1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
F O R M 10 - Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended AprilJuly 26, 1997
Commission file no. 1-10299
WOOLWORTH CORPORATION
(Exact name of registrant as specified in its charter)
New York 13-3513936
(State or other jurisdiction of incorporation (I.R.S. Employer Identification No.)
incorporation or organization)
233 Broadway, New York, New York 10279-0003
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (212) 553-2000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES x NO
--- ---
Number of shares of Common Stock outstanding at June 2,August 29, 1997: 134,286,970134,914,082
2
WOOLWORTH CORPORATION
INDEX
Page No.
--------
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements
of Operations 4
Condensed Consolidated Statements
of Retained Earnings 5
Condensed Consolidated Statements
of Cash Flows 6
Notes to Condensed Consolidated
Financial Statements 7-8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-12
Part II. Other Information
Item 1. Legal Proceedings 12
Item 6. Exhibits and Reports on Form 8-K 12
Signature 13
Index to Exhibits 14-16
Page No.
--------
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements
of Operations 4
Condensed Consolidated Statements
of Retained Earnings 5
Condensed Consolidated Statements
of Cash Flows 6
Notes to Condensed Consolidated
Financial Statements 7-9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-13
Part II. Other Information
Item 1. Legal Proceedings 13
Item 4. Submission of Matters to a Vote of Security Holders 13-14
Item 6. Exhibits and Reports on Form 8-K 14
Signature 15
Index to Exhibits 16-18
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PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
WOOLWORTH CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions)
AprilJuly 26, AprilJuly 27, January 25,
1997 1996 1997
---- ---- ----
(Unaudited) (Unaudited) (Audited)
ASSETS
CURRENT ASSETSCurrent Assets:
Cash and cash equivalents $ 5069 $ 4697 $ 321328
Merchandise inventories 1,386 1,497 1,2691,216 1,259 1,066
Net assets of discontinued operations 209 268 236
Other current assets 192 232 233
------ ------ ------
1,628 1,775 1,823
PROPERTY AND EQUIPMENT, net 1,017 1,182 1,058
DEFERRED CHARGES AND OTHER ASSETS 684 650 595174 205 202
------- ------- ------
$3,329 $3,607 $3,476
===== ===== =====-------
1,668 1,829 1,832
Property and equipment, net 903 1,032 983
Deferred charges and other assets 737 592 524
------- ------- -------
$ 3,308 $ 3,453 $ 3,339
======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIESCurrent Liabilities:
Short-term debt $ -38 $ 247137 $ ---
Accounts payable 401 372 334352 360 286
Accrued liabilities 369 356 505526 350 427
Current portion of long-term debt and obligations
under capital leases 16 1914 17 15
------- ------- -------
786 994 856
LONG-TERM DEBT AND OBLIGATIONS
UNDER CAPITAL LEASES930 864 728
Long-term debt and obligations
under capital leases 568 605 575
616 580
DEFERRED TAXES AND OTHER LIABILITIES 677 797 706
SHAREHOLDERS' EQUITYDeferred taxes and other liabilities 721 779 702
Shareholders' Equity:
Preferred stock - - --- -- --
Common stock and paid-in capital 302 291311 297 299
Retained earnings 1,051 869870 891 1,050
Foreign currency translation adjustment (25) 75(55) 52 22
Minimum pension liability adjustment (37) (35) (37)
------ ------ ------------ ------- -------
Total shareholders' equity 1,291 1,2001,089 1,205 1,334
COMMITMENTS
------ ------ ------
$3,329 $3,607 $3,476
===== ===== =====Commitments
------- ------- -------
$ 3,308 $ 3,453 $ 3,339
======= ======= =======
See accompanying notes to Condensed Consolidated Financial Statements.
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WOOLWORTH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in millions, except per share amounts)
Thirteen weeks ended AprilTwenty-six weeks ended
---------------------------- ----------------------------
July 26, AprilJuly 27, July 26, July 27,
1997 1996 1997 1996
---- ---- ---- ----
SALES
Sales $ 1,7681,500 $ 1,820
COSTS AND EXPENSES1,607 $ 3,039 $ 3,177
Cost and Expenses:
Cost of sales 1,253 1,2951,037 1,095 2,111 2,214
Selling, general and administrative expenses 459 492370 416 758 831
Depreciation and amortization 45 5043 44 84 89
Interest expense 14 2011 15 22 32
Other income (5) --(2) (6) (6) (7)
------- ------- 1,766 1,857
------- -------
INCOME/(LOSS) BEFORE INCOME TAXES 2 (37)1,459 1,564 2,969 3,159
------- ------- ------- -------
Income from continuing operations
before income taxes 41 43 70 18
Income tax expense (benefit) 1 (15)15 17 27 7
------- ------- NET INCOME/(LOSS)------- -------
Income from continuing operations 26 26 43 11
Loss from discontinued operations, net of income
taxes of $8, $2, $19 and $7, respectively (12) (4) (28) (11)
Loss on disposal of discontinued operations,
net of income taxes of $115 (195) -- (195) --
Net income (loss) $ 1(181) $ (22)22 $ (180) $ --
======= ======= ======= =======
Per common share:
Income from continuing operations $ 0.19 $ 0.19 $ 0.32 $ 0.08
Loss from discontinued operations $ (1.54) $ (0.02) $ (1.66) $ (0.08)
------- ------- ------- -------
Net income (loss) $ (1.35) $ 0.17 $ (1.34) $ --
======= Net Income/(Loss) Per Common Share $ 0.01 $ (0.17)======= ======= =======
Weighted-average Common Sharescommon shares outstanding 134.1 133.1134.5 133.3 134.3 133.2
See accompanying notes to Condensed Consolidated Financial Statements.
