . . . 236 237
Long-term debt (Note 11) . . . . . . . . . . 228 213
Obligations under capital leases
(Note 12). . . . . . . . . . . . . . . . 81 89
Deferred income taxes (Note 8) . . . . . . 122 127
Total Liabilities. . . . . . . . . . . .3,778 3,228
Commitments and Contingent
Liabilities (Notes 11 and 18)
Redeemable Preferred Stock (Note 13) . . . . 75 -
Shareholders' Equity
Common stock (Note 14) . . . . . . . . . . - -
Capital in excess of par value . . . . . . 23 19
Retained earnings. . . . . . . . . . . . . 751 658
Unrealized gain on marketable
equity securities . . . . . . . . . . . 2 3
Less: Treasury stock, at cost . . . . . (89) (73)
Total Shareholders' Equity . . . . . . 687 607
Total Liabilities and
Shareholders' Equity . . . . . . . . . . $4,540 $3,835
See notes to consolidated financial statements.
MONTGOMERY WARD HOLDING CORP.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(Millions of dollars, except per share amounts)
Class A Class B Capital
Common Common in
Stock Stock Excess Treasury Total
$ .01 $ .01 of Unre- Stock, Share-
Par Par Par Retained alized at holders'
Value Value Value Earnings Gains Cost Equity
(Number of shares
in thousands)
Balance,
December
29,1991
as re-
stated 21,190 25,000 $13 $499 $ 2 $(34) $480
Net income
before
cumulative
effect of
changes in
accounting
principles - - - 100 - - 100
Cash divi-
dends paid - - - (19) - - (19)
Tax benefit
of stock
option exer-
cises and
other share
exchanges - - 2 - - - 2
Change in
unrealized
gain on mar-
ketable
equity
securities - - - - 1 - 1
Shares repur-
chased as
Treasury
stock (777) - - - - (12) (12)
Shares
issued
upon exer-
cise of
options 256 - 1 - - - 1
Shares
issued
upon exer-
cise of
conversion
rights 3 - - - - - -
Balance,
January
2,1993 20,672 25,000 $16 $580 $ 3 $(46) $553
See notes to consolidated financial statements.
MONTGOMERY WARD HOLDING CORP.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (Continued)
(Millions of dollars, except per share amounts)
Class A Class B Capital
Common Common in
Stock Stock Excess Treasury Total
$ .01 $ .01 of Unre- Stock, Share-
Par Par Par Retained alized at holders'
Value Value Value Earnings Gains Cost Equity
(Number of shares
in thousands)
Balance,
January
2,1993 20,672 25,000 $16 $580 $ 3 $(46) $553
Net
income - - - 101 - - 101
Cash
dividends
paid - - - (23) - - (23)
Tax benefit
of stock
option exer-
cises and
other share
exchanges - - 2 - - - 2
Shares repur-
chased as
Treasury
stock (1,258) - - - - (27) (27)
Shares
issued
upon exer-
cise of
options 193 - 1 - - - 1
Shares
issued
upon exer-
cise of
conversion
rights 3 - - - - - -
Balance,
January
1,1994 19,610 25,000 19 658 3 (73) 607
Cumulative
effect of
change in
accounting
principle - - - - 13 - 13
Balance,
January 1,
1994, as
restated 19,610 25,000 $19 $658 $16 $(73) $620
See notes to consolidated financial statements.
MONTGOMERY WARD HOLDING CORP.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (Continued)
(Millions of dollars, except per share amounts)
Class A Class B Capital
Common Common in
Stock Stock Excess Treasury Total
$ .01 $ .01 of Unre- Stock, Share-
Par Par Par Retained alized at holders'
Value Value Value Earnings Gains Cost Equity
(Number of shares
in thousands)
Balance,
January 1,
1994, as
restated 19,610 25,000 $19 $658 $16 $(73) $620
Net
income - - - 117 - - 117
Cash
dividends
paid - - - (24) - - (24)
Tax benefit
of stock
option exer-
cises - - 1 - - - 1
Change in
unrealized
gain on
marketable
securities - - - - (14) - (14)
Shares repur-
chased as
Treasury
stock (629) - - - - (16) (16)
Shares
issued
upon exer-
cise of
options 297 - 3 - - - 3
Shares
issued
upon exer-
cise of
conversion
rights 2 - - - - - -
Balance,
December
31,1994 19,280 25,000 $23 $751 $ 2 $(89) $687
See notes to consolidated financial statements.
MONTGOMERY WARD HOLDING CORP.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Millions of dollars)
52-Week 53-Week
Period Ended Period Ended
Dec. 31, Jan. 1, Jan. 2,
1994 1994 1993
Cash flows from operating
activities:
Net income before
cumulative effect of
changes in accounting
principles . . . . . . . $ 117 $ 101 $ 100
Adjustments to reconcile
net income to net cash
provided by operations:
Depreciation and
amortization. . . . . . 109 98 97
Deferred income taxes . . 29 25 32
Changes in operating
assets and liabilities,
net of businesses
acquired:
(Increase) decrease in:
Trade and other accounts
receivable (38) (9) 9
Accounts and notes
receivable from
affiliates (2) 14 (1)
Merchandise
inventories. . . . . . (243) (204) (38)
Prepaid pension
contribution . . . . . (15) (19) (18)
Other assets. . . . . . (51) (50) 57
Increase (decrease) in:
Accounts and notes
payable to affiliates. . - - (30)
Trade accounts
payable. . 291 148 (17)
Accrued liabilities
and other
obligations. . . . . . . (37) 33 21
Federal income taxes
payable, net . . . . . . 5 (1) (34)
Insurance policy
claim reserves . . . . (1) (4) (21)
Deferred income taxes (8) - -
Net cash provided
by operations. . . . . 156 132 157
Cash flows from investing
activities:
Acquisition of Lechmere
net of cash acquired . . (109) - -
Acquisition of Smilesaver,
net of cash acquired . . . (11) - -
Purchase of short-term
investments. . . . . . . (231) (248) (1,221)
Purchase of investments
of insurance
operations . . . . . . . (691) (688) (707)
Sale of short-term
investments. . . . . . . . 247 240 1,367
Sale of investments
of insurance
operations . . . . . . . . 671 669 698
Disposition of
properties, plants
and equipment, net . . . . 4 3 7
Capital expenditures. . . (184) (142) (146)
Net cash used for
investing
activities . . . . . . $(304) $(166) $ (2)
See notes to consolidated financial statements.
MONTGOMERY WARD HOLDING CORP.
CONSOLIDATED STATEMENT OF CASH FLOWS (Continued)
(Millions of dollars)
52-Week 53-Week
Period Ended Period Ended
Dec. 31, Jan. 1, Jan. 2,
1994 1994 1993
Cash flows from financing
activities:
Proceeds from issuance
of short-term
debt . . . . . . . . . $11,160 $7,718 $1,823
Payments of short-term
debt . . . . . . . . . (11,016) (7,718) (1,823)
Proceeds from issuance
of long-term
debt . . . . . . . . . 168 100 -
Payments of Montgomery
Ward long-term
debt . . . . . . . . . . (179) (12) (396)
Payments of Lechmere
long-term debt . . . . . (88) - -
Payments of obligations
under capital leases . . (8) (6) (7)
Proceeds from issuance
of common stock. . . . . 3 1 1
Proceeds from issuance
of preferred stock . . . 75 - -
Payments to redeem
preferred stock. . . . . - - (90)
Cash dividends paid . . . (24) (23) (19)
Purchase of treasury
stock, at cost . . . . . (9) (11) (7)
Tax benefit of stock
options exercised
and other share
exchanges. . . . . . . 1 2 2
Net cash provided
by (used for)
financing
activities. . . . . . 83 51 (516)
Increase (Decrease) in cash
and cash equivalents . . . (65) 17 (361)
Cash and cash equivalents
at beginning of period . . 98 81 442
Cash and cash equivalents
at end of period . . . . . $ 33 $ 98 $ 81
See notes to consolidated financial statements.
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in millions)
1. Major Accounting Policies
Business Segments
Montgomery Ward Holding Corp. (the Company or MW Holding) and its
subsidiaries are engaged in retail merchandising and direct
response marketing (including insurance) in the United States.
Retail merchandising operations are conducted through Montgomery
Ward and Montgomery Ward's indirectly, wholly-owned subsidiary
Lechmere, Inc. (Lechmere), while direct response marketing
operations are conducted primarily through Signature
Financial/Marketing, Inc. (Signature), a wholly-owned subsidiary of
Montgomery Ward. Signature markets consumer club products and
insurance products through its subsidiaries. See Note 20 for
information regarding these segments.
Principles of Consolidation; Use of Estimates
The consolidated financial statements include the Company and all
subsidiaries. Certain prior period amounts have been reclassified
to be comparable with the current period presentation.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, time deposits and
highly liquid debt instruments with a maturity of three months or
less from the date of purchase. The carrying amount reported in
the financial statements for cash and cash equivalents approximates
the fair value of these assets.
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions)
1. Major Accounting Policies (continued)
Following is a summary of cash payments for interest and income
taxes and non-cash financing and investing activities:
52-Week 53-Week
Period Ended Period Ended
Dec. 31, Jan. 1, Jan. 2,
1994 1994 1993
Cash paid for:
Income taxes . . . . . . $ 33 $ 46 $ 53
Interest . . . . . . . . $ 56 $ 55 $ 50
Non-cash financing
activities:
Notes issued for
purchase of
Treasury stock. . . . $ 7 $ 16 $ 5
Non-cash investing
activities:
Change in unrealized
gain on marketable
securities. . . . . . $(14) $ - $ 1
Like-kind exchange of
assets. . . . . . . . $ 5 $ 6 $ -
The net cumulative effect of changes in accounting principles of
$13 in 1994 and $40 in 1992 has no cash impact.
Investments
Effective January 2, 1994, the Company adopted Statement of
Financial Accounting Standards No. 115, "Accounting for Certain
Investments In Debt and Equity Securities" (FAS No. 115). Under FAS
No. 115, all debt securities are classified as "available-for-sale"
and are stated at fair market value with all changes in unrealized
gains or losses included in Shareholder's Equity. The adoption of
FAS No. 115 increased Investments of insurance operations by $20,
Deferred income taxes by $7 and Unrealized gain on marketable
securities by $13 as of January 2, 1994 and had no impact on the
results of operations of the Company.
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions)
1. Major Accounting Policies (continued)
Merchandise Inventories
Merchandise inventories are valued at the lower of cost or
market, using the retail last-in, first-out (LIFO) method.
Depreciation, Amortization and Repairs
Depreciation is computed on a straight-line basis over the
estimated useful lives of the properties, with annual rates ranging
between 2% and 3% for buildings and between 12% and 25% for
fixtures and equipment. Leasehold improvements and assets under
capital leases are amortized on a straight-line basis over no
longer than the primary term of the lease. Upon retirement or
disposition, the cost and the related depreciation or amortization
are removed from the accounts, with the gains or losses included in
income.
Interest relating to construction in progress is capitalized and
amortized over the useful life of the property. Pre-operating
expenditures which are not capital in nature are charged against
income in the year the store is opened. Normal maintenance and
repairs are expensed as incurred. Major repairs that materially
extend the lives of properties are capitalized, and the assets
replaced, if any, are retired.
Direct Response Marketing Revenues
Life and accident and health insurance premiums, which are
recognized as revenue when due from policyholders, are associated
with related benefits and expenses to result in the recognition of
profit over the terms of the policies. Property-liability
insurance premiums and club membership dues are deferred and earned
on a pro-rata basis over the terms of the policies and memberships.
Unearned premiums and club memberships of $63 and $53 at December
31, 1994 and January 1, 1994, respectively, are included in Accrued
liabilities and other obligations.
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions)
1. Major Accounting Policies (continued)
Direct Response and Insurance Acquisition Costs
Costs allocated to the insurance and club memberships in force at
June 24, 1988, as well as the costs of acquiring new club
memberships and insurance business (primarily marketing expenses),
are included in Direct response and insurance acquisition costs.
Costs of acquiring new business have been deferred when considered
recoverable.
Acquisition costs are amortized in proportion to the revenue
recognized. Amortization charged to income was $124, $111 and $106
for 1994, 1993 and 1992, respectively, and is included in
Operating, selling, general and administrative expenses.
Interest Rate Exchange and Cap Agreements
Amounts paid or received pursuant to interest rate exchange and
cap agreements are deferred and amortized as interest expense or
income over the remaining life of the applicable agreement.
