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 October 26, 1996
Commission file no. 1-10299
WOOLWORTH CORPORATION
(Exact name of registrant as specified in its charter)
New York 13-3513936
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
233 Broadway, New York, New York 10279-0003
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (212) 553-2000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
Number of shares of Common Stock outstanding at November 23, 1996: 133,985,633
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WOOLWORTH CORPORATION
INDEX
Page No.
--------
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements
of Operations 4
Condensed Consolidated Statements
of Retained Earnings 5
Condensed Consolidated Statements
of Cash Flows 6
Notes to Condensed Consolidated
Financial Statements 7 - 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8 - 12
Part II. Other Information
Item 1. Legal Proceedings 13
Item 6. Exhibits and Reports on Form 8-K 13
Signature 14
Index of Exhibits 15 - 17
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
WOOLWORTH CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
($ in millions)
Oct. 26, Oct. 28, Jan. 27,
1996 1995 1996
----------- ----------- --------
(Unaudited) (Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 17 $ 65 $ 13
Merchandise inventories 1,681 1,917 1,364
Other current assets 263 303 241
------ ------ ------
1,961 2,285 1,618
PROPERTY AND EQUIPMENT, NET 1,109 1,482 1,225
DEFERRED CHARGES AND OTHER ASSETS 641 634 663
------ ------ ------
$ 3,711 $ 4,401 $ 3,506
====== ===== =====
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term debt $ 115 $ 651 $ 69
Accounts payable 445 487 321
Accrued liabilities 475 403 426
Current portion of long-term debt and obligations
under capital leases 17 26 25
------- ------- -------
1,052 1,567 841
LONG-TERM DEBT AND OBLIGATIONS
UNDER CAPITAL LEASES 596 653 619
DEFERRED TAXES AND OTHER LIABILITIES 780 813 817
SHAREHOLDERS' EQUITY
Preferred stock - - -
Common stock and paid-in capital 296 290 290
Retained earnings 960 998 891
Foreign currency translation adjustment 63 90 83
Minimum pension liability adjustment (36) (10) (35)
------- ------- -------
Total shareholders' equity 1,283 1,368 1,229
CONTINGENCIES (Legal Proceedings)
------- ------- -------
$ 3,711 $ 4,401 $ 3,506
======= ======= =======
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 Thirty-nine weeks ended
-------------------------- --------------------------
Oct. 26, Oct. 28, Oct. 26, Oct. 28,
1996 1995 1996 1995
----------- ---------- ---------- ----------
SALES $ 2,048 $ 2,071 $ 5,724 $ 5,787
COSTS AND EXPENSES
Costs of sales 1,385 1,419 3,953 4,058
Selling, general and administrative expenses 499 508 1,482 1,586
Depreciation and amortization 51 59 151 177
Interest expense 18 30 57 95
Other income (20) (2) (34) (34)
------- ------- ------- -------
1,933 2,014 5,609 5,882
------- ------- ------- -------
INCOME (LOSS) BEFORE INCOME TAXES 115 57 115 (95)
Income tax expense (benefit) 46 23 46 (38)
------- ------- ------- -------
NET INCOME (LOSS) $ 69 $ 34 $ 69 $ (57)
======= ======= ======= =======
Net income (loss) per share $ 0.52 $ 0.26 $ 0.52 $ (0.43)
======= ======= ======= =======
Number of shares used to
calculate earnings per share 133.6 132.8 133.3 132.8
======= ======= ======= =======
See accompanying Notes to Condensed Consolidated Financial Statements.
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WOOLWORTH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
(Unaudited)
($ in millions)
Thirty-nine weeks ended
----------------------------
Oct. 26, Oct. 28,
1996 1995
---------- ----------
RETAINED EARNINGS AT BEGINNING OF YEAR $ 891 $ 1,055
Net income (loss) 69 (57)
Cash dividends declared:
Preferred Stock - $1.10 and $1.65 per share
in 1996 and 1995, respectively - -
------- -------
RETAINED EARNINGS AT END OF PERIOD $ 960 $ 998
======= =======
See accompanying Notes to Condensed Consolidated Financial Statements.