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WOOLWORTH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
(Unaudited)
(in millions)
ThirteenTwenty-six weeks ended
April----------------------
July 26, AprilJuly 27,
1997 1996
---- ----
RETAINED EARNINGS AT BEGINNING OF YEAR $1,050Retained earnings at beginning of year $ 1,050 $ 891
Net Income/(Loss) 1 (22)income (loss) (180) --
Cash dividends declared:
Preferred Stockstock (1996 - $0.55$1.10 per share) -- --
------ -----
RETAINED EARNINGS AT END OF INTERIM PERIOD $1,051------- -------
Retained earnings at end of interim period $ 869
====== =====870 $ 891
======= =======
See accompanying notes to Condensed Consolidated Financial Statements.
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WOOLWORTH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in millions)
ThirteenTwenty-six weeks ended
April----------------------------
July 26, AprilJuly 27,
1997 1996
---- ----
FROM OPERATING ACTIVITIESFrom Operating Activities:
Net income/income (loss) $ 1(180) $ (22)--
Adjustments to reconcile net income/income (loss) to net cash used
inprovided by
(used in) operating activities:
Non-cash charge for discontinued operations 310 --
Discontinued operations activities (11) --
Depreciation and amortization 45 50
Gain84 92
Net gain on sales of real estate (4) --(13)
Deferred income taxes (138) (16)
Change in assets and liabilities, net of acquisitions:acquisition:
Merchandise inventories (102) (137)(153) (91)
Accounts payable 60 5263 121
Change in net assets of discontinued operations 27 44
Other, net (107) (71)
----- -----(111) (121)
------- -------
Net cash used inprovided by (used in) operating activities (107) (128)
----- -----
FROM INVESTING ACTIVITIES(113) 16
------- -------
From Investing Activities:
Proceeds from sales of real estate 12 --19 21
Capital expenditures (25) (16)(56) (36)
Payments for business acquired, net of cash acquired (140) --
Proceeds from sales of assets and investments -- 7
----- -----19
------- -------
Net cash used inprovided by (used in) investing activities (153) (9)
----- -----
FROM FINANCING ACTIVITIES(177) 4
------- -------
From Financing Activities:
Increase in short-term debt -- 17938 69
Reduction in long-term debt and capital lease obligations (1) (8)(9)
Issuance of common stock 3 --11 6
Dividends paid -- --
----- ------------ -------
Net cash provided by financing activities 2 171
----- -----
EFFECT OF EXCHANGE RATE FLUCTUATIONS
ON CASH AND CASH EQUIVALENTS (13) (1)
----- -----
NET CHANGE IN CASH AND CASH EQUIVALENTS (271) 33
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 321 13
----- -----
CASH AND CASH EQUIVALENTS AT END OF INTERIM PERIOD48 66
------- -------
Effect of exchange rate fluctuations
on Cash and Cash Equivalents (17) (3)
------- -------
Net change in Cash and Cash Equivalents (259) 83
Cash and Cash Equivalents at beginning of year 328 14
------- -------
Cash and Cash Equivalents at end of interim period $ 5069 $ 97
======= =======
Cash paid during the period:
Interest $ 22 $ 32
Income taxes $ 46 ===== =====
Cash Paid During the Period:
Interest $ 1 $ 9
Income Taxes $ 33 $ 4
See accompanying notes to Condensed Consolidated Financial Statements.
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WOOLWORTH CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
should be read in conjunction with the Notes to Consolidated Financial
Statements contained in the 1996 Annual Report to Shareholders of Woolworth
Corporation (the "Registrant"), portions of which Annual Report are incorporated
by reference in the Registrant's Annual Report on Form 10-K for the year ended
January 25, 1997, as filed with the Securities and Exchange Commission (the
"SEC"). Certain items included in these statements are based on management's
estimates. In the opinion of management, all material adjustments, which are of
a normal recurring nature, necessary for a fair presentation of the results for
the interim period have been included. The results for the thirteentwenty-six weeks
ended AprilJuly 26, 1997 are not necessarily indicative of the results expected for
the year.
Merchandise Inventories
DomesticDiscontinued Operations
On July 17, 1997, the Registrant announced that it is exiting its
domestic Woolworth general merchandise inventories are stated atbusiness. The Registrant expects to
convert approximately 100 of its prime locations to Foot Locker, Champs Sports,
and other athletic or specialty formats. The Registrant expects to close its
remaining stores as well as the lowerdivision's distribution center in Denver,
Pennsylvania by November 1997.
The results of cost or
market determined usingoperations for all periods presented for this business
have been classified as discontinued operations in the last-in, first-out method. At AprilCondensed Consolidated
Statements of Operations. Sales from discontinued operations for the second
quarters of 1997 and 1996 were $198 million and $249 million, respectively.