Insurance Policy Claim Reserves
Liabilities for future policy benefits have been determined
principally by the net level premium method. These amounts have
been computed by using assumptions that include provisions for risk
of adverse deviation. The assumptions developed for interest rates
(average 6%-8%) and withdrawal rates are based on the experience of
Montgomery Ward Life Insurance Company, a wholly-owned subsidiary
of Signature. The principal mortality tables used to develop the
assumed mortality rates are the 1960 Commissioners' Standard Group
Table, the 1955-1960 and 1965-1970 Basic Mortality Tables and the
1969-1971 U.S. Life Tables. The reserve for claims and related
adjustment expenses is based on estimates of the costs of
individual claims reported and incurred but not reported prior to
year-end. While management believes the reserve for claims and
related adjustment expenses is adequate, the reserve is continually
reviewed and as adjustments become necessary, they are reflected in
current operations.
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions)
1. Major Accounting Policies (continued)
Federal Income Tax
The Company and its subsidiaries file a consolidated Federal
income tax return. Insurance subsidiaries which had previously
filed separate Federal income tax returns are expected to be
included in the consolidated return to be filed for the 1994 tax
year.
Prior to 1992, the Company determined its income tax expense and
related deferred federal income taxes in accordance with Statement
of Financial Accounting Standards No. 96, "Accounting for Income
Taxes" (FAS 96). Effective December 29, 1991, the Company adopted
the provisions of FAS 109, "Accounting for Income Taxes". See Note
8 for discussion of the impact on financial position and results of
operations resulting from the adoption of FAS 109.
2. Acquisition of Lechmere, Inc.
Montgomery Ward acquired in a merger transaction all the stock of
LMR Acquisition Corporation (LMR), which owns 100% of the stock of
Lechmere, on March 30, 1994. The aggregate purchase price was
comprised of an estimated price of $113 and a contingent purchase
price of up to $20 in cash and the issuance of up to 400,000 shares
of Class A Common Stock, Series 1 (or at the option of Montgomery
Ward, up to 400,000 shares of Class A Common Stock, Series 3). The
contingent price is dependent on Lechmere achieving or exceeding a
specified gross margin amount during the period commencing February
27, 1994 and ending February 25, 1995. Management believes that no
payment of the contingent purchase price will be required.
The closing price included a $10 promissory note (the Note) of
Montgomery Ward, which bears interest at a rate of 4.87% per annum.
The Note is included in accrued liabilities and other obligations
at December 31, 1994. Seventy-five percent of the accrued interest
on and principal of the Note are payable 540 days after the date of
the Note, and the balance is payable three years after the date of
the Note. The Note, which is secured by a standby letter of
credit, is to be reduced upon the occurrence of certain specified
circumstances.
As part of the closing, Montgomery Ward advanced approximately
$88 and assumed $3 in obligations to enable Lechmere to retire its
outstanding bank debt and subordinated debt.
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions)
2. Acquisition of Lechmere, Inc. (continued)
The acquisition was accounted for as a purchase. The purchase
price has been allocated to Lechmere's net assets based upon
preliminary results of asset valuations and liability and
contingency assessments. Actual adjustments may differ based on
the results of further evaluations of the fair value of the
acquired assets and liabilities. Any differences between
preliminary and actual adjustments are not expected to have a
material impact on the consolidated financial statements.
The preliminary allocation is summarized as follows:
Inventory . . . . . . . . . . . . . . . . . . . . $140
Properties, Plants & Equipment. . . . . . . . . . 57
Goodwill . . . . . . . . . . . . . . . . . . . . 124
Other Assets. . . . . . . . . . . . . . . . . . . 50
Due to Montgomery Ward. . . . . . . . . . . . . . (88)
Accounts Payable and other Liabilities. . . . . .(170)
$113
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions)
3. Investments of Insurance Operations
Following is a summary of Investments of insurance operations
in securities other than related party investments. The fair
values for marketable debt and equity securities are based on
quoted market prices.
December 31, 1994
Gross Gross
Type of Unrealized Unrealized Market
Investment Cost Gains Losses Value
Fixed maturities
Bonds:
United States
Govern-
ment and
government
agencies
and author-
ities. . . . . $ 51 $ - $ 2 $ 49
Public
utilities. . . . 73 6 - 79
All other
corporate
bonds. . . . . 26 1 1 26
Mortgage-backed
securities. . . 115 - 6 109
Total
fixed
maturi-
ties. . 265 7 9 263
Equity
securities:
Common
stock. . . . . 8 5 - 13
Total
equity
securi-
ties. . 8 5 - 13
Policy
loans. . . . . . . 7 - - 7
Short-term
investments. . . 31 - - 31
Total
Invest-
ments . $311 $12 $ 9 $314
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions)
3. Investments of Insurance Operations (continued)
January 1, 1994
Amount
at Which
Gross Gross Shown in
Type of Unrealized Unrealized Market Balance
Investment Cost Gains Losses Value Sheet
Fixed maturities
Bonds:
United States
Govern-
ment and
government
agencies
and author-
ities. . . $ 67 $ 3 $ - $ 70 $67
Public
utilities. 80 16 - 96 80
All other
corporate
bonds. . . 26 1 - 27 26
Mortgage-
backed
securities. 64 - - 64 64
Total
fixed
maturi-
ties. 237 20 - 257 237
Equity
securities:
Common
stock. . . 8 5 - 13 13
Total
equity
securi-
ties. 8 5 - 13 13
Policy
loans. . . . 7 - - 7 7
Short-term
investments. 39 - - 39 39
Total
Invest-
ments $291 $25 $ - $316 $296
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions)
3. Investments of Insurance Operations (continued)
The amounts of fixed maturities as of December 31, 1994 are as
follows:
Amortized Market
Cost Value
Due in 1995. . . . . . . . . . . . . . . . .$ 12 $ 12
Due in 1996 through 2000 . . . . . . . . . . 109 111
Due in 2001 through 2005 . . . . . . . . . . 28 30
Due in 2006 and beyond . . . . . . . . . . . 1 1
Mortgage-backed securities . . . . . . . . . 115 109
$265 $263
Realized capital gains before income tax and changes in
unrealized gains (losses) after income tax on fixed maturities,
mortgage loans and equity securities are as follows:
Fixed
Maturities
and Mortgage Equity
Loans Securities
52-Week Period Ended December 31, 1994
Realized. . . . . . . . . . . . . . . . . .$ - $ -
Unrealized. . . . . . . . . . . . . . . . $(2) $ 4
52-Week Period Ended January 1, 1994
Realized. . . . . . . . . . . . . . . . . .$ 1 $ -
Unrealized. . . . . . . . . . . . . . . . .$ - $ 3
53-Week Period Ended January 2, 1993
Realized. . . . . . . . . . . . . . . . . .$ 1 $ -
Unrealized. . . . . . . . . . . . . . . . .$ - $ 3
4. Accounts and Notes Receivable from Affiliates
Montgomery Ward and Montgomery Ward Credit Corporation
(Montgomery Ward Credit), a subsidiary of GE Capital Corporation
(GE Capital) have entered into an Account Purchase Agreement
pursuant to which Montgomery Ward Credit purchases receivables from
time to time and provides services to Montgomery Ward. Under this
agreement, Montgomery Ward Credit has the exclusive right to
operate the Montgomery Ward private label credit card system and
the obligation to purchase for their face value (and Montgomery
Ward is obligated to sell) all the receivables generated by the
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions)
4. Accounts and Notes Receivable from Affiliates (continued)
Montgomery Ward private label credit card system, including those
generated through MW Direct, up to $6,000 at any time
outstanding. Montgomery Ward accounts for the transfer as a sale
of the applicable receivables. Sales of receivables to
Montgomery Ward Credit were $4,092, $3,991 and $3,489 for 1994,
1993 and 1992, respectively. At December 31, 1994 and January 1,
1994, there were $5,221 and $4,947 of Montgomery Ward credit card
receivables owned by Montgomery Ward Credit, respectively.
Amounts receivable from Montgomery Ward Credit pursuant to the
sale of such receivables are included in Accounts and notes
receivable from affiliates.
Montgomery Ward is exposed to both market risk and credit risk
under the Account Purchase Agreement. Under the Account Purchase
Agreement, Montgomery Ward is required to pay Montgomery Ward
Credit the excess interest costs on a monthly basis if a blended
interest rate applicable to Montgomery Ward Credit's finance costs
with respect to the receivables exceeds 10% per annum. To date,
the blended interest rate has been less than 10%.
Should Montgomery Ward Credit or its guarantor, GE Capital, fail
to perform its obligations under the Account Purchase Agreement,
Montgomery Ward would suffer an accounting loss up to the amount of
Montgomery Ward's share of finance charges (as described below),
net of applicable reserves carried by Montgomery Ward Credit.
Montgomery Ward estimates that any accounting loss would be
immaterial at December 31, 1994. Montgomery Ward Credit's
obligations under the Account Purchase Agreement are not
collateralized.
Effective January 1, 1994, Montgomery Ward bears the entire risk
of credit losses. Previously credit losses were shared.
Montgomery Ward's remaining liability for credit losses for 1991
through 1994 are payable to Montgomery Ward Credit in early 1998.
In addition, the amounts payable by Montgomery Ward for credit
losses for 1995 through 1997 may be deferred, and such deferred
credit losses are also payable at Montgomery Ward's election in
early 1998. Interest on Montgomery Ward's liability for credit
losses is payable at a rate equal to rates on comparable borrowings
of Montgomery Ward.
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions)
4. Accounts and Notes Receivable from Affiliates (continued)
In exchange for Montgomery Ward's agreement to allow Montgomery
Ward Credit to increase finance charge rates in selected states,
Montgomery Ward receives a share of incremental finance charges
resulting from such increases which is available for offset as
previously discussed and earns interest at the same rate.
Incremental finance charges are generated only on purchases
subsequent to the date such finance charge rates are increased.
In the event that, due to the increase in finance charge rates,
any
refunds are required to be made, Montgomery Ward and Montgomery
Ward Credit have agreed to share the financial risk. Legislation
has from time to time been introduced in certain states which, if
enacted, may require rescinding all or a portion of such rate
increases, in which case, Montgomery Ward's share of rate
increases may be substantially reduced.
In addition to sharing incremental finance charges, with respect
to each fiscal year, Montgomery Ward Credit will make a payment to
Montgomery Ward of a share of all finance charges in an amount
equal to (a) if credit losses are 5% or less of average gross
receivables, the lesser of 3.9% of average gross receivables or the
actual credit losses; (b) if credit losses are greater than 5% but
less than or equal to 8% of average gross receivables, 3.9% of
average gross receivables plus 50% of the amount by which actual
credit losses exceed 5% of average gross receivables; or (c) if
credit losses exceed 8% of average gross receivables, 5.4% of
average gross receivables plus the amount by which credit losses
exceed 8% of average gross receivables. In the event that finance
charges billed during a fiscal year less the incremental finance
charges referred to below are less than the amount computed above,
the payments will be reduced to the amount of the finance charge
less the incremental finance charge.
The Company has executed notes for the credit losses which
totalled $161 with respect to credit losses through 1994. The
finance charge offset as of the end of 1994 was $24. Under the
agreement, the notes payable to Montgomery Ward Credit are limited
to $300 at any time, with any excess to be paid currently in cash.
The Company does not expect credit losses for the period through
1997 to exceed the $300 limitation.
The Account Purchase Agreement will be in effect until December
31, 2005, and thereafter from year to year unless either party
gives ten years prior notice of its election to terminate.
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions)
5. Merchandise Inventories
Merchandise inventories are valued using the retail LIFO method,
which matches current costs with current sales. If inventories had
been valued using the first-in, first-out (FIFO) method, they would
have been $133, $117 and $104 higher than those reported as of
December 31, 1994, January 1, 1994 and January 2, 1993,
respectively.
6. Retirement Plans
Retirement plans of a contributory nature cover a majority of
full-time associates of Montgomery Ward and its subsidiaries.
Retirement benefits are provided by a defined benefit pension plan
as well as by a savings and profit sharing plan. Montgomery Ward
and its subsidiaries contribute to the defined benefit pension plan
to cover any excess of defined minimum benefits over the benefits
available from the savings and profit sharing plan attributable to
the accumulated value of associate contributions.