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WOOLWORTH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
($ in millions)
Thirty-nine weeks ended
------------------------
Oct. 26, Oct. 28,
1996 1995
---- ----
FROM OPERATING ACTIVITIES
Net income (loss) $ 69 $ (57)
Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities:
Depreciation and amortization 151 177
Gain on sales of real estate (31) (33)
Deferred income taxes (6) (37)
Change in assets and liabilities, net of acquisitions:
Increase in merchandise inventories (329) (257)
Increase in accounts payable 124 119
Other, net 31 10
----- -----
Net cash provided by (used in) operating activities 9 (78)
----- -----
FROM INVESTING ACTIVITIES
Capital expenditures (87) (110)
Proceeds from sale of assets 25 33
Proceeds from sale of real estate 22 88
Purchase of investments -- (74)
----- -----
Net cash used in investing activities (40) (63)
----- -----
FROM FINANCING ACTIVITIES
Increase (decrease) in short-term debt 46 (203)
Increase in long-term debt -- 352
Reduction in long-term debt and capital lease obligations (13) (13)
Issuance of common stock 6 8
Redemption of preferred stock (1) --
Dividends paid -- (20)
----- -----
Net cash provided by financing activities 38 124
----- -----
EFFECT OF EXCHANGE RATE CHANGES ON CASH
AND CASH EQUIVALENTS (3) 10
NET CHANGE IN CASH AND CASH EQUIVALENTS 4 (7)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 13 72
----- -----
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 17 $ 65
===== =====
Cash Paid During the Period:
Interest $ 35 $ 75
Income Taxes $ 14 $ 11
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 1995 Annual Report to Shareholders of Woolworth
Corporation (the "Registrant"), portions of which Annual Report are incorporated
by reference in the Registrant's Annual Report on Form 10-K for the year ended
January 27, 1996, as filed with the Securities and Exchange Commission (the
"SEC"). Certain items included in these statements are based on management's
estimates. In the opinion of management, all material adjustments, which are of
a normal recurring nature, necessary for a fair presentation of the results for
the interim period have been included. The results for the thirteen and
thirty-nine weeks ended October 26, 1996 are not necessarily indicative of the
results expected for the year.
Merchandise Inventories
Domestic merchandise inventories are stated at the lower of cost or
market determined using the last-in, first-out method. At October 26, 1996,
October 28, 1995 and January 27, 1996 domestic merchandise inventories are
stated at $102 million less than the amounts that would have been determined
using the first-in, first-out method.
Reclassifications
Certain balances in prior periods have been reclassified to conform
with the presentation adopted in the current period.
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. The action is scheduled for trial
on May 7, 1997.
Five separate state-court derivative actions filed in April 1994 were
consolidated under the caption In re Woolworth Corporation Derivative Litigation
in the Supreme Court of the State of New York, County of New York.
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Plaintiffs served a Consolidated Complaint on behalf of the plaintiffs in these
five actions together with the plaintiff in the former federal derivative action
Sternberg v. Woolworth Corp., which has been dismissed. Defendants moved to
dismiss the Consolidated Complaint, and on April 27, 1995, the court granted
defendants' motion, with leave to the plaintiffs to replead. On June 7, 1995,
plaintiffs served a Consolidated Amended Derivative Complaint. On June 27, 1995,
defendants moved to dismiss the Consolidated Amended Derivative Complaint with
prejudice. On April 10, 1996, the court granted defendants' motion with
prejudice. Plaintiffs have filed a notice of appeal from the dismissal to the
Appellate Division, First Department.
There is one federal derivative action pending in the United States
District Court for the Southern District of New York under the caption Rosenbaum
v. Sells et al. There have been no material developments in this action.
These actions are all at a preliminary stage of proceedings.
Accordingly, the outcomes cannot be predicted with any degree of certainty. As a
result, the Registrant cannot determine if the results of the litigation will
have a material adverse effect on the Registrant's results of operations,
liquidity or financial position.