Sales from discontinued operations for the year-to-date periods ended July 26,
1997 Apriland July 27, 1996 were $427 million and January$499 million, respectively.
The Condensed Consolidated Balance Sheets and Condensed Consolidated
Statements of Cash Flows have been restated for discontinued operations. The
following is a summary of the net assets of discontinued operations:
July 26, July 27, Jan. 25,
1997 domestic merchandise inventories are stated at
$98 million, $102 million1996 1997
---- ---- ----
Assets $358 $400 $373
Liabilities 149 132 137
---- ---- ----
Net assets of discontinued operations $209 $268 $236
==== ==== ====
The assets consist primarily of inventory and $98 million less thanfixed assets. Liabilities
consist primarily of amounts due to vendors.
Disposition activity related to the amounts that woulddiscontinued operations reserve for
the period of July 17, 1997 to July 26, 1997 was a reduction of the reserve of
approximately $11 million.
Reclassifications
Certain balances in prior periods have been determined onreclassified to conform
with the first-in, first-out basis.presentation adopted in the current
period.
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8
Legal Proceedings
Between March 30, 1994 and April 18, 1994, the Registrant and certain
of its present and former directors and officers were named as defendants in
lawsuits brought by certain shareholders claiming to represent classes of
shareholders that purchased shares of the Registrant's common stock during
different periods between January 1992 and March 1994.
These class action complaints purport to present claims under the
federal securities and other laws and seek unspecified damages based on alleged
misleading disclosures during the class periods.
On April 29, 1994, United States Senior District Judge Richard Owen
entered an order consolidating 25 actions, purportedly brought as class actions,
commenced against the Registrant and certain officers and directors of the
Registrant in the United States District Court for the Southern District of New
York, under the caption In re Woolworth Corporation Securities Class Action
Litigation. Plaintiffs served an Amended and Consolidated Class Action
Complaint, to which the defendants responded. On February 17, 1995, Judge Owen
entered an order for certification of the action as a class action on behalf of
all persons who purchased the Registrant's common stock or options on the
Registrant's common stock from May 12, 1993 to March 29, 1994 inclusive,
pursuant to a stipulation among the parties. On March 13, 1997, the parties'
representatives engaged in a mediation proceeding with a view toward settling
the issues in dispute. AsOn June 23, 1997, a result, the parties have agreed in principle to aproposed settlement of the class
action was reached by the parties that provides for the payment to the class of
$20 million. The settlement is subject to final documentation and the approval of the court.court which has
scheduled a settlement hearing for September 29, 1997. The amount of the
settlement, net of amounts to be paid by insurance carriers under relevant
insurance policies, has been reserved by the Registrant. In the opinion of
management, the settlement, if approved by the court, would not have a material
adverse effect on the financial position or results of operations of the
Registrant.
Five separate state-court derivative actions filed in April 1994 were
consolidated under the caption In re Woolworth Corporation Derivative Litigation
and are now pending in the Supreme Court of the State of New York, County of New
York. Plaintiffs served a Consolidated Complaint on behalf of the plaintiffs in
these five actions
-7-
8 together with the plaintiff in the former federal derivative
action Sternberg v. Woolworth Corp., which has been dismissed. Defendants moved
to dismiss the Consolidated Complaint, and on April 27, 1995, the court granted
defendants' motion, with leave to the plaintiffs to replead. On June 7, 1995,
plaintiffs served a Consolidated Amended Derivative Complaint. On June 27, 1995,
defendants moved to dismiss the Consolidated Amended Derivative Complaint with
prejudice. On April 10, 1996, the court granted defendants' motion with
prejudice. Plaintiffs filed a notice of appeal from the dismissal to the
Appellate Division, First Department. On June 5, 1997, the court affirmed the
dismissal of this action. Plantiffs' time to appeal the dismissal has expired
and there have been no further proceedings. There is one federal derivative
action pending in the United States District Court for the Southern District of
New York under the caption Rosenbaum v. Sells et al. There have been no material
developments in this action. TheIn the opinion of management, the results of these actions willthis
action would not have a material adverse effect on the financial position or
results of operations of the Registrant.
During 1994, the staff of the SEC initiated an inquiry relating to the
matters that were reviewed by the Special Committee of the Board of Directors as
well as in connection with trading in the Registrant's securities by certain
directors and officers of the Registrant. The SEC staff has advised that its
inquiry should not be construed as an indication by the SEC or its staff that
any violations of law have occurred. In the opinion of management, the result of
the inquiry will not have a material adverse effect on the financial position or
results of operations of the Registrant.
The information in this section on Legal Proceedings is current as of June 6,September
4, 1997.