The components of the pension credit were as follows:
52-Week 53-Week
Period Ended Period Ended
Dec. 31, Jan. 1, Jan. 2,
1994 1994 1993
Service cost-benefits
earned during the
period. . . . . . . . . .$(13) $(11) $(9)
Interest cost on
projected benefit
obligation. . . . . . . . (46) (45) (44)
Actual return on
assets. . . . . . . . . . 4 101 (20)
Deferral of unantici-
pated investment
performance . . . . . . . 72 (26) 91
Amortization of
unrecognized
net loss. . . . . . . . . (2) - -
Net pension credit . . . .$ 15 $ 19 $18
Assumptions:
Discount rate . . . . . . 7.5% 8.5% 9.0%
Increase in future
compensation . . . . . . 6.0% 6.0% 6.0%
Rate of return
on plan assets . . . . . 9.5% 9.5% 9.0%
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions)
6. Retirement Plans (continued)
The funded status of the defined benefit pension plan was as
follows:
December 31, January 1,
1994 1994
Actuarial present value of
accumulated benefit
obligation:
Vested . . . . . . . . . . . . . . . . $576 $565
Nonvested. . . . . . . . . . . . . . . 4 4
Accumulated benefit obligation . . . . . 580 569
Additional amounts related
to projected increases in
compensation levels . . . . . . . . . . 23 9
Projected benefit obligation . . . . . . 603 578
Plan assets at fair value,
primarily in equity and
fixed income securities . . . . . . . . 789 863
Plan assets in excess of projected
benefit obligation. . . . . . . . . . . $186 $285
Consisting of:
Unrecognized net loss
since initial
application of FAS 87. . . . . . . . $(140) $(28)
Unrecognized prior
service cost since
initial application
of FAS 87. . . . . . . . . . . . . . $ 2 $ 3
Prepaid pension contribution . . . . $324 $ 310
The projected benefit obligation was determined using an assumed
discount rate of 8.5% at December 31, 1994 and 7.5% at January 1,
1994 and an assumed rate of increase in future compensation levels
of 6% for 1994 and 1993. Unrecognized net gains and losses and
prior service costs are amortized over the average future service
period.
The savings and profit sharing plan includes a voluntary savings
feature for eligible associates and matching company contributions
based on a fixed percentage of certain associates' contributions.
The company matching expense was $6 for each of 1994, 1993 and
1992.
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions)
6. Retirement Plans (continued)
Substantially all associates who retire after participation in
the retirement plan for ten years and who are members of the health
care plan for the year prior to retirement are eligible for certain
health care and life insurance benefits, the cost of which is
shared with the retirees. In 1992, the Company established a limit
on its future annual contributions on behalf of retirees at a
maximum of 125% of the projected 1992 company contributions.
In the fourth quarter of 1992, the Company adopted Statement of
Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions" as of December 29, 1991.
This statement requires the accrual of the cost of providing
postretirement benefits, including medical and life insurance
coverage, during the active service period of the associate. The
Company elected to immediately recognize the accumulated
postretirement liability. This resulted in a one-time, after-tax
charge of $90 (after reduction for income taxes of $59). The
effect of this change on 1992 earnings was not material. Prior to
1992, the Company recognized expense in the year the benefits were
provided.
The components of the net periodic postretirement benefit cost
were as follows:
1994 1993 1992
Service Cost. . . . . . . . . . . . . $ 2 $ 2 $ 2
Interest cost on accumulated
postretirement benefit
obligation . . . . . . . . . . . . . 11 12 12
Net periodic postretirement
benefit cost . . . . . . . . . . . . $13 $14 $14
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions)
6. Retirement Plans (continued)
The status of the Company's liability for postretirement benefits
at December 31, 1994 and January 1, 1994, which are included in
Accrued liabilities and other obligations is as follows:
1994 1993
Accumulated postretirement
benefit obligation:
Retirees. . . . . . . . . . . . . . . . . .$104 $120
Fully eligible active associates. . . . . . 18 20
Other active associates . . . . . . . . . . 26 25
Total accumulated
postretirement benefit
obligation. . . . . . . . . . . . . . . . 148 165
Unrecognized loss. . . . . . . . . . . . . . (4) (22)
Accrued postretirement
benefit obligation. . . . . . . . . . . . .$144 $143
The weighted average discount rate used in measuring the
accumulated postretirement benefit obligation was 8.5% at December
31, 1994 and 7.5% at January 1, 1994. The assumed health care cost
trend rate and the impact of a 1% increase in the medical trend
rate on the accumulated postretirement benefit obligation, service
cost and interest cost are not applicable due to caps established
on current cost levels.
The Company continues to evaluate ways in which it can better
manage retiree benefits and control the costs. Any changes in the
plan or revisions to assumptions that affect the amount of expected
future benefits may have a significant effect on the amount of the
reported obligation and annual expense.
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions)
7. Properties, Plants and Equipment
The details of the properties, plants and equipment accounts are
shown below at cost:
December 31, January 1,
1994 1994
Land . . . . . . . . . . . . . . $ 197 $ 177
Buildings. . . . . . . . . . . . . . 860 778
Leasehold improvements . . . . . . . 319 289
Fixtures and equipment . . . . . . . 503 401
Assets under capital leases. . . . . 111 113
Less accumulated depreciation
and amortization. . . . . . (591) (495)
Properties, Plants, and
Equipment, net. . . . . . . $1,399 $1,263
Gains or (losses) on the sale of properties were $1, $0 and $(2)
for 1994, 1993 and 1992, respectively. Accumulated amortization on
capital lease assets was $49 and $43 for 1994 and 1993,
respectively.
8. Income Taxes
In the fourth quarter of 1992, the Company adopted FAS 109,
"Accounting for Income Taxes", as of December 29, 1991. The
cumulative effect on prior years' net income of the adoption of
this statement was a credit of $50.
The Company has alternative minimum tax (AMT) credits of $24, $31
and $31 as of December 31, 1994, January 1, 1994 and January 2,
1993, respectively, available to offset future Federal income tax
liabilities. The Company also has targeted jobs tax credit
carryforwards of $9 available as of December 31, 1994, which expire
beginning in 2007.
The approximate tax effects of temporary differences and
carryforwards that give rise to the deferred tax liability are as
follows:
December 31, January 1,
1994 1994
Accrued liabilities. . . . . . . . . . . . . . . .$(169) $(222)
Postretirement benefits. . . . . . . . . . . . . . (56) (56)
Insurance reserves . . . . . . . . . . . . . . . . (61) -
Other deferred tax assets. . . . . . . . . . . . . (23) (27)
Total deferred tax assets . . . . . . . . . . . . (309) (305)
Prepaid pension contribution . . . . . . . . . . . 128 121
Direct response and insurance
acquisition costs . . . . . . . . . . . . . . . . 127 114
Property, plants and equipment . . . . . . . . . . 133 133
Other deferred tax liabilities . . . . . . . . . . 47 68
Total deferred tax liabilities. . . . . . . . . . 435 436
AMT and other credit carryforwards . . . . . . . . (36) (31)
Valuation allowance. . . . . . . . . . . . . . . . 32 27
Net deferred tax liability. . . . . . . . . . . . $ 122 $ 127
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions)
8. Income Taxes (continued)
Income tax expense consists of:
52-Week 53-Week
Period Ended Period Ended
Dec. 31, Jan. 1, Jan. 2,
1994 1994 1993
Federal
Currently payable . . . .$25 $28 $15
Deferred. . . . . . . . . 29 25 32
State, local
and foreign . . . . . . . 8 6 3
Total income
tax expense . . . . . . .$62 $59 $50
A reconciliation of the statutory to effective federal income tax
rate is as follows:
52-Week 53-Week
Period Ended Period Ended
Dec. 31, Jan. 1, Jan. 2,
1994 1994 1993
Federal income
tax rate. . . . . . . . .35% 35% 34%
State taxes, net
of reduction of
Federal tax . . . . . . . 3 2 1
Targeted Jobs
Tax Credit. . . . . . . .(3) (1) (2)
Impact of increase
in statutory rate . . . . - 1 -
Permanent differences. . (1) - -
Effective income
tax rate. . . . . . . . 34% 37% 33%
Permanent differences include the 1994 settlement of income tax
assessments for the taxable years ending December 31, 1988 through
December 29, 1990. Montgomery Ward had previously provided for
these assessments and the related deferred income taxes were
adjusted in 1994 to reflect the impact of this settlement.
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions)
9. Deferred Service Contract Revenue
The Company sells product service contracts on its own behalf,
and beginning in 1994, on behalf of Virginia Surety Company, Inc.
(VSC). The Company recognizes the revenue related to sales of
Montgomery Ward service contracts in proportion to the costs
expected to be incurred in performing services under the contracts.
Deferred service contract revenue of $231 and $239 at December 31,
1994 and January 1, 1994, respectively, is included in Accrued
liabilities and other obligations. The Company recognizes the
revenue, net of the fixed payment due to VSC on sales of VSC
contracts at time of the sale. VSC insured contracts comprised 17%
of sales of service contracts to Montgomery Ward customers in 1994.
Montgomery Ward has contracted with VSC to provide repair services
to VSC.
10. Insurance Policy Claim Reserves
The Company's insurance subsidiaries are involved in both the
cession and assumption of reinsurance with other companies. Risks
are reinsured with other companies to permit the recovery of a
portion of the direct losses. Policy related liabilities and
accruals, including incurred but not reported claims, are included
in the financial statements as Insurance policy claim reserves, and
reinsurance ceded is reflected as a component of Other assets. The
Company remains liable to the extent the reinsuring companies
cannot meet their obligations under these reinsurance treaties.
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions)
10. Insurance Policy Claim Reserves (continued)
Premium revenues, which are included in Direct response marketing
revenues, are as follows:
Percentage
Ceded To Assumed of Amount
Gross Other from Other Net Assumed
Amount Companies Companies Amount To Net
52-Week Period
Ended Decem-
ber 31, 1994:
Life insurance
in force . . $5,729 $ 93 $ - $5,636 0.0%
Premiums
Life
insurance . $ 50 $ 1 $ 3 $ 52 5.8%
Accident and
health
insurance . . 76 - 11 87 12.6%
Property and
liability
insurance . 62 9 - 53 0.0%
Total. . . $ 188 $ 10 $ 14 $ 192 7.3%
52-Week Period
Ended Janu-
ary 1, 1994:
Life insurance
in force . . $5,438 $102 $ - $5,336 0.0%
Premiums
Life
insurance . $ 45 $ 1 $ 3 $ 47 6.4%
Accident and
health
insurance . . 67 - 13 80 16.3%
Property and
liability
insurance . 51 8 - 43 0.0%
Total. . . $ 163 $ 9 $16 $ 170 9.4%
53-Week Period
Ended Janu-
ary 2, 1993:
Life
insurance
in force . . $5,325 $114 $ - $5,211 0.0%
Premiums
Life
insurance . $ 45 $ 1 $ 3 $ 47 6.4%
Accident and
health
insurance . . 66 - 16 82 19.5%
Property and
liability
insurance . 49 8 - 41 0.0%
Total. . . $ 160 $ 9 $19 $ 170 11.2%
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions)
11. Short-Term and Long-Term Debt
The long-term debt of Montgomery Ward and its subsidiaries is as
follows:
December 31, January 1,
1994 1994
Montgomery Ward
Note Purchase Agreements; Senior Notes
Series A to Series G due in 1998
to 2005 at 7.07% to 8.18% interest
rates. . . . . . . . . . . . . . . . . . $100 $100
Economic Development Revenue Bonds,
due in 1994 at 9.5% interest rate. . . . . - 5
Commercial Development Revenue Bonds,
due in 2013 at 4.15% interest rate,
adjusted at three-year intervals . . . . 5 5
Other . . . . . . . . . . . . . . . . . . . 2 2
Montgomery Ward Real Estate Subsidiaries
4 3/4% Secured Notes, due serially
to January 15, 1995. . . . . . . . . . . . 1 2
11 1/2% Secured Note, due serially
to September 1, 2001 . . . . . . . . . . 15 17
7 1/2% Secured Note, due serially
to November 30, 2002 . . . . . . . . . . . 6 7
9.45% Secured Notes, due serially
to November 30, 2003 . . . . . . . . . . . 18 19
7 3/4% Secured Notes, due serially
to August 31, 2004 . . . . . . . . . . . . 20 22
7 7/8% Secured Notes, due serially
to December 15, 2005 . . . . . . . . . . . 9 10
9% Secured Notes, due serially to
January 1, 2006. . . . . . . . . . . . . . 13 14
Other . . . . . . . . . . . . . . . . . . . 10 10
Lechmere
9.65% Secured Mortgage Notes, due
October 31, 1996 . . . . . . . . . . . . . 24 -
Other . . . . . . . . . . . . . . . . . . . 5 -
Total long-term debt. . . . . . . . . .$228 $213
The amounts of long-term debt that become due during the fiscal
years 1995 through 1999 are as follows: 1995--$8, 1996--$33,
1997--$10, 1998--$20 and 1999--$10.