During 1994, the staff of the SEC initiated an inquiry related 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. There have been no material developments in
the inquiry to date.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Total sales for the 1996 third quarter decreased 1.1 percent to $2,048
million compared to $2,071 million for the 1995 third quarter. Comparable-store
sales increased by 1.5 percent. Excluding the effect of foreign currency
fluctuations and sales from disposed operations, sales decreased by 0.8 percent.
Total Specialty segment sales for the 1996 third quarter increased 4.9 percent
while comparable-store sales increased 5.0 percent, as compared to the 1995
third quarter. Total General Merchandise segment 1996 third quarter sales
decreased 8.0 percent while comparable-store sales decreased 4.4 percent, as
compared to the same period of 1995. The decrease in General Merchandise sales
primarily relates to lower sales in Germany and the United States.
Year-to-date 1996 sales decreased 1.1 percent to $5,724 million
compared to $5,787 million for 1995. Excluding the effect of foreign currency
fluctuations and sales from disposed operations, sales decreased 1.1 percent,
and comparable-store sales increased 0.8 percent during the year-to-date period.
Fiscal 1996 third quarter operating profit (before corporate expense,
interest, and income taxes) of $143 million improved by $44 million over the
comparable prior year operating profit of $99 million. This improvement stems
directly from the continuing implementation of the Registrant's strategic plan
including inventory level reductions, expense reductions and the divestiture of
non-strategic assets. For the 1996 third quarter, selling, general and
administrative expenses declined by $9 million compared to the corresponding
1995 period. Year-to-date, selling, general and administrative expenses were
$104 million less than the corresponding 1995 period. These decreases reflect
the ongoing success of the Registrant's cost reduction initiatives. The 1996
operating profit includes a charge for early retirement and severance costs
related to ongoing workforce reduction programs in the German general
merchandise operations of $21 million in the third quarter and $31 million
year-to-date. Included in the 1995 year-to-date operating profit is a $38
million charge related to the inventory improvement program implemented to lower
inventory levels and clear stores of aged and discontinued merchandise for new
product assortments.
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The Registrant reported net income of $69 million, or $0.52 per share,
for the 1996 third quarter, compared to net income of $34 million, or $0.26 per
share, for the corresponding prior year period. The Registrant reported net
income of $69 million for the 1996 year-to-date period, or $0.52 per share. This
represents an improvement of $126 million, or $0.95 per share compared to the
loss of $57 million or $0.43 per share for the corresponding 1995 period.
As of October 26, 1996, the Registrant operated a total of 7,854 stores
consisting of 6,837 Specialty stores and 1,017 General Merchandise stores. This
compares to 7,955 stores consisting of 6,920 Specialty stores and 1,035 General
Merchandise stores operated as of October 28, 1995.
The net gain on the divestiture of non-strategic real estate in the
third quarter totaled $18 million. This primarily related to the sale of real
estate located in Germany.
In line with the Registrant's strategic plan to dispose of
underperforming businesses, in the 1996 third quarter, the Registrant completed
the sale of its 42-store Silk & Satin chain in Canada as well as its 41-store
Rubin chain in Germany. The charge for disposed operations for the 1996 third
quarter totaled $5 million and includes disposition related costs for these
businesses, as well as a provision for the closure of the Sandalwood
distribution center in Canada. The charge for disposed operations includes the
loss incurred to dispose of those operations, as well as the operational losses
incurred through disposal date. For the 1996 year-to-date period, in addition to
the third quarter disposition activity, the Registrant disposed of various
operations including the Rx Place Drug Mart, Accessory Lady, and Lady Plus
chains. The total charge included in the 1996 year-to-date operations related to
those dispositions was $36 million. The charge for disposed operations for the
prior year periods presented includes the operating results of businesses
disposed of in the current year.