-8-
9
Recent Accounting PronouncementPronouncements
In February 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standard ("SFAS") No. 128, "Earnings
per Share" ("SFAS
No. 128"), which is effective for financial statements issued for periods
ending after December 15, 1997 and therefore, effective for the Registrant for
the fiscal year ending January 31, 1998. SFAS No. 128 simplifies the standards
for computing earnings per share previously found in Accounting Principles Board
Opinion No. 15 and establishes new standards for computing and presenting
earnings per share. Application of SFAS No. 128 is not expected to have a
significant impact on the Registrant's earnings per share.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income", which is effective for financial statements issued for fiscal years
beginning after December 15, 1997 and therefore, effective for the Registrant
for the fiscal year beginning February 1, 1998. SFAS No. 130 establishes
standards for reporting and display of comprehensive income and its components
in the financial statements. A revised presentation of information on the income
statement is required for comparative purposes.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information", which is effective for financial
statements issued for fiscal years beginning after December 15, 1997 and
therefore, effective for the Registrant for the fiscal year beginning February
1, 1998. SFAS No. 131 supersedes previously established standards for reporting
operating segments in the financial statements and requires disclosures
regarding selected information about operating segments in interim financial
reports.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
As discussed more fully in the footnotes to the Condensed Consolidated
Financial Statements, the Registrant announced that it is exiting its domestic
Woolworth general merchandise business. Accordingly, the results of operations
for all periods presented for this business have been classified as discontinued
operations and all financial statements have been restated.
Total sales for the 1997 firstsecond quarter decreased 2.96.7 percent to $1,768$1,500
million compared with $1,820$1,607 million for the 1996 firstsecond quarter principally due
to 423 fewer stores. Excluding the effect of foreign currency fluctuations and
sales from disposed operations, sales remained level for the quarter. This decline
reflects 550 fewer stores year-over-year and, in part, was attributable to
unseasonably cool spring weather.
Comparable-store sales decreased 1.42.5 percent. Total Specialty segment sales
increased 1.8 percent in the second quarter and comparable-store sales decreased
1.5 percent. International General Merchandise segment sales decreased 17.4
percent for the second quarter of 1997 as compared with the second quarter of
1996. Comparable-store sales in the International General Merchandise segment
decreased 5.3 percent during the period. Excluding the impact of foreign
currency fluctuations, sales decreased by 6.6 percent, as compared with the
second quarter of 1996.
Year-to-date 1997 sales decreased 4.3 percent to $3,039 million as
compared with $3,177 million for 1996. Excluding the effect of foreign currency
fluctuations and sales from disposed operations, sales increased $54 million, or 3.1 percent. Total Specialty segment
sales increased 6.5 percent in the first quarter and comparable-store sales
increased 1.5 percent. General Merchandise segment sales decreased 10.3 percent
for the first quarter of 1997, compared with the first quarter of 1996.
Comparable-store sales in the General Merchandise segment decreased 6.0 percent
during the period. Excluding the impact of foreign currency fluctuations, sales
decreased by 2.92.5 percent as
compared with the first quarter of 1996. FirstComparable-store sales decreased 1.4 percent as compared
with corresponding year-earlier period.
Second quarter operating profit from continuing operations (before
corporate expense, interest expense and income taxes) of $33$74 million improved as
compared with break-even
results$72 million in the firstsecond quarter of 1996. This improvement
stemmed directly fromrelates to the continuing implementationdisposition of the Registrant's strategic plan. Selling,unprofitable formats and reduced selling, general
and administrative expenses, declined("SG&A") partially offset by $33an increase in cost of
sales. The improvement in SG&A of $46 million and $73 million for the thirteen
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and twenty-six weeks ended July 26, 1997, respectively, as compared with the
first
quarter of 1996 which reflected thecorresponding prior year periods reflects management's continuing effort to
implement cost reduction initiatives undertaken.initiatives. Cost of sales as a percentage of sales
increased as a result of inventory markdowns taken to keep inventory current.
The Registrant reported net income from continuing operations for the
thirteen weeks ended July 26, 1997 of $1$26 million, or $0.01$0.19 per share, unchanged
from the restated year-earlier period. For the twenty-six weeks ended July 26,
1997 income from continuing operations was $43 million, an increase of $32
million from the restated prior year period. The Registrant reported a net loss
for the quarter of $181 million or $1.35 per share, which includes an after-tax
charge of $207 million or $1.54 per share for the first quarter of 1997, compared with adiscontinued operations. This
compares to net lossincome of $22 million, or $0.17 per share infor the corresponding
year-earlier period. -8-
9The Registrant reported a net loss of $180 million, or
$1.34 per share, for the twenty-six weeks ended July 26, 1997 compared with
break-even results for the corresponding year-earlier period.
As of AprilJuly 26, 1997, the Registrant operated a total of 7,5587,117 stores
consisting of 6,5566,555 Specialty stores and 1,002562 International General Merchandise
stores. This compares to 8,1087,540 stores, excluding discontinued operations,
consisting of 7,0916,933 Specialty stores and 1,017607 International General Merchandise
stores operated at AprilJuly 27, 1996.
The net gain on the divestiture of non-strategic real estate totaled $4
million in the first quarter of 1997. This primarily related to the sale of a
vacant distribution center.