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions)
11. Short-Term and Long-Term Debt (continued)
Montgomery Ward has entered into a Long Term Credit Agreement
(Long Term Agreement) dated as of September 15, 1994 with various
lenders. The Long Term Agreement, which expires September 15,
1999, provides for a revolving facility in the principal amount of
$603. As of December 31, 1994, no borrowings were outstanding
under the Long Term Agreement. Concurrently, Montgomery Ward also
entered into a Short Term Credit Agreement (Short Term Agreement)
dated as of September 15, 1994 with various lenders. The Short
Term Agreement, which expires September 14, 1995, provides for a
revolving facility in the principal amount of $297. As of December
31, 1994, $144 was outstanding under the Short Term Agreement.
Proceeds from borrowings under the Long Term Agreement and the
Short Term Agreement (collectively, the Agreements) were used to
pay all borrowings outstanding under an Amended and Restated Credit
Agreement dated as of September 22, 1992, a Short Term Credit
Agreement dated as of September 22, 1992 and a Term Loan Agreement
dated as of November 24, 1993 and the agreements were terminated.
Under the Agreements, Montgomery Ward may select among several
interest rate options, including a rate negotiated with one or more
of the various lenders. The interest rates for the aforementioned
bank borrowings are based on market rates and significant increases
in market interest rates will increase interest payments required.
A commitment fee is payable based upon the unused amount of each
facility, although under certain circumstances, an additional fee
may be payable to lenders not participating in a negotiated rate
loan. The weighted average interest rate paid under the Agreements
was 4.9% for 1994.
During the fourth quarter of 1994, Montgomery Ward entered into
interest rate exchange and cap agreements with various banks to
offset the market risk associated with an increase in interest
rates under both the Long Term Agreement and Short Term Agreement.
The aggregate notional principal amounts under the interest rate
exchange agreements is $100 in 1994, $175 in 1995 through 1997 and
$75 in 1998 through 1999. Under the terms of the interest rate
exchange agreements, Montgomery Ward pays the banks a weighted
average fixed rate of 7.2% in 1994, 7.4% from 1995 through 1997 and
7.6% from 1998 through 1999 and will receive the one-month daily
average London Interbank Offered (LIBO) rate in each case
multiplied by the notional principal amount. The average aggregate
notional principal amounts under the various cap agreements is $63
in the fourth quarter of 1994, $154 in 1995, $158 in 1996 and $113
in 1997. Under the terms of the cap agreements, Montgomery Ward
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions)
11. Short-Term and Long-Term Debt (continued)
receives payments from the banks when the one-month daily average
LIBO rate exceeds the 5.0% cap strike in 1994, 5.5% cap strike
rate in 1995, 6% cap strike rate in 1996 and 7.0% cap strike rate
in 1997. Such payments will equal the amount determined by
multiplying the notional principal amount by the percentage, if
any, by which the one-month daily average LIBO rate exceeds the
cap strike rate. Montgomery Ward is exposed to credit risk in
the event of nonperformance by the other parties to the interest
rate exchange and cap agreements; however, Montgomery Ward
anticipates full performance by the counterparties. The fair
market value of the exchange and cap agreements at December 31,
1994 was $11. Fair value is estimated based upon the amount that
Montgomery Ward would receive or pay to terminate the agreements
as of the reporting date, utilizing quoted prices for comparable
contracts.
The Agreements and the Note Purchase Agreements impose various
restrictions on Montgomery Ward, including the satisfaction of
certain financial tests which include restrictions on payments of
dividends. Under the terms of the Agreements, which are currently
the most restrictive of the financing agreements as to dividends,
distributions and redemptions, Montgomery Ward may not pay
dividends or make any other distributions to the Company or redeem
any Common Stock in excess of (1) $63 on a cumulative basis, plus
(2) 50% of Consolidated Net Income of Montgomery Ward (as defined
in the Agreements) after January 1, 1994, plus (3) any repayment by
the Company of any loan or advance made by Montgomery Ward to the
Company which was received after January 1, 1994, plus (4) capital
contributions received by Montgomery Ward after January 1, 1994,
plus (5) net proceeds received by Montgomery Ward from (a) the
issuance of capital stock including treasury stock but excluding
Debt-Like Preferred Stock (as defined in the Agreements), or (b)
any indebtedness which is converted into shares of capital stock
other than Debt-Like Preferred Stock of Montgomery Ward or the
Company, after January 1, 1994, plus (6) an adjustment of $45 for
1994 through 1996, $30 in 1997 and $15 in 1998. The Montgomery
Ward Preferred discussed in Note 13 constitutes Debt-Like Preferred
Stock for purposes of the dividend restrictions under the
Agreements. At December 31, 1994, Montgomery Ward could pay
dividends and make other distributions to the Company of $124
pursuant to the terms of the Agreements. To date, Montgomery Ward
has been in compliance with all such financial tests.
Montgomery Ward has outstanding Commercial Development Revenue
Bonds, which are adjusted to the market rate of interest at
three-year intervals. The rate was adjusted to 4.15% in 1992.
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions)
11. Short-Term and Long-Term Debt (continued)
The Secured Notes of the real estate subsidiaries and the secured
Mortgage Notes of Lechmere are secured by mortgage liens and/or
assignments of rental agreements whereby the real estate
subsidiaries have assigned to trustees certain monies payable under
leases with Montgomery Ward. At December 31, 1994, assets with a
net book value of approximately $228 represented collateral for
certain of these secured notes.
The market value of the Company's long-term debt of $212 is
estimated using discounted cash flow analyses, based on the
Company's current incremental borrowing rates for similar types of
borrowing arrangements.
12. Leases
The Company leases real and personal property principally through
noncancelable capital and operating leases, which generally provide
for the payment of minimum rentals and, in certain instances,
executory costs and additional rentals based upon a percentage of
sales. The terms of the real estate leases typically contain
renewal options for additional periods.
At December 31, 1994, the minimum lease payments under all
noncancelable operating leases with an initial term of more than
one year, not including $17 of future sublease rentals, and under
capital leases are as follows:
Capital Operating
Leases Leases
1995 . . . . . . . . . . . . . . . . . . . .$ 15 $113
1996 . . . . . . . . . . . . . . . . . . . . 14 105
1997 . . . . . . . . . . . . . . . . . . . . 13 95
1998 . . . . . . . . . . . . . . . . . . . . 13 87
1999 . . . . . . . . . . . . . . . . . . . . 12 79
Later Years. . . . . . . . . . . . . . . . . 57 807
Total Minimum Lease Payments. . . . . . . .$124 $1,286
Less Executory Costs, principally
real estate taxes to be paid
by the lessor . . . . . . . . . . . . . . . (5)
Less Imputed Interest. . . . . . . . . . . .(38)
Present Value of Net Minimum
Capital Lease Payments
Including Portion due within
one year of $7 . . . . . . . . . . . . . .$ 81
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions)
12. Leases (continued)
Net rent expense charged to earnings was $130 for 1994, $104 for
1993 and $101 for 1992 after deducting rentals from subleases of
$9 in 1994, $9 in 1993 and $10 in 1992. Rent expense includes
contingent lease rentals for capital and operating leases of $13
for 1994, $11 for 1993 and $11 for 1992. These contingent lease
rentals are generally based on sales revenues.
Some rental agreements contain escalation provisions that may
require higher future rent payments. Rent expense incurred under
rental agreements which contain escalation clauses is recognized on
a straight-line basis over the life of the lease.
13. Redeemable Preferred Stock
Effective September 30, 1992, Montgomery Ward declared a dividend
payable to the Company and the Company redeemed all of its
outstanding shares of Preferred Stock, including 500 shares of
Senior Preferred Stock, par value $1.00 per share, and 400 shares
of Junior Preferred Stock, par value $1.00 per share, all of which
were held by GE Capital. The aggregate redemption prices for the
Senior Preferred Stock and the Junior Preferred Stock were $50 and
$40, respectively, and accrued dividends thereon were $3.
Dividends had been paid quarterly at an annual rate of $11,500 per
share and $12,000 per share for the Senior Preferred Stock and
Junior Preferred Stock, respectively.
On April 27, 1994, the Company's Certificate of Incorporation was
amended to authorize the issuance of a new series of senior
preferred stock (Senior Preferred Stock). On that date, the
Company issued all of the 750 shares of Senior Preferred Stock
authorized by the Certificate of Incorporation to General Electric
Capital Corporation in exchange for $75 in cash. The Company used
the proceeds to acquire 750 shares of a new issue of senior
preferred stock of Montgomery Ward (Montgomery Ward Preferred) for
$75 and Montgomery Ward used the proceeds to reduce short-term
borrowings.
Dividends on the Senior Preferred Stock are payable quarterly at
an annual rate of $4,850 per share. The Company is required to
redeem all or any portion of the Senior Preferred Stock upon four
months' written notice by the holders on or after April 28, 1999.
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions, except per share amounts)
14. Common Stock
The Company has the following authorized classes of common stock:
Class A Common Stock, Series 1; $.01 par value; 25,000,000
shares authorized; 19,074,118 shares issued and outstanding,
net of 5,925,882 shares held in treasury.
Class A Common Stock, Series 2; $.01 par value; 5,412,000
shares authorized; 206,364 shares issued and outstanding, net
of 678,982 shares held in treasury.
Class A Common Stock, Series 3; $.01 par value; 2,400,000
shares authorized; no shares issued or outstanding.
Class B Common Stock; $.01 par value; 25,000,000 shares
authorized, issued and outstanding; all owned by GE Capital.
The Company has repurchased 4,187,550 shares held by certain
former officers of the Company, Montgomery Ward and Signature and
their permitted transferees by making cash payments and issuing
installment notes in the aggregate of approximately $62. As of
December 31, 1994, the outstanding balance of these notes was $26.
These installment notes bear interest at varying rates, are payable
over multi-year periods (generally three to five years) and are
secured by shares of Common Stock, the fair market value of which
is equal to the outstanding principal amount under each note. The
notes are classified as Accrued liabilities and other obligations.
Under all of the Agreements, Montgomery Ward expects to be able to
advance the Company sufficient funds to allow the Company to make
the required installment payments in 1995.
Each share of Class B Common Stock entitles the holder thereof
to one vote. All shares of Class A Common Stock entitle the
holders to a total of 25,000,000 votes, or one vote per share if
the total number of Class A shares issued and outstanding is less
than 25,000,000.
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions, except per share amounts)
14. Common Stock (continued)
Net income per common share is computed as follows:
52-Week Period Ended
December 31, 1994
Class A Class B
Earnings available for Common Share-
holders, after deducting preferred
stock dividend requirements. . . . . $57 $58
Weighted average number of common
and common equivalent shares
(stock options) outstanding. . . . . 21,407,379 25,000,000
Earnings per share . . . . . . . . . . $2.68 $2.30
52-Week Period Ended
January 1, 1994
Class A Class B
Earnings available for Common
Shareholders . . . . . . . . . . . . $50 $51
Weighted average number of common
and common equivalent shares
(stock options) outstanding. . . . . 21,805,203 25,000,000
Earnings per share . . . . . . . . . . $2.29 $2.04
53-Week Period Ended
January 2, 1993
Class A Class B
Earnings available for Common Share-
holders, after deducting preferred
stock dividend requirements and
cumulative effect of changes in
accounting principles. . . . . . . . $26 $26
Weighted average number of common
and common equivalent shares
(stock options) outstanding. . . . . 22,537,539 25,000,000
Earnings per share . . . . . . . . . . $1.13 $1.05
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions, except per share amounts)
15. Stock Ownership Plan
The Montgomery Ward & Co., Incorporated Stock Ownership Plan was
adopted effective July 19, 1988. A total of 1,000,000 Class A
Common Stock, Series 1, 5,412,000 shares of Class A Common Stock,
Series 2, and 2,000,000 shares of Class A Common Stock, Series 3,
have been reserved for issuance under the plan. Key associates of
Montgomery Ward and its subsidiaries are eligible to participate
and may receive awards, purchase rights and options. Awards are
grants of shares for no consideration. Options for 2,926,286 and
1,484,302 of Class A Common Stock, Series 2 shares were exercisable
at December 31, 1994 and January 1, 1994, respectively.
Following is a summary of activity under the plan.