SALES
The following table summarizes sales by segment and by geographic area:
Thirteen weeks ended Thirty-nine weeks ended
----------------------------- -----------------------------
(in millions) Oct. 26, Oct. 28, Oct. 26, Oct. 28,
1996 1995 1996 1995
------ ------ ------ ------
By segment:
Specialty:
Athletic Group $ 954 $ 896 $2,634 $2,483
Specialty Footwear 190 189 517 529
Other Specialty 83 93 245 274
Northern Group 110 96 255 215
------ ------ ------ ------
Specialty total 1,337 1,274 3,651 3,501
------ ------ ------ ------
General Merchandise:
Germany 399 427 1,138 1,199
United States 253 278 739 816
Other 52 60 152 171
------ ------ ------ ------
General Merchandise total 704 765 2,029 2,186
------ ------ ------ ------
Disposed operations 7 32 44 100
------ ------ ------ ------
$2,048 $2,071 $5,724 $5,787
====== ====== ====== ======
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Thirteen weeks ended Thirty-nine weeks ended
----------------------------- -----------------------------
(in millions) Oct. 26, Oct. 28, Oct. 26, Oct. 28,
1996 1995 1996 1995
------ ------ ------ ------
By geographic area:
Domestic $1,289 $1,263 $3,605 $3,560
International 752 776 2,075 2,127
Disposed operations 7 32 44 100
------ ------ ------ ------
$2,048 $2,071 $5,724 $5,787
====== ====== ====== ======
Specialty Segment
The Athletic and Northern Groups turned in strong third quarter
performances. Athletic Group sales increased for the third quarter and the
year-to-date periods, by 6.5 percent and 6.1 percent, respectively, over the
corresponding prior year periods. Northern Group sales increased by 14.6 percent
and 18.6 percent, for the third quarter and year-to-date periods, respectively.
Specialty Footwear third quarter sales increased by 0.5 percent, 0.7
percent on a comparable-store basis, while year-to-date sales decreased by 2.3
percent, 1.8 percent on a comparable-store basis, as compared to the
corresponding prior year periods. The year-to-date decline is principally
attributable to the Kinney format.
Other Specialty third quarter sales, adjusted for dispositions,
decreased by 10.8 percent from $93 million to $83 million, 4.4 percent on a
comparable-store basis, as compared to the prior year period. For the
year-to-date period, sales declined 10.6 percent to $245 million, 2.4 percent on
a comparable-store basis, as compared to the prior year period. This decline in
sales was mainly due to the closure of 98 underperforming stores related to
ongoing formats.
General Merchandise
German general merchandise 1996 third quarter sales decreased by 6.6
percent, while comparable-store sales decreased by 3.4 percent, as compared to
the prior year period. Year-to-date period sales have decreased 5.1 percent
while comparable-store sales decreased 2.8 percent, as compared to the prior
year period. Excluding the impact of foreign currency fluctuations, sales
decreased by 0.4 percent and 0.8 percent for the quarter and year-to-date
periods, respectively. Sales continue to be negatively impacted by a struggling
economy and high unemployment.
United States general merchandise sales decreased for both the third
quarter and year-to-date periods by 9.0 percent and 9.4 percent, respectively.
These declines are mainly due to the continued competitive pressures in general
merchandise coupled with the closure of underperforming stores under the
Registrant's store closing program.
A decline in sales was also experienced by both the Registrant's
Mexican and Canadian operations in the third quarter as well as for the
year-to-date period. Sales in this group fell by $8 million, 13.3 percent for
the third quarter, while comparable-store sales decreased by 0.6 percent.
Year-to-date sales decreased $19 million or 11.1 percent, while comparable-store
sales decreased by 4.0 percent. Excluding the negative impact of foreign
currency fluctuations, sales declined 9.2 percent for the third quarter and 7.6
percent year-to-date. Cooler weather conditions in Canada for the first two
quarters of fiscal 1996 contributed to the year-to-date declines.