SALES
The following table summarizes sales for continuing operations by segment and by
geographic area:
Thirteen weeks ended Twenty-six weeks ended
---------------------------- ----------------------------
(in millions) AprilJuly 26, AprilJuly 27, July 26, July 27,
1997 1996 1997 1996
---- ---- ---- ----
By segment:
Specialty:
Athletic Group $ 907859 $ 838 $ 1,766 $ 1,676
Northern Group 86 79 160 145
Specialty Footwear 121 122
Northern Group 74 66129 132 250 254
Other Specialty 72 76
------ ------85 89 161 168
------- ------- ------- -------
Specialty total 1,174 1,102
------ ------1,159 1,138 2,337 2,243
------- ------- ------- -------
International General Merchandise:
Germany 326 370
United States 224 244305 369 631 739
Other 42 46
------ ------36 44 69 81
------- ------- ------- -------
International General Merchandise total 592 660
------ ------341 413 700 820
------- ------- ------- -------
Disposed operations -- 56 2 58
------ ------
$1,768 $1,820
====== ======114
------- ------- ------- -------
$ 1,500 $ 1,607 $ 3,039 $ 3,177
======= ======= ======= =======
By geographic area:
Domestic $1,208 $1,164$ 940 $ 912 $ 1,928 $ 1,835
International 558 598560 639 1,109 1,228
Disposed operations -- 56 2 58
------ ------
$1,768 $1,820
====== ======114
------- ------- ------- -------
$ 1,500 $ 1,607 $ 3,039 $ 3,177
======= ======= ======= =======
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Specialty
Segment
Athletic footwear and apparel divisionGroup sales increased by 8.22.5 percent as compared withand 5.4 percent for the
prior year period. This wassecond quarter and year-to-date periods, respectively. These increases were
primarily due to the opening
of 108 stores domestically and145 store openings as well as sales from the first quarter
acquisition of Eastbay, Inc. ("Eastbay"), a first
quarter acquisition.. Comparable-store sales increaseddecreased by
1.6 percent.2.6 percent for the second quarter and remained level for the year-to-date
period. Northern Group sales increased by 12.18.9 percent which was attributable to a combination
of storeand 10.3 percent for the
second quarter and year-to-date periods, respectively. Comparable-store sales
increased for both the quarter and the year-to-date periods by 4.6 percent and
5.1 percent, respectively. Store openings in the Northern Reflections, U.S. formata women's
casual sportswear store, and the CanadianNorthern Getaway, a children's apparel store Northern Getaway. Comparable-storealso
contributed to the sales increasedincrease.
The 2.3 percent decline in Specialty Footwear's second quarter sales,
which resulted from closing 115 stores, was offset by 5.8 percent.
Specialty Footwear sales were level with the prior-year period,
however,a comparable-store sales
increased by 1.8increase of 2.0 percent. Sales declines in the Kinney format, particularly in
Canada, were offsetmitigated by favorable comparable-store sales increases at Footquarters andachieved by
store formats in Australia. For the Registrant's
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Australian formats.year-to-date period, Specialty Footwear
sales decreased by 1.6 percent, while comparable-store sales increased 1.9
percent. Other Specialty sales, adjusted for dispositions, decreased by 5.34.5
percent while comparable-storeand 4.2 percent for the quarter and year-to-date periods, respectively.
Comparable-store sales declined by 3.3 percent. This0.9 percent and 1.7 percent, respectively.
The decline in Other Specialty sales waswere mainly due to the closure of 7498
under-performing stores related to ongoing formats.
International General Merchandise
German general merchandise first quarter sales decreased by 11.9
percent. However, excluding17.3 percent and 14.6
percent for the second quarter and year-to-date periods, respectively. Excluding
the impact of foreign currency fluctuations, sales increased 1.2 percent.
United States general merchandisedecreased 5.2 percent and 2.2
percent for the second quarter and year-to-date periods, respectively.
Comparable-store sales decreased by $20 million or
8.2 percent. Comparable-store sales declined by 7.9 percent. The decline in
sales was primarily attributable to both the discontinuance of certain
unprofitable merchandise categories and unseasonably cool weather.
A slight decline in sales was experienced by both the Mexican and
Canadian operations. Sales in this group fell by $4 million, or 8.74.5 percent and comparable-store sales declined by 3.4 percent. Excluding4.8 percent for the favorable impact
of foreign currency fluctuations, sales declined by 7.3 percent. This decline
was primarily attributable to store closuressecond
quarter and elimination of low-margin
merchandise categories.year-to-date periods, respectively.
OPERATING RESULTS
Operating results from continuing operations (before corporate expense, interest
expense, and income taxes) are as follows:
Thirteen weeks ended Twenty-six weeks ended
---------------------------- ----------------------------
(in millions) AprilJuly 26, AprilJuly 27, July 26, July 27,
1997 1996 1997 1996
---- ---- ---- ----
By Segment:
Specialty $ 5783 $ 4096 $ 141 $ 135
International General Merchandise (26) (21)
Disposed operations (2) (19)(9) (18) (12) (30)
Net gain on sales of real estate -- 6 4 6
Disposed operations -- ---- ----(12) (2) (31)
------- ------- ------- -------
$ 3374 $ --
==== ====72 $ 131 $ 80
======= ======= ======= =======
By geographic area:
Domestic $ 4274 $ 4281 $ 141 $ 132
International (11) (23)
Disposed operations (2) (19)-- (3) (12) (27)
Net gain on sales of real estate -- 6 4 6
Disposed operations -- ---- ----(12) (2) (31)
------- ------- ------- -------
$ 3374 $ --
==== ====72 $ 131 $ 80
======= ======= ======= =======
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Specialty
Segment
Specialty segment's operating profits improvedprofit decreased by $17$13 million, overor 13.5
percent as compared with the 1996 firstsecond quarter. ThisThe decrease was primarily due
to higherchanges in merchandise mix and increased markdowns within the Athletic Group.