Option Price
Options Range
Outstanding December 28, 1991 . . . . 2,944,967 $0.20-$14.79
Granted, 1992 . . . . . . . . . . . . 1,377,478 $15.11-$18.75
Exercised, 1992 . . . . . . . . . . . (256,367) $0.20-$15.11
Cancellations, 1992 . . . . . . . . . (469,170) $0.20-$18.75
Outstanding January 2, 1993 . . . . . 3,596,908 $0.20-$18.75
Granted, 1993 . . . . . . . . . . . . 1,979,105 $18.75-$22.50
Exercised, 1993 . . . . . . . . . . . (192,864) $0.20-$18.75
Cancellations, 1993 . . . . . . . . . (520,083) $0.20-$22.50
Outstanding January 1, 1994 . . . . . 4,863,066 $0.20-$22.50
Granted, 1994 . . . . . . . . . . . . 2,010,236 $12.50-$26.50
Exercised, 1994 . . . . . . . . . . . (297,415) $0.20-$22.50
Cancellations, 1994 . . . . . . . . . (890,285) $0.20-$26.50
Outstanding, December 31, 1994. . . . 5,685,602 $0.20-$26.50
During 1991, the Board of Directors approved the Directors Plan.
The Directors Plan was established to, among other things, allow
outside directors to receive all or any portion of the fees for
their services as directors of the Company and Montgomery Ward via
conversion rights in Series 1 or Series 2 shares. In 1994, 1993
and 1992, 2,489, 3,466 and 3,332 Series 1 shares were issued from
treasury as payment for directors fees, respectively.
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions)
16. Benefits and Losses
Operating, selling, general and administrative expenses include
benefits and losses related to direct response marketing operations
of $102, $93 and $97 for the 52-week periods ended December 31,
1994 and January 1, 1994 and the 53-week period ended January 2,
1993, respectively.
17. Interest Expense, Net of Investment Income
Net interest expense is as follows:
52-Week 53-Week
Period Ended Period Ended
Dec. 31, Jan. 1, Jan. 2,
1994 1994 1993
Interest on short-term
borrowings. . . . . . . . .$19 $ 12 $ 4
Interest on long-term
debt and obligations
under capital leases. . . . 30 24 41
Miscellaneous interest,
net . . . . . . . . . . . . 11 8 6
Investment income. . . . . (2) (1) (6)
Total interest expense,
net of investment
income. . . . . . . . . . .$58 $43 $45
18. Litigation and Other Proceedings
MW Holding, Montgomery Ward and its subsidiaries are engaged in
various litigation and have a number of unresolved claims. While
the amounts claimed are substantial and the ultimate liability with
respect to such litigation and claims cannot be determined at this
time, management is of the opinion that such liability, to the
extent not provided for through insurance or otherwise, is not
likely to have a material impact on the financial condition and the
results of operations of the Company.
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions, except per share amounts)
19. Related Party Transactions
Substantially all shares of Class A Series 1 and Series 2
Common Stock, except those held by the Chairman and Chief Executive
Officer of the Company and a trust established for the benefit of
his children, are held by a Voting Trust which was created in 1988.
In 1994, a second voting trust was created to hold shares of Class
A Series 3 Common Stock. A Voting Trustee (currently the Chairman
and Chief Executive Officer of the Company) has sole voting power
and control of all shares held by both Voting Trusts. The 1988
Voting Trust will expire June 21, 1998 or upon the occurrence of
certain specified events in accordance with the Voting Trust
Agreement. The 1994 Voting Trust has no expiration date but may
expire upon the occurrence of certain specified events in
accordance with the Voting Trust Agreement.
The Company engages in various transactions with GE Capital as
described in Notes 4, 13 and 14.
In December, 1994, Montgomery Ward signed a letter of intent to
acquire an equity interest in ValueVision International, Inc.
(ValueVision). ValueVision provides television programming within
the emerging home shopping industry. Under the proposed agreement,
Montgomery Ward will purchase 1,280,000 unregistered shares of
common stock of ValueVision at $6.25 per share, which represents
approximately 4.7% of the issued and outstanding shares of common
stock of ValueVision. Montgomery Ward will also receive warrants
to purchase an additional 25 million shares of common stock of
ValueVision with exercise prices ranging from $6.50 to $17.00 per
share, with an average exercise price of $9.16 per share. The
warrants vest over time, subject to the vesting termination and
acceleration provisions in the agreement.
In July, 1994, Montgomery Ward, through a subsidiary, became a
limited partner in Merchant Partners Limited Partnership. The
purpose of this partnership is to invest in new and emerging growth
businesses and leveraged buy-outs to achieve a superior rate of
return. Montgomery Ward made a capital contribution of $1 in
1994. Per the terms of the agreement, additional funding may be
required within limitations set forth in the agreement. The
cumulative maximum capital contribution is $40.
In October 1991, the Company entered into a joint venture, MW
Direct L.P. (MW Direct), formed through a partnership between
subsidiaries of Montgomery Ward and subsidiaries of Fingerhut
Companies, Inc., a Minneapolis-based specialty catalog marketer.
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions)
19. Related Party Transactions (continued)
Montgomery Ward made a $5 initial capital contribution in 1992.
Per the terms of the agreement, no further capital contributions
are required.
Montgomery Ward paid on behalf of those associates and past
associates of Montgomery Ward and certain of its subsidiaries who
purchased stock in the Company in 1988, the legal fees and related
costs and expenses in connection with certain deficiencies in tax
assessed by the Internal Revenue Service, and certain Tax Court
cases. All assessments were settled in 1994. Montgomery Ward paid
approximately $4 in 1993 and $1 in 1992 for services rendered in
connection with the aforementioned matters.
In November 1991, the Board of Directors approved a line of
credit program for certain associates, including directors who are
associates and executive officers of the Company (Line of Credit
Program). Under the Line of Credit Program, the Company arranged
with banks (Program Banks) for lines of credit of up to $10 in the
aggregate for all participants in the Line of Credit Program. As
of December 31, 1994, an aggregate of $5 was available under the
Line of Credit Program. Any associate who borrows money from the
Program Banks under the Line of Credit Program is required to
pledge to such Program Banks as collateral a number of shares owned
by such associate, the fair market value of which is equal to twice
the amount the associate borrows. In the event any associate
should default upon his or her repayment obligations, the Company
anticipates that it will repurchase that individual's note from the
Program Banks, together with the Banks' security interest in the
pledged stock, at the face amount of the note plus up to one year's
interest. At December 31, 1994, the borrowings outstanding under
the Line of Credit Program were less than $1.
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions)
20. Business Segments
Montgomery Ward and its subsidiaries are engaged in retail
merchandising and direct response marketing, including insurance,
in the United States. Following is information regarding revenues,
earnings and assets of the Company by segment.
52-Week 53-Week
Period Ended Period Ended
Dec. 31, Jan. 1, Jan. 2,
1994 1994 1993
Total Revenues
Retail Merchandising. . $6,573 $5,629 $5,427
Direct Response
Marketing. . . . . . . 465 400 379
Total . . . . . . . . $7,038 $6,029 $5,806
Operating Earnings
Retail Merchandising. . $ 208 $ 171 $ 198
Direct Response
Marketing. . . . . . . . 60 54 52
Corporate and Other . . (89) (65) (100)
Total. . . . . . . . . $ 179 $ 160 $ 150
Identifiable Assets
Retail Merchandising. . $3,317 $ 2,627 $2,391
Direct Response
Marketing. . . . . . . . 789 753 702
Corporate and Other. . 434 455 392
Total . . . . . . . . $4,540 $3,835 $3,485
Depreciation and
Amortization
Retail Merchandising. . $ 105 $ 95 $ 94
Direct Response
Marketing. . . . . . . 4 3 3
Total . . . . . . . . $ 109 $ 98 $ 97
Capital Expenditures
Retail Merchandising. . $ 180 $ 139 $ 141
Direct Response
Marketing. . . . . . . 4 3 5
Total . . . . . . . . $ 184 $ 142 $ 146
Under the laws and regulations applicable to insurance companies,
certain subsidiaries of Signature are limited in the amount of
dividends they may pay without the approval of the Illinois
Insurance Department and are prohibited from making any loans and
advances to Montgomery Ward and its affiliates. Under these laws,
the restricted subsidiaries, which had aggregate retained earnings
of $141, and aggregate total shareholders equity of $192, can pay
dividends of $41 during 1995 subject to the availability of earned
surplus as determined on a statutory basis. Dividends received
from insurance subsidiaries were $22, $35 and $27 for 1994, 1993
and 1992.
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions)
21. Parent Company Financial Information
Following is the MW Holding balance sheet as of December 31, 1994
and January 1, 1994 and the statements of income and cash flows for
the 52-week periods ended December 31, 1994 and January 1, 1994 and
the 53-week period ended January 2, 1993.
MONTGOMERY WARD HOLDING CORP.
BALANCE SHEET
ASSETS
December 31, January 1,
1994 1994
Federal Income Taxes Receivable . . . . . .$ 4 $ 4
Investment in Montgomery Ward . . . . . . . 766 671
Redeemable Preferred Stock of
Montgomery Ward. . . . . . . . . . . . . . 75 -
Total Assets . . . . . . . . . . . . . . .$845 $675
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts Payable to Montgomery Ward . . . .$ 57 $ 35
Accrued Liabilities . . . . . . . . . . . . 26 33
Total Liabilities. . . . . . . . . . . . . 83 68
Redeemable Preferred Stock. . . . . . . . . 75 -
Common Stock. . . . . . . . . . . . . . . - -
Capital in excess of par value. . . . . . . 23 19
Retained Earnings . . . . . . . . . . . . . 751 658
Unrealized gain on marketable equity
securities . . . . . . . . . . . . . . . . 2 3
Less: Treasury stock, at cost. . . . . . .(89) (73)
Total Shareholders' Equity . . . . . . . . 687 607
Total Liabilities and
Shareholders' Equity . . . . . . . . . . .$845 $675
STATEMENT OF INCOME
52-Week 53-Week
Period Ended Period Ended
Dec. 31, Jan. 1, Jan. 2,
1994 1994 1993
Miscellaneous Costs . . . .$(2) $(1) $(2)
Total Costs and
Expenses. . . . . . . . . (2) (1) (2)
Tax Benefits. . . . . . . . - - -
Net Loss Before
Earnings of
Montgomery Ward. . . . . . (2) (1) (2)
Equity in Net Income
of Montgomery Ward,
net of cumulative
effect of
accounting changes . . . . 119 102 62
Net Income. . . . . . . . . 117 101 60
Preferred Stock Dividend
Requirements . . . . . . . 2 - 8
Net Income Available
for Common
Shareholders . . . . . . .$115 $101 $ 52
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions)
21. Parent Company Financial Information (continued)
STATEMENT OF CASH FLOWS
December 31, January 1, January 2,
1994 1994 1993
Net Income. . . . . . . . . .$117 $101 $ 60
Adjustments to reconcile
net income to net cash
provided:
Change in undis-
tributed earnings
of subsidiary . . . . . .(96) (79) 48
Decrease (increase) in:
Federal income taxes
receivable . . . . . . . - - (1)
Other assets. . . . . . . - 1 -
Increase (decrease) in:
Accounts payable to
Montgomery Ward. . . . . 22 12 10
Accrued liabilities . . (14) (4) (4)
Net cash provided
before financing
activities . . . . . . . . (29) 31 113
Cash flows from financing
activities:
Proceeds from issuance
of common stock . . . . . 3 1 1
Proceeds from issuance
of preferred stock. . . . 75 - -
Purchase of Montgomery
Ward preferred
stock. . . . . . . . . . .(75) - -
Cash dividends paid . . . .(24) (23) (19)
Payments to redeem
preferred stock . . . . . - - (90)
Purchase of treasury
stock, at cost. . . . . . (9) (11) (7)
Tax benefit of stock
options exercise
and other stock
exchanges . . . . . . . 1 2 2
Net cash used for
financing activities . . . (29) (31) (113)
Cash at end of period . . . $ - $ - $ -
Non-cash investing
activities:
Change in unrealized
gain on investments . . . $ (1) $ - $ 1
Non-cash financing
activities:
Notes issued for
purchase of
treasury stock. . . . . . $ 7 $ 16 $ 5
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions, except per share amounts)
22. Quarterly Financial Data (unaudited)
The quarterly operations of MW Holding are summarized as follows:
Quarter
First Second Third Fourth Year
52-Week Period Ended
December 31, 1994
Net sales. . . . . . .$1,216 $1,520 $1,574 $2,263 $6,573
Cost of goods sold . . . 930 1,183 1,234 1,742 5,089
Net Income . . . . . . . .10 28 15 64 117
Net Income per Class A
Common Share. . . . . .23 .62 .33 1.51 2.68
Net Income per Class B
Common Share. . . . . .20 .53 .29 1.28 2.30
52-Week Period Ended
January 1, 1994
Net sales. . . . . . .$1,160 $1,283 $1,327 $1,859 $5,629
Cost of goods sold . 876 963 1,009 1,408 4,256
Net Income . . . . . 10 27 14 50 101
Net Income per Class A
Common Share. . . . .21 .61 .33 1.16 2.29
Net Income per Class B
Common Share. . . . .19 .56 .29 1.01 2.04
Item 9. Disagreements on Accounting and Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers of the Company
Information as to executive officers required by this item is
included under the caption "Executive Officers of the Registrant"
beginning on page 15. Information as to directors required by this
item is incorporated herein by reference, pursuant to General
Instruction G(3) to Form 10-K, from the Registrant's definitive
proxy statement, for the annual meeting of shareholders to be held
on May 12, 1995, to be filed within 120 days of the end of the
Registrant's fiscal year.