A shift in consumer preferences has contributed to the decisions to take those
markdowns and to reposition the Registrant's merchandise assortment for the
fourth quarter. Year-to-date operating profits increased $6 million or 4.4
percent as compared with the corresponding period of 1996, which is primarily
due to sales and significant gross margin increases achieved by the Athletic Group as well as a positive earnings
contribution from Eastbay.
Within the Specialty Footwear group, significant inventory clearances
of aged merchandise in the Kinney format contributed an additional $8 million of
losses in the
first quarter of 1997.
The Specialty Footwear segment improved operating results through
continuing expense reduction initiatives. The Northern Group improved operating
results, predominately through increased sales and higher margins.
International General Merchandise
The International General Merchandise segment's operating loss improved
by $9 million and $18 million for the quarter and year-to-date periods as
compared with the prior year.second quarter and year-to-date periods of 1996, respectively.
The Northern
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11
Group, which historically had an operating loss in the first quarter, reducedRegistrant's German operations have significantly lowered its operating loss
by 8.5 percent through higher margins and expense reductions.
General Merchandise
The General Merchandise Segment's operating loss increased by $5
million as compared with the first quarter of 1996. This decline was primarily
attributable to declines in the United States general merchandise group offset
by improvements in Germany. Germany has significantly reduced expenses by operating with a more flexible, smaller workforce. The benefits from this new
structure helped lower losses from $7 million to less than $1 million.
SEASONALITY
The Registrant's businesses are highly seasonal in nature.
Historically, the greatest proportion of sales and net income is generated in
the fourth quarter and the lowest proportion of sales and net income is
generated in the first quarter, reflecting seasonal buying patterns.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities was $107$113 million for the
thirteentwenty-six weeks ended AprilJuly 26, 1997, as compared with $128cash provided of $16
million in the comparable prior-year period. The decreaseincrease in cash utilization duringused resulted
from the 1997 first
quarter compared with 1996 was primarily due to improved operating results and
bettertiming of inventory management.purchases. The Condensed Consolidated Statements of
Cash Flows have been restated for discontinued operations for the prior period.
Net cash used in investing activities amounted to $153$177 million for the
thirteentwenty-six weeks ended AprilJuly 26, 1997, as compared with cash used in investing
activitiesprovided of $9$4
million during the corresponding period in 1996. The increase in cash used for
investing was due to the January 30, 1997 cash acquisition of Eastbay by the Registrant in a transaction accountedand
increased new store development spending for as a purchase. Under
the purchase agreement, stockholders of Eastbay received cash in amounts between
$22 and $24 for their shares. The total acquisition cost was $140 million with
an additional $6 million contingently payable.existing formats. Capital
expenditures increased by $9$20 million as compared to the prior-year firstsecond
quarter; approximately $285 million of capital expenditures are planned for the
1997 fiscal year as compared with $134 million in 1996.
Inventories decreased $111$43 million to $1,386$1,216 million as of AprilJuly 26,
1997, from $1,497a restated $1,259 million as of AprilJuly 27, 1996. The decrease from the
firstsecond quarter of 1996 reflects the Registrant's merchandise improvement efforts
as well as the divestiture of the Rx Place Drug Mart and Accessory Lady chains and
the sale of Silk & Satin, Lady Plus, Rubin and Moderna chains. The
$117$150 million increase in inventory levels from January 25, 1997 is a normal seasonal
increase, as inventory levels are at their lowest in the fourth quarter.
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13
Accounts payable at AprilJuly 26, 1997 increaseddecreased by $29$8 million as compared
with the first1996 second quarter 1996 and increased by $67$66 million to $401$352 million as
compared with the year-end level. The increase from January 25, 1997 coincides
with the seasonal increase in inventory.
Short-term debt decreased $247$99 million as compared with the level at
AprilJuly 27, 1996
due to repayment using cash generated from operations and did not
changeoperations. Short-term debt increased
by $38 million from the year-end level.
The $1.5 billion credit agreement which was negotiated in 1995 included
a $1.0 billion three-year facility and an additional $500 million facility forlevel attributable to the first yearfinancing of the agreement. At the Registrant's election, in February 1997,
the $1.0 billion facility was reduced to $500 million and the terms were
modified. The new five-year agreement will
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12
expire in April 2002.seasonal
working capital needs.
Interest expense for the thirteen weeks ended AprilJuly 26, 1997, decreased
$6$4 million over the comparable 1996 period. This wasInterest expense for the
year-to-date period decreased $10 million. These declines were attributable to
the reduction in total debt levels of $291$139 million as compared withwell as lower financing
costs resulting from renegotiation of the prior-year
period.Registrant's credit agreement.
Shareholders' equity at AprilJuly 26, 1997 increased $91decreased $245 million from the
level at April 27, 1996.January 25, 1997. This changedecrease was primarily attributable to the
Registrant's
improved results, offset byafter-tax charge for discontinued operations of $195 million and changes in
foreign currency translation.exchange rates.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
This information is incorporated by reference to the Legal Proceedings
section of the Notes to Condensed Consolidated Financial Statements on pages 7
throughpage 8 of
Part I, Item 1.