Item 11. Executive Compensation
Incorporated herein by reference, pursuant to General Instruction
G(3) to Form 10-K, from the Registrant's definitive proxy
statement, for the annual meeting of shareholders to be held on May
12, 1995, to be filed within 120 days of the end of the
Registrant's fiscal year.
Item 12. Security Ownership of Certain Beneficial Owners and
Management.
Incorporated herein by reference, pursuant to General Instruction
G(3) to Form 10-K, from the Registrant's definitive proxy
statement, for the annual meeting of shareholders to be held on May
12, 1995, to be filed within 120 days of the end of the
Registrant's fiscal year.
Item 13. Certain Relationships and Related Transactions
Incorporated herein by reference, pursuant to General Instruction
G(3) to Form 10-K, from the Registrant's definitive proxy
statement, for the annual meeting of shareholders to be held on May
12, 1995, to be filed within 120 days of the end of the
Registrant's fiscal year.
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K.
(a) 1. Financial Statements.
Page
Report of Independent Public Accountants. . . . . . . . .28
Consolidated Balance Sheet at December 31, 1994
and January 1, 1994 . . . . . . . . . . . . . . . . . .31
For the 52-Week Periods Ended December 31, 1994
and January 1, 1994 and the 53-Week Period
Ended January 2, 1993
Consolidated Statement of Income. . . . . . . . . . . .29
Consolidated Statement of Shareholders' Equity. . . .32
Consolidated Statement of Cash Flows. . . . . . . . .35
Notes to Consolidated Financial Statements. . . . . . . .37
2. Financial Statement Schedules.
Schedules have been omitted because they are not applicable, not
required, not material, or the required information is given in the
financial statements or notes thereto or combined with the
information presented in other schedules or exhibits.
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K. (Continued)
3. Exhibits
2.(i)(A) Agreement and Plan of Merger dated March 17, 1994
by and among Montgomery Ward & Co., Incorporated,
MW Merger Corp., LMR Acquisition Corporation,
Lechmere, Inc. and stockholders of LMR Acquisition
Corporation executing counterparts of this
agreement, incorporated by reference to Exhibit
2.(i)(A) of the Company's Annual Report on Form 10-
K for the fiscal year ended January 1, 1994.
2.(i)(A)(1) First Amendment to Agreement and Plan of Merger
dated June 15, 1994, by and among Montgomery Ward
& Co., Incorporated, LMR Acquisition Corporation,
and the Stockholders' Committee, incorporated by
reference to Exhibit 2.(i)(A)(1) of the Company's
Quarterly Report on Form 10-Q for the fiscal
quarterly period ended July 2, 1994.
2.(ii) Agreement of Purchase and Sale of Stock
dated February 24, 1994 among Signature Financial/
Marketing, Inc., Greater California Dental Services
Plan, Inc. and National Dental Services, Inc.,
incorporated by reference to Exhibit 2.(i)(A) of
the Company's Annual Report on Form 10-K for the
fiscal year ended January 1, 1994.
3.1 Third Restated Certificate of Incorporation of
Registrant, filed June 28, 1994, incorporated by
reference to Exhibit 3.2(ii) of the Company's
Registration Statement on Form S-1 (Registration
No. 33-33252).
3.1(i) Certificate of Amendment to Certificate of
Incorporation of Montgomery Ward Holding Corp.
dated October 25, 1994, incorporated by reference
to Exhibit 3.2(iv) of the Company's Quarterly
Report on Form 10-Q for the fiscal quarterly period
ended October 1, 1994.
3.3 Amended and Restated By-laws of Registrant, dated
as of April 15, 1994, incorporated by reference to
Exhibit 3.3(i) of the Company's Registration
Statement on Form S-1 (Registration No. 33-33252).
3.3(i) Amendment No. 1 to Restated By-laws of Montgomery
Ward Holding Corp. dated September 21, 1994,
incorporated by reference to Exhibit 3.3(i) of the
Company's Quarterly Report on Form 10-Q for the
fiscal quarterly period ended October 1, 1994.
9. Voting Trust Agreement dated as of June 21, 1988,
incorporated by reference to Exhibit 3(a) of the
Company's Registration Statement on Form S-1
(Registration No. 33-23403).
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K. (Continued)
3. Exhibits (continued)
9.(i) Voting Trust Agreement dated as of October 21,
1994, incorporated by reference to Exhibit
9.(i) of the Company's Quarterly Report on Form
10-Q for the fiscal quarterly period ended
October 1, 1994.
10.(i)(A)(1) Stockholders' Agreement dated as of June 17,
1988, as amended and restated as of August 1,
1994, incorporated by reference to Annex 1 of
the Prospectus contained in the Company's
Registration Statement on Form S-1
(Registration No. 33-33252).
10.(iv)(A)(1)(a) Amendment No. 14 to Stockholders' Agreement
dated September 22, 1994, incorporated by
reference to Exhibit 10.(iv)(A)(1)(a) of the
Company's Quarterly Report on Form 10-Q for the
fiscal quarterly period ended October 1, 1994.
10.(i)(A)(3) Montgomery Ward & Co., Incorporated Stock
Ownership Plan Terms and Conditions, as amended
and restated, as of August 1, 1994,
incorporated by reference to Exhibit
10.(iv)(A)(v) of the Company's Registration
Statement on Form S-1 (Registration No.
33-41161).
10.(i)(A)(4) Amendment No. 10 to Montgomery Ward & Co.,
Incorporated Stock Ownership Plan Terms and
Conditions dated September 22, 1994,
incorporated by reference to Exhibit
10.(iv)(A)(5) of the Company's Quarterly Report
on Form 10-Q for the fiscal quarterly period
ended October 1, 1994.
10.(i)(B) Stock Purchase Agreement dated March 6, 1988
between Mobil Corporation, Marcor Inc. and BFB
Acquisition Corp. incorporated by reference to
Exhibit 10.(i)(B) of the Company's Registration
Statement on Form S-1 (Registration No.
33-23403).
10.(i)(F) Note Purchase Agreements dated March 1, 1993
between Montgomery Ward & Co., Incorporated and
various lenders, incorporated by reference to
Exhibit 10.(i)(F) of the Company's Annual
Report on Form 10-K for the fiscal year ended
January 2, 1993.
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K. (Continued)
3. Exhibits (continued)
10.(i)(H) Long Term Credit Agreement dated as of September
15, 1994 among Montgomery Ward & Co., Incorporated,
various banks, The First National Bank of Chicago,
as Documentary Agent, The Bank of Nova Scotia, as
Administrative Agent, The Bank of New York, as
Negotiated Loan Agent and Bank of America National
Trust and Savings Association, as Advisory Agent,
incorporated by reference to Exhibit 10.(i)(G) of
the Company's Quarterly Report on Form 10-Q for the
fiscal quarterly period ended October 1, 1994.
10.(i)(I) Short Term Credit Agreement dated as of September
15, 1994 among Montgomery Ward & Co., Incorporated,
various banks, The First National Bank of Chicago,
as Documentary Agent, The Bank of Nova Scotia, as
Administrative Agent, The Bank of New York, as
Negotiated Loan Agent and Bank of America National
Trust and Savings Association, as Advisory Agent,
incorporated by reference to Exhibit 10.(i)(H) of
the Company's Quarterly Report on Form 10-Q for the
fiscal quarterly period ended October 1, 1994.
10.(ii)(A) Stock Purchase Agreement dated June 22, 1988
between General Electric Capital Corporation and
Montgomery Ward & Co., Incorporated, incorporated
by reference to Exhibit 10.(ii)(A) of the Company's
Registration Statement on Form S-1 (Registration
No. 33-23403).
10.(ii)(B) Account Purchase Agreement dated June 24, 1988 by
and between Montgomery Ward Credit Corporation and
Montgomery Ward & Co., Incorporated, incorporated
by reference to Exhibit 10.(ii)(B) of the Company's
Registration Statement on Form S-1 (Registration
No. 33-23403).
10.(ii)(B)(1) Letter Agreement dated April 21, 1989, by and
between Montgomery Ward Credit Corporation and
Montgomery Ward & Co., Incorporated (amending the
Account Purchase Agreement which is Exhibit
10.(ii)(B) hereto), incorporated by reference to
Exhibit 10.(ii)(B)(1) of the Company's Registration
Statement on Form S-1 (Registration No. 33-33252).
10.(ii)(B)(2) Amendment to Account Purchase Agreement dated
December 26, 1989 by and between Montgomery Ward
Credit Corporation and Montgomery Ward & Co.,
Incorporated, incorporated by reference to Exhibit
10.(ii)(B)(2) of the Company's Registration
Statement on Form S-1 (Registration No. 33-33252).
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K. (Continued)
3. Exhibits (continued)
10.(ii)(B)(3) Letter Agreement dated April 24, 1990, by and
between Montgomery Ward Credit Corporation and
Montgomery Ward & Co., Incorporated, incorporated
by reference to Exhibit 10.(ii)(B)(3) of the
Company's Registration Statement on Form S-1
(Registration No. 33-33252).
10.(ii)(C) Letter Agreement dated June 24, 1988 among
Signature Financial/Marketing, Inc., Montgomery
Ward Credit Corporation and Montgomery Ward & Co.,
Incorporated, incorporated by reference to Exhibit
10.(ii)(C) of the Company's Registration Statement
on Form S-1 (Registration No. 33-23403).
10.(ii)(D) Letter Agreement dated December 26, 1990, by and
between Montgomery Ward Credit Corporation and
Montgomery Ward & Co., Incorporated, incorporated
by reference to 10.(ii)(D) of the Company's Annual
Report on Form 10-K for the fiscal year ended
December 29, 1990.
10.(ii)(E) Fifth Amendment to Account Purchase Agreement dated
May 23, 1992 by and between Montgomery Ward & Co.,
Incorporated and Montgomery Ward Credit
Corporation, incorporated by reference to Exhibit
10.(ii)(E) of the Company's Quarterly Report on
Form 10-Q for the fiscal quarterly period ended
June 27, 1992.
10.(ii)(F) Amendment dated May 23, 1992 to Letter Agreement
dated June 24, 1988 (Signature Credit Agreement) by
and among Signature Financial/Marketing, Inc.,
Montgomery Ward & Co., Incorporated and Montgomery
Ward Credit Corporation, incorporated by reference
to Exhibit 10.(ii)(F) of the Company's Quarterly
Report on Form 10-Q for the fiscal quarterly period
ended June 27, 1992.
10.(ii)(G) Letter Agreement dated December 29, 1992 by and
between Montgomery Ward & Co., Incorporated and
Montgomery Ward Credit Corporation, incorporated by
reference to Exhibit 10.(ii)(G) of the Company's
Annual Report on Form 10-K for the fiscal year
ended January 2, 1993.
10.(ii)(G)(1) Letter Agreement dated April 29, 1993, by and
between Montgomery Ward Credit Corporation and
Montgomery Ward & Co., Incorporated, incorporated
by reference to Exhibit 10.(ii)(H) of the Company's
Quarterly Report on Form 10-Q for the fiscal
quarterly period ended April 3, 1993.
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K. (Continued)
3. Exhibits (continued)
10.(ii)(G)(2) Letter Agreement dated September 15, 1993, by and
between Montgomery Ward Credit Corporation and
Montgomery Ward & Co., Incorporated, incorporated
by reference to Exhibit 10.(ii)(G)(2) of the
Company's Annual Report on Form 10-K for the fiscal
year ended January 1, 1994.
10.(ii)(H) Ninth Amendment to Account Purchase Agreement dated
February 16, 1994 by and between Montgomery Ward &
Co., Incorporated and Montgomery Ward Credit
Corporation, incorporated by reference to Exhibit
10.(ii)(H) of the Company's Annual Report on form
10-K for the fiscal year ended January 1, 1994.
10.(ii)(I) Tenth Amendment to Account Purchase Agreement dated
June 16, 1994, by and between Montgomery Ward
Credit Corporation and Montgomery Ward & Co.,
Incorporated, incorporated by reference to Exhibit
10.(ii)(B)(11) of the Company's Registration
Statement on Form S-1 (No. 33-33252).
10.(ii)(J) Second Amendment dated June 16, 1994 to Signature
Credit Agreement by and among Signature
Financial/Marketing, Inc., Montgomery Ward & Co.,
Incorporated and Montgomery Ward Credit
Corporation, incorporated by reference to Exhibit
10.(ii)(C)(2) of the Company's Registration
Statement on Form S-1 (No. 33-33252).
10.(ii)(K) Eleventh Amendment to the Account Purchase
Agreement dated January 1, 1994, by and between
Montgomery Ward Credit Corporation and Montgomery
Ward & Co., Incorporated.
10.(iv)(A) Montgomery Ward & Co., Incorporated Stock Ownership
Plan, amended and restated as of May 20, 1994,
incorporated by reference to Exhibit
10.(iv)(A)(ii)(A) of the Company's Registration
Statement on Form S-1 (No. 33-33252).
10.(iv)(A)(1) Amendment No. 1 to the Amended and Restated
Montgomery Ward & Co. Stock Ownership Plan dated
October 20, 1994, incorporated by reference to
Exhibit 10.(iv)(A)(iii) of the Company's Quarterly
Report on Form 10-Q for the fiscal quarterly period
ended October 1, 1994.
10.(iv)(B) Montgomery Ward & Co., Incorporated Long Term
Incentive Plan, incorporated by reference to
Exhibit 10.(iv)(B) of the Company's Registration
Statement on Form S-1 (Registration No. 33-23403).
10.(iv)(B)(i) Montgomery Ward & Co., Incorporated Executive Long-
Term Incentive Plan, incorporated by reference to
Exhibit 10.(iv)(B)(1) of the Company's Registration
Statement on Form S-1 (No. 33-33252).
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K. (Continued)
3. Exhibits (continued)
10.(iv)(C) Montgomery Ward & Co., Incorporated Performance
Management Program, incorporated by reference to
Exhibit 10.(iv)(C) of the Company's Registration
Statement on Form S-1 (Registration No. 33-23403).
10.(iv)(C)(i) Montgomery Ward & Co., Incorporated Senior
Executive Performance Management Program,
incorporated by reference to Exhibit 10.(iv)(C)(i)
of the Company's Registration Statement on Form S-1
(No. 33-33252).
10.(iv)(D) Montgomery Ward & Co., Incorporated Retirement
Security Plan (as amended and restated effective as
of January 1, 1994).
10.(iv)(E) Montgomery Ward & Co., Incorporated Supplemental
Retirement Plan, incorporated by reference to
Exhibit 10.(iv)(E) of the Company's Registration
Statement on Form S-1 (Registration No. 33-23403).
10.(iv)(F) Montgomery Ward Holding Corp. Directors Fee and
Stock Ownership Plan, incorporated by reference to
Exhibit 10.(iv)(F) of the Company's Registration
Statement on Form S-1 (Registration No. 33-41161).
10.(iv)(G) Montgomery Ward Holding Corp. Senior Officer
Severance Plan, incorporated by reference to
Exhibit 10.(iv)(G) of the Company's Annual Report
on Form 10-K for the fiscal year ended January 2,
1993.
10.(iv)(H) Montgomery Ward & Co., Incorporated Savings and
Profit Sharing Plan (as amended and restated as of
January 1, 1994).
10.(iv)(I) Montgomery Ward & Co., Incorporated Success Plan,
incorporated by reference to Exhibit 10.(iv)(I) of
the Company's Registration Statement on Form S-1
(No. 33-33252).
10.(vi) Employment Agreement effective January 14, 1994
between Montgomery Ward & Co., Incorporated and
Bernard W. Andrews, incorporated by reference to
Exhibit 10.(vi) of the Company's Annual Report on
Form 10-K for the fiscal year ended January 1,
1994.
10.(vii) Agreement effective October 21, 1991 between
Montgomery Ward & Co., Incorporated and Fingerhut
Companies, Inc., incorporated by reference to
Exhibit 10.(vii) of the Company's Annual Report on
Form 10-K for the fiscal year ended December 28,
1991.
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K. (Continued)
3. Exhibits (continued)
10.(viii) Line of Credit Agreement effective November 19,
1991 between Montgomery Ward & Co., Incorporated
and The Northern Trust Company and The First
National Bank of Chicago, incorporated by reference
to Exhibit 10.(viii) of the Company's Annual Report
on Form 10-K for the fiscal year ended December 28,
1991.
10.(i x) Employment Agreement effective December 31, 1993
between Montgomery Ward & Co., Incorporated and
Robert F. Connolly, incorporated by reference to
Exhibit 10.(ix) of the Company's Annual Report on
Form 10-K for the fiscal year ended January 1,
1994.
10.(xi) Employment Agreement dated March 1, 1994 between
Montgomery Ward & Co., Incorporated and Richard
Bergel, incorporated by reference to Exhibit
10.(xi)(A) of the Company's Registration Statement
on Form S-1 (No. 33-33252).
10.(xii) Employment Agreement effective April 12, 1994
between Montgomery Ward & Co., Incorporated, and G.
Joseph Reddington.
11. Statement regarding computation of per share
earnings.
12. Not applicable.
13. Not applicable.
16. Not applicable.
18. Not applicable.
19. Not applicable.
21. Subsidiaries of the Registrant, incorporated by
reference to Exhibit 21 of the Company's
Registration Statement on Form S-1 (Registration
No. 33-33252).
22. Not applicable.
23. Consent of independent public accountants.
24. Powers of attorney executed by directors and
officers authorizing execution of Annual Report on
Form 10-K.
27. Financial data schedule.
28. Not applicable.
(b) Reports on Form 8-K.
On December 15, 1994, the Registrant filed a Form 8-K to
communicate its intention to enter into an equity and license
service agreement with ValueVision International, Inc. The letter
of intent by and between Montgomery Ward & Co., Inc. and
ValueVision International, Inc. dated December 4, 1994 and the
press release issued by the Registrant jointly with ValueVision
International, Inc. on December 5, 1994 were included as exhibits
thereto.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant, Montgomery Ward
Holding Corp., has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
REGISTRANT MONTGOMERY WARD HOLDING CORP.
BY JOHN L. WORKMAN
NAME AND TITLE John L. Workman, Executive Vice President,
Chief Financial Officer and Assistant Secretary
DATE March 30, 1995
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the date
indicated.
BY SPENCER H. HEINE
NAME AND TITLE Bernard F. Brennan*, Director, Chairman of the
Board and Principal Executive Officer
DATE March 30, 1995
BY SPENCER H. HEINE
NAME AND TITLE Bernard W. Andrews*, President and Director
DATE March 30, 1995
BY SPENCER H. HEINE
NAME AND TITLE Richard Bergel*, Vice Chairman and Director
DATE March 30, 1995
BY SPENCER H. HEINE
NAME AND TITLE Spencer H. Heine, Executive Vice President,
Secretary, General Counsel and Director
DATE March 30, 1995
BY SPENCER H. HEINE
NAME AND TITLE G. Joseph Reddington*, Director
DATE March 30, 1995
SIGNATURES
BY JOHN L. WORKMAN
NAME AND TITLE John L. Workman, Executive Vice President,
Chief Financial Officer and Assistant Secretary
DATE March 30, 1995
BY SPENCER H. HEINE
NAME AND TITLE Myron Lieberman*, Director
DATE March 30, 1995
BY SPENCER H. HEINE
NAME AND TITLE Silas S. Cathcart*, Director
DATE March 30, 1995
BY SPENCER H. HEINE
NAME AND TITLE David D. Ekedahl*, Director
DATE March 30, 1995
BY SPENCER H. HEINE
NAME AND TITLE Denis J. Nayden*, Director
DATE March 30, 1995
BY SPENCER H. HEINE
NAME AND TITLE James A. Parke*, Director
DATE March 30, 1995
* by power of attorney
EXHIBIT INDEX
EXHIBIT SUBMISSION MEDIA
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2.(i)(A) Agreement and Plan Incorporated by
of Merger dated March reference to
17, 1994 by and among Exhibit 2.(i)(A) of the
Montgomery Ward Company's Annual Report
& Co., Incorporated, on Form 10-K for the
MW Merger Corp., LMR fiscal year ended
Acquisition Corporation, January 1, 1994.
Lechmere, Inc. and
stockholders of LMR
Acquisition Corporation
executing counterparts
of this agreement.
2.(i)(A)(1) First Amendment to Incorporated by
Agreement and Plan of reference to
Merger dated June 15, Exhibit 2.(i)(A)(1)
1994, by and among of the Company's
Montgomery Ward & Co., Quarterly Report
Incorporated, LMR on Form 10-Q for
Acquisition Corporation, the fiscal quarterly
and the Stockholders' period ended July 2,
Committee. 1994.
2.(ii) Agreement of Purchase Incorporated by
and Sale of Stock reference to
dated February 24, 1994 Exhibit 2.(i)(A)
by and among Signature of the Company's
Financial/Marketing, Annual Report on
Inc., Greater California Form 10-K for the
Dental Services Plan, fiscal year ended
Inc. and National January 1, 1994.
Dental Services, Inc.
3.1 Third Restated Incorporated by
Certificate of reference to
Incorporation of Exhibit 3.2(ii) of the
Registrant, filed Company's Registration
June 28, 1994. Statement on Form S-1
(Registration No.
33-33252).
3.1(i) Certificate of Incorporated by
Amendment to reference to Exhibit
Certificate of 3.2(iv) of the Company's
Incorporation of Quarterly Report on
Montgomery Ward Holding Form 10-Q for the fiscal
Corp. dated October quarterly period ended
25, 1994. October 1, 1994.
EXHIBIT INDEX
EXHIBIT SUBMISSION MEDIA
------------- ----------------------
3.3 Amended and Restated Incorporated by
By-laws of Registrant, reference to Exhibit
dated as of April 15, 3.3(i) of the Company's
1994. Registration Statement
on Form S-1 (Registration
No. 33-33252).
3.3(i) Amendment No. 1 to Incorporated by
Restated By-laws of reference to Exhibit
Montgomery Ward Holding 3.3(i) of the Company's
Corp. dated September Quarterly Report on
21, 1994. Form 10-Q for the fiscal
quarterly period ended
October 1, 1994.
9. Voting Trust Incorporated by
Agreement dated as reference to
of June 21, 1988. Exhibit 3(a) of the
Company's Registration
Statement on Form S-1
(Registration No.
33-23403).
9.(i) Voting Trust Agreement Incorporated by
dated as of October 21, reference to Exhibit
1994. 9.(i) of the Company's
Quarterly Report on
Form 10-Q for the fiscal
quarterly period ended
October 1, 1994.
10.(i)(A)(1) Stockholders' Agreement Incorporated by
dated June 17, 1988, reference to Annex 1
as amended and of the Prospectus
restated as of contained in the
August 1, 1994. Company's Registration
Statement on Form S-1
(Registration No.
33-33252).
10.(iv)(A)(1)(a)Amendment No. 14 Incorporated by
to Stockholders' reference to Exhibit
Agreement dated 10.(iv)(A)(1)(a) of
September 22, the Company's Quarterly
1994. Report on Form 10-Q for
the fiscal quarterly
period ended October 1,
1994.
EXHIBIT INDEX
EXHIBIT SUBMISSION MEDIA
------------- ----------------------
10.(i)(A)(3) Montgomery Ward Incorporated by
& Co., Incorporated reference to Exhibit
Stock Ownership 10.(iv)(A)(v) of the
Plan Terms and Company's Registration
Conditions, as Statement on Form S-1
amended and (Registration No.
restated, as of 33-41161).
August 1, 1994.
10.(i)(A)(4) Amendment No. 10 Incorporated by
to Montgomery Ward reference to Exhibit
& Co., Incorporated 10.(iv)(A)(5) of the
Stock Ownership Plan Company's Quarterly
Terms and Conditions Report on Form 10-Q
dated September 22, for the fiscal
1994. quarterly period
ended October 1, 1994.
10.(i)(B) Stock Purchase Incorporated by
Agreement dated reference to Exhibit
March 6, 1988 10.(i)(B) of the
between Mobil Company's Registration
Corporation, Statement on Form S-1
Marcor Inc. and (Registration No.
BFB Acquisition 33-23403).
Corp.
10.(i)(F) Note Purchase Incorporated by
Agreements dated reference to Exhibit
March 1, 1993 10.(i)(F) of the
between Montgomery Company's Annual
Ward & Co., Incor- Report on Form 10-K
porated and various for the fiscal year
lenders. ended January 2, 1993.