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Registrant's annual meeting of shareholders was held on June
12, 1997, in New York, New York. Proxies were solicited by management of the
Registrant pursuant to Regulation 14A under the Securities Exchange Act of 1934;
there was no solicitation in opposition to management's nominees as listed in
the Notice of 1997 Annual Meeting and Proxy Statement, both dated May 5, 1997.
(b) Each of Jarobin Gilbert Jr., Margaret P. MacKimm and John J.
Mackowski were elected as a director in Class III for a three-year term ending
at the annual meeting of shareholders of the Registrant in 2000. All of such
individuals previously served as directors of the Registrant. J. Carter Bacot,
Purdy Crawford, Roger N. Farah, Philip H. Geier Jr., Dale W. Hilpert, James E.
Preston and Christopher A. Sinclair, having previously been elected directors of
the Registrant for terms continuing beyond the 1997 annual meeting of
shareholders, continue in office as directors. Helen Galland retired as a
director at the 1997 annual meeting of shareholders, having reached the
mandatory retirement age for directors.
(c) The matters voted upon and the results of the voting were as
follows:
(1) Election of Directors:
Abstentions and
Name Votes For Votes Withheld Broker Non-Votes
- --------------------- ------------- -------------- ----------------
Jarobin Gilbert Jr. 109,756,782 2,357,330 0
Margaret P. MacKimm 109,788,879 2,325,233 0
John J. Mackowski 109,759,371 2,354,741 0
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14
(2) Amendments to the Certificate of Incorporation and By-laws:
Votes For Votes Against Abstentions Broker Non-Votes
- --------------------- ------------- -------------- ----------------
110,678,945 880,980 554,187 0
(3) Ratification of the appointment of KPMG Peat Marwick LLP as independent
accountants for the fiscal year beginning January 26, 1997:
Votes For Votes Against Abstentions Broker Non-Votes
- --------------------- ------------- -------------- ----------------
111,585,116 209,116 319,880 0
(4) Shareholder Proposal on reinstatement of the dividend:
Votes For Votes Against Abstentions Broker Non-Votes
- --------------------- ------------- -------------- ----------------
13,000,515 85,662,822 975,725 12,475,050
At the close of business on the record date of April 30, 1997, there
were issued and outstanding 134,209,670 shares of the Registrant's Common Stock,
par value $.01 per share ("Common Stock"). There were represented at the
meeting, in person or by proxy, 112,114,112 shares of Common Stock. Such shares
represented 83.54 percent of the total number of shares of such class of stock
issued and outstanding on the record date.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
An index of the exhibits that are required by this item, and which are
furnished in accordance with Item 601 of Regulation S-K, appears on pages 1416
through 16.18. The exhibits which are in this report immediately follow the index.
(b) Reports on Form 8-K
The Registrant filed a report on Form 8-K dated April 9,July 17, 1997 (date of
earliest event reported), which announced reporting that Andrew P. Hines resigned as Senior Vice
President and Chief Financial Officer of the Registrant effective April 30,
1997.
-12-was exiting its domestic
Woolworth general merchandise business.
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1315
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WOOLWORTH CORPORATION
(Registrant)
Date: June 6,September 4, 1997 /s/ Bruce L. Hartman
------------
--------------------
BRUCE L. HARTMAN
Vice President and Controller
(Principal Accounting Officer)
-13--15-
1416
WOOLWORTH CORPORATION
INDEX OF EXHIBITS REQUIRED BY ITEM 6(a) OF FORM 10-Q
AND FURNISHED IN ACCORDANCE WITH ITEM 601 OF REGULATION S-K
Exhibit No. in Item 601
of Regulation S-K Description
----------------- -----------
1 *
2 *
3(i)(a) Certificate of Incorporation of the
Registrant, as filed by the Department of
State of the State of New York on April 7,
1989 (incorporated herein by reference to
Exhibit 3(a) to the Registration Statement on
Form S-4 filed by the
Registrant, as filed by the Department of
State of the State of New York on April 7,
1989.
3(i)(b) Certificates of Amendment of the Certificate
of Incorporation of the Registrant, as filed
by the Department of State of the State of
New York on (a) July 20, 1989 (b) July 24,
1990 and (c) July 9, 1997.
3(ii) By-laws of the Registrant, as amended.
4(a) The rights of holders of the Registrant's
equity securities are defined in the
Registrant's Certificate of Incorporation, as
amended (incorporated herein by reference to:
(a) Exhibits 3 (i) (a) and 3 (i) (b) to this
Form 10-Q.
4(b) Rights Agreement dated as of April 4, 1988,
as amended January 11, 1989, between F.W.
Woolworth Co. ("FWW") and Morgan Shareholder
Services Trust Company (now, First Chicago
Trust Company of New York), as Rights Agent
(incorporated herein by reference to (a)
Exhibit 1 to the Registration Statement on
Form 8-A filed by FWW with the Securities and
Exchange Commission ("SEC") on
May 9, 1989 (Registration No. 33-28469) (the
"S-4 Registration Statement").