EXHIBIT INDEX
EXHIBIT SUBMISSION MEDIA
------------- ----------------------
10.(i)(H) Long Term Credit Incorporated by
Agreement dated as of reference to Exhibit
September 15, 1994 10.(i)(G) of the
among Montgomery Ward Company's Quarterly
& Co., Incorporated, Report on Form 10-Q
various banks, The for the fiscal quarterly
First National Bank period ended October 1,
of Chicago, as Docu- 1994.
mentary Agent, The
Bank of Nova Scotia,
as Administrative
Agent, The Bank of
New York, as Negotiated
Loan Agent and Bank of
America National Trust
and Savings Association,
as Advisory Agent.
10.(i)(I) Short Term Credit Incorporated by
Agreement dated as of reference to Exhibit
September 15, 1994 10.(i)(H) of the
among Montgomery Ward Company's Quarterly
& Co., Incorporated, Report on Form 10-Q
various banks, The for the fiscal quarterly
First National Bank period ended October 1,
of Chicago, as Docu- 1994.
mentary Agent, The Bank
of Nova Scotia, as
Administrative Agent,
The Bank of New York,
as Negotiated Loan
Agent and Bank of
America National Trust
and Savings Association,
as Advisory Agent.
10.(ii)(A) Stock Purchase Incorporated by
Agreement dated reference to Exhibit
June 22, 1988 10.(ii)(A) of the
between General Company's Registration
Electric Capital Statement on Form S-1
Corporation and (Registration No.
Montgomery Ward 33-23403).
& Co., Incorporated.
EXHIBIT INDEX
EXHIBIT SUBMISSION MEDIA
------------- ----------------------
10.(ii)(B) Account Purchase Incorporated by
Agreement dated reference to Exhibit
June 24, 1988 10.(ii)(B) of the
by and between Company's Registration
Montgomery Ward Statement on Form S-1
Credit Corporation (Registration No.
and Montgomery 33-23403).
Ward & Co.,
Incorporated.
10.(ii)(B)(1) Letter Agreement Incorporated by
dated April 21, reference to Exhibit
1989 by and between 10.(ii)(B)(1) of the
Montgomery Ward Company's Registration
Credit Corporation Statement on Form S-1
and Montgomery (Registration No.
Ward & Co., Incor- 33-33252).
porated (amending
the Account Purchase
Agreement which is
Exhibit 10.(ii)(B)
hereto).
10.(ii)(B)(2) Amendment to Incorporated by
Account Purchase reference to Exhibit
Agreement dated 10.(ii)(B)(2) of the
December 26, 1989 by Company's Registration
and between Statement on Form S-1
Montgomery Ward (Registration No.
Credit Corporation 33-33252).
and Montgomery Ward &
Co., Incorporated.
10.(ii)(B)(3) Letter Agreement Incorporated by
dated April 24, reference to Exhibit
1990, by and between 10.(ii)(B)(3) of the
Montgomery Ward Company's Registration
Credit Corporation Statement on Form S-1
and Montgomery Ward (Registration No.
& Co., Incorporated. 33-33252).
EXHIBIT INDEX
EXHIBIT SUBMISSION MEDIA
------------- ----------------------
10.(ii)(C) Letter Agreement Incorporated by
dated June 24, reference to Exhibit
1988 among Signa- 10.(ii)(C) of the
ture Financial/ Company's Registration
Marketing, Inc., Statement on Form S-1
Montgomery Ward (Registration No.
Credit Corpora- 33-23403).
tion and Montgomery
Ward & Co., Incor-
porated.
10.(ii)(D) Letter Agreement Incorporated by
dated December 26, reference to Exhibit
1990, by and between 10.(ii)(D) of the
Montgomery Ward Company's Annual
Credit Corporation Report on Form 10-K
and Montgomery for the fiscal year
Ward & Co., Incor- ended December 29,
porated. 1990.
10.(ii)(E) Fifth Amendment to Incorporated by
Account Purchase reference to Exhibit
Agreement dated 10.(ii)(E) of the
May 23, 1992 by and Company's Quarterly
between Montgomery Report on Form 10-Q
Ward & Co., Incor- for the fiscal
porated and Mont- quarterly period ended
gomery Ward Credit June 27, 1992.
Corporation.
10.(ii)(F) Amendment dated Incorporated by
May 23, 1992 to reference to Exhibit
Letter Amendment 10.(ii)(F) of the
dated June 24, Company's Quarterly
1988 (Signature Report on Form 10-Q
Credit Agreement) for the fiscal
by and among quarterly period ended
Signature Financial/ June 27, 1992.
Marketing, Inc.,
Montgomery Ward
& Co., Incorporated
and Montgomery Ward
Credit Corporation.
EXHIBIT INDEX
EXHIBIT SUBMISSION MEDIA
------------- -----------------------
10.(ii)(G) Letter Agreement Incorporated by
dated December 29, reference to Exhibit
1992 by and between 10.(ii)(G) of the
Montgomery Ward Company's Annual
& Co., Incorporated Report on Form 10-K
and Montgomery for the fiscal year
Ward Credit Corpora- ended January 2,
tion. 1993.
10.(ii)(G)(1) Letter Agreement Incorporated by
dated April 29, reference to
1993, by and Exhibit 10.(ii)(H)
between Montgomery of the Company's
Ward Credit Corpora- quarterly report on
tion and Montgomery Form 10-Q for the
Ward & Co., Incor- fiscal quarterly
porated. period ended April 3,
1993.
10.(ii)(G)(2) Letter Agreement Incorporated by
dated September 15, reference to
1993, by and Exhibit 10.(ii)(G)(2)
between Montgomery of the Company's
Ward Credit Corpora- Annual Report on
tion and Montgomery Form 10-K for the
Ward & Co., Incor- fiscal year ended
porated. January 1, 1994.
10.(ii)(H) Ninth Amendment to Incorporated by
Account Purchase reference to
Agreement dated Exhibit 10.(ii)(H)
February 16, 1994 of the Company's
by and between Annual Report on
Montgomery Ward & Form 10-K for the
Co., Incorporated fiscal year ended
and Montgomery January 1, 1994.
Ward Credit
Corporation.
10.(ii)(I) Tenth Amendment to Incorporated by
Account Purchase reference to Exhibit
Agreement dated June 10.(ii)(B)(11) of the
16, 1994, by and Company's Registration
between Montgomery Statement on Form S-1
Ward Credit Corporation (No. 33-33252).
and Montgomery Ward &
Co., Incorporated.
EXHIBIT INDEX
EXHIBIT SUBMISSION MEDIA
------------- -----------------------
10.(ii)(J) Second Amendment Incorporated by
dated June 16, 1994 reference to Exhibit
to Signature Credit 10.(ii)(C)(2) of the
Agreement by and Company's Registration
among Signature Statement on Form S-1
Financial/Marketing, (No. 33-33252).
Inc., Montgomery Ward
& Co., Incorporated
and Montgomery Ward
Credit Corporation.
10.(ii)(K) Eleventh Amendment to
the Account Purchase
Agreement dated
January 1, 1994, by
and between Montgomery
Ward Credit Corporation
and Montgomery Ward &
Co., Incorporated.
10.(iv)(A) Montgomery Ward Incorporated by
& Co., Incorporated reference to Exhibit
Stock Ownership 10.(iv)(A)(ii)(A) of
Plan, amended and the Company's
restated as of Registration Statement
May 20, 1994. on Form S-1 (No. 33-33252).
10.(iv)(A)(1) Amendment No. 1 to Incorporated by
the Amended and reference to Exhibit
Restated Montgomery 10.(iv)(A)(iii) of the
Ward & Co. Stock Company's Quarterly
Ownership Plan dated Report on Form 10-Q
October 20, 1994. for the fiscal quarterly
period ended October 1,
1994.
10.(iv)(B) Montgomery Ward Incorporated by
& Co., Incorporated reference to Exhibit
Long Term Incentive 10.(iv)(B) of the
Plan. Company's Registration
Statement on Form S-1
(Registration No.
33-23403).
EXHIBIT INDEX
EXHIBIT SUBMISSION MEDIA
------------- -----------------------
10.(iv)(B)(i) Montgomery Ward & Co., Incorporated by
Incorporated Executive reference to Exhibit
Long-Term Incentive 10.(iv)(B)(1) of the
Plan. Company's Registration
Statement on Form S-1
(Registration No.
33-33252).
10.(iv)(C) Montgomery Ward Incorporated by
& Co., Incorporated reference to Exhibit
Performance 10.(iv)(C) of the
Management Program. Company's Registration
Statement on Form S-1
(Registration
No. 33-23403).
10.(iv)(C)(i) Montgomery Ward & Co., Incorporated by
Incorporated Senior reference to Exhibit
Executive Performance 10.(iv)(C)(i) of the
Management Program. Company's Registration
Statement on Form S-1
(Registration No.
33-33252).
10.(iv)(D) Montgomery Ward
& Co., Incorporated
Retirement Security
Plan (as amended
and restated
effective as of
January 1, 1994).
10.(iv)(E) Montgomery Ward Incorporated by
& Co., Incorporated reference to Exhibit
Supplemental 10.(iv)(E) of the
Retirement Plan. Company's Registration
Statement on Form S-1
(Registration No.
33-23403).
10.(iv)(F) Montgomery Ward Incorporated by
Holding Corp. reference to Exhibit
Directors Fee 10.(iv)(F) of the
and Stock Owner- Company's Registration
ship Plan. Statement on Form S-1
(Registration No.
33-41161).
EXHIBIT INDEX
EXHIBIT SUBMISSION MEDIA
------------- -----------------------
10.(iv)(G) Montgomery Ward Incorporated by
Holding Corp. reference to Exhibit
Senior Officer 10.(iv)(G) of the
Severance Plan. Company's Annual
Report on Form 10-K
for the fiscal year
ended January 2, 1993.
10.(iv)(H) Montgomery Ward & Co.,
Incorporated Savings
and Profit Sharing
Plan (as amended and
restated as of January
1, 1994).
10.(iv)(I) Montgomery Ward & Co., Incorporated by reference
Incorporated Success to Exhibit 10.(iv)(I) of
Plan. the Company's Registration
Statement on Form S-1
(No. 33-33252).
10.(vi) Employment Agreement Incorporated by
effective January reference to Exhibit
14, 1994 between 10.(vi) of the Company's
Montgomery Ward Annual Report on Form
& Co., Incorporated 10-K for the fiscal
and Bernard W. year ended January 1,
Andrews. 1994.
10.(vii) Agreement effective Incorporated by
October 21, 1991 reference to Exhibit
between Montgomery 10.(vii) of the
Ward & Co., Incor- Company's Annual
porated and Finger- Report on Form 10-K
hut Companies, Inc. for the fiscal year
ended December 28,
1991.
EXHIBIT INDEX
EXHIBIT SUBMISSION MEDIA
------------- -----------------------
10.(viii) Line of Credit Incorporated by
Agreement effective reference to Exhibit
November 19, 1991 10.(viii) of the
by and among Mont- Company's Annual
gomery Ward & Co., Report on Form 10-K
Incorporated, The for the fiscal year
Northern Trust ended December 28,
Company and The 1991.
First National
Bank of Chicago.
10.(ix) Employment Agreement Incorporated by
effective December reference to Exhibit
31, 1993 between 10.(ix) of the Company's
Montgomery Ward & Annual Report on Form
Co., Incorporated 10-K for the fiscal year
and Robert F. Connolly. ended January 1, 1994.
10.(xi) Employment Agreement Incorporated by
effective March reference to Exhibit
1, 1994 between 10.(xi)(A) of the
Montgomery Ward & Company's Registration
Co., Incorporated Statement on Form S-1
and Richard Bergel. (No. 33-33252).
10.(xii) Employment Agreement
effective April 12, 1994
between Montgomery Ward
& Co., Incorporated, and
G. Joseph Reddington.
11. Statement regarding
computation of per
share earnings.
12. Not applicable.
13. Not applicable.
16. Not applicable.
18. Not applicable.
19. Not applicable.
EXHIBIT INDEX
EXHIBIT SUBMISSION MEDIA
------------- -----------------------
21. Subsidiaries of Incorporated by
the Registrant. reference to Exhibit
21 of the Company's
Registration Statement
on Form S-1
(Registration No.
33-33252).
22. Not applicable.
23. Consent of
independent
public accountants.
24. Powers of attorney
executed by direc-
tors and officers
of Registrant
authorizing execu-
tion of Annual
Report on Form 10-K.
27. Financial Data Schedule.
28. Not applicable.