3(i)(b) Certificates of Amendment of the Certificate
of Incorporation of the Registrant, as filed
by the Department of State of the State of New
York on (a) July 20, 1989 (incorporated herein
by reference to Exhibit 3(b) to the
Registration Statement on Form 8-B filed by
the Registrant with the SEC on August 7, 1989
(Registration No. 1-10299) (the "8-B
Registration Statement")) and (b) July 24,
1990 (incorporated herein by reference to
Exhibit 4(a) to the Quarterly Report on Form
10-Q for the quarterly period ended July 28,
1990, filed by the Registrant with the SEC on
September 7,1990 (the "July 28, 1990 Form
10-Q")).
3(ii) By-laws of the Registrant, as amended
(incorporated herein by reference to Exhibit
3(ii) to the Registrant's Annual Report on
Form 10-K for the year ended January 28, 1995,
filed by the Registrant with the SEC on April
24, 1995 (the "1994 10-K")).
4(a) The rights of holders of the Registrant's
equity securities are defined in the
Registrant's Certificate of Incorporation, as
amended (incorporated herein by reference to:
(a) Exhibit 3(a) to the S-4 Registration
Statement, (b) Exhibit 3(b) to the 8-B
Registration Statement and (c) Exhibit 4(a) to
the July 28, 1990 Form 10-Q).
4(b) Rights Agreement dated as of April 4, 1988, as
amended January 11, 1989, between F.W.
Woolworth Co. ("FWW") and Morgan Shareholder
Services Trust Company (now, First Chicago
Trust Company of New York), as Rights Agent
(incorporated herein by reference to (a)
Exhibit 1 to the Registration Statement on
Form 8-A filed by FWW with the SEC on April 12, 1988
(Registration No. 1-238) and (b) the Form 8
Amendment to such Form 8-A filed
-14-by FWW with
the SEC on January 13, 1989). The rights and
obligations of FWW under said Rights
Agreement were assumed by the Registrant
pursuant to an Agreement and Plan of Share
Exchange dated as of May 4, 1989, by and
between FWW and the Registrant (incorporated
herein by reference to Exhibit 2 to the
Registration Statement on Form S-4 filed by
the Registrant with the SEC on May 9, 1989
(Registration No. 33-28469)).
4(c) Indenture dated as of October 10, 1991
(incorporated herein by reference to Exhibit
4.1 to the Registration Statement on Form S-3
(Registration No. 33-43334) previously filed
with the SEC).
4(d) Forms of Medium-Term Notes (Fixed Rate and
Floating Rate).
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15
by FWW with the SEC on January 13, 1989). The
rights and obligations of FWW under said
Rights Agreement were assumed by the
Registrant pursuant to an Agreement and Plan
of Share Exchange dated as of May 4, 1989, by
and between FWW and the Registrant
(incorporated herein by reference to Exhibit 2
to the S- 4 Registration Statement).
4(c) Indenture dated as of October 10, 1991
(incorporated herein by reference to Exhibit
4.1 to the Registration Statement on Form S-3
(Registration No. 33-43334) previously filed
with the SEC).
4(d) Forms of Medium-Term Notes (Fixed Rate and
Floating Rate)17
(incorporated herein by reference to Exhibits
4.4 and 4.5 to the Registration Statement on
Form S-3 (Registration No. 33-43334)
previously filed with the SEC).
4(e) Form of 8-1/2% Debentures due 2022
(incorporated herein by reference to Exhibit
4 to Registrant's Form 8-K dated January 16,
1992).
4(f) Purchase Agreement dated June 1, 1995 and
Form of 7% Notes due 2000 (incorporated
herein by reference to Exhibits 1 and 4,
respectively, to Registrant's Form 8-K dated
June 7, 1995).
4(g) Distribution Agreement dated July 13, 1995
and Forms of Fixed Rate and Floating Rate
Notes (incorporated herein by reference to
Exhibits 1, 4.1 and 4.2, respectively, to
Registrant's Form 8-K dated July 13, 1995).
5 *
8 *
9 *
10 Amendment No. 1 dated as of July 16, 1997 to
the Credit Agreement dated April 9, *
10 Employment Agreement with Dale W. Hilpert
dated April 30, 1997.
11 Computation of Net Income (Loss) Per Common
Share.
12 Computation of Ratio of Earnings to Fixed
Charges.
13 *
15 Letter re: Unaudited Interim Financial
Statements.
16 *
17 *
18 *
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16
19 *
20 *
21 *
22 *
23 *
24 *
25 *
26 *
27 Financial Data Schedule, which is submitted
electronically to the SEC for information
only and not filed.
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18
99 Independent Accountants' Review Report.
--------------------
* Not applicable
-16--18-
1719
Exhibits filed with this Form 10-Q:
Exhibit No.
- -----------
10 Employment Agreement with Dale W. Hilpert.Exhibit No. Description
- ----------- -----------
3 (i)(a) Certificate of Incorporation of the Registrant,
as filed by the Department of State of State of
New York on April 7, 1989.
3 (i)(b) Certificates of Amendment of the Certificate of
Incorporation of the Registrant.
3 (ii) By-laws of the Registrant, as amended.
10 Amendment No. 1 dated as of July 16, 1997 to the
Credit Agreement, dated April 9, 1997.
11 Computation of Net Income (Loss) Per Common Share.
12 Computation of Ratio of Earnings to Fixed Charges.
15 Letter re: Unaudited Interim Financial Statements.
27 Financial Data Schedule.
99 Independent Accountants' Review Report.