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OPERATING RESULTS
Operating profit (before corporate expense, interest, and income taxes) is as
follows:
Thirteen weeks ended Thirty-nine weeks ended
----------------------------- -----------------------------
(in millions) Oct. 26, Oct. 28, Oct. 26, Oct. 28,
1996 1995 1996 1995
------ ------ ------ ------
By segment:
Specialty $ 154 $ 106 $ 288 $ 123
General Merchandise (24) (2) (71) (64)
Net gain on sales of real estate 18 1 31 33
Disposed operations (5) (6) (36) (42)
----- ----- ----- -----
$ 143 $ 99 $ 212 $ 50
===== ===== ===== =====
By geographic area:
Domestic $ 120 $ 91 $ 233 $ 106
International 10 13 (16) (47)
Net gain on sales of real estate 18 1 31 33
Disposed operations (5) (6) (36) (42)
----- ----- ----- -----
$ 143 $ 99 $ 212 $ 50
===== ===== ===== =====
Specialty Segment
Specialty operating profit improved by $48 million and $165 million
over the prior year third quarter and year-to-date periods, respectively. This
was primarily due to expense reductions combined with increased sales achieved
by the Athletic Group. Specialty operating profit for the 1995 year-to-date
period included a $16 million charge related to the Registrant's inventory
improvement program.
General Merchandise
Total General Merchandise third quarter operating results decreased by
$22 million compared to the prior year period, mainly attributable to a $21
million charge for German early retirement and severance programs. Excluding
this charge, operating results decreased by $1 million. Year-to-date operating
results, excluding the charge for early retirement of $31 million, improved by
$24 million. German operating results, excluding this early retirement charge,
increased by $12 million in the 1996 third quarter and $27 million for the
year-to-date period. United States and Other general merchandise operating
results decreased $13 million for the 1996 third quarter and $3 million for the
year-to-date period. General Merchandise operating results for 1995 included a
$22 million charge related to the Registrant's inventory improvement program.
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.
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LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $9 million for the
thirty-nine weeks ended October 26, 1996, compared to $78 million used in the
comparable prior-year period. The increase in cash provided during 1996 compared
to 1995 primarily reflects improved operating results along with the
Registrant's inventory improvement program.
Net cash used in investing activities amounted to $40 million for the
thirty-nine weeks ended October 26, 1996, compared to $63 million during the
corresponding period in 1995. The reduced utilization of cash in 1996 reflects a
reduction in capital expenditures and a reduction in proceeds from the sale of
real estate and other assets. In addition, no other investments were made during
the thirty-nine weeks ended October 26, 1996. Capital expenditures of
approximately $172 million are planned for the full fiscal year 1996.
Inventories decreased $236 million to $1,681 million as of October 26,
1996, from $1,917 million as of October 28, 1995. The decrease from the third
quarter of 1995 reflects the Registrant's successful inventory improvement
program and a reduction in inventories due to the divestiture of the Drug Mart
and Accessory Lady chains as well as the sale of the Silk & Satin, Lady Plus and
Rubin chains. The $317 million increase in inventory levels from January 27,
1996 is a normal seasonal increase prior to peak selling periods, and is
financed by short-term debt and accounts payable.
Accounts payable of $445 million at October 26, 1996 decreased by $42
million as compared to October 28, 1995 and increased by $124 million as
compared to January 27, 1996. These changes are directly associated with
inventory levels.
Short-term debt decreased $536 million compared to October 28, 1995
levels and increased by $46 million from the year-end level to $115 million. The
decrease from October 28, 1995 primarily reflects lower inventory levels.
Aggregate debt has declined $602 million from the prior year. The Registrant
further reduced debt levels by selling non-strategic assets and continuing cost
reduction programs.
The Registrant has a $1.0 billion three-year revolving credit facility
available through May 1998.
Interest expense for the third quarter of 1996, decreased $12 million
or 40.0 percent over the comparable 1995 period. Interest expense for the
year-to-date period decreased $38 million, or 40.0 percent over the comparable
1995 period. The decrease from the third quarter is attributable to the
reduction in total debt levels of $602 million as compared to the prior year
period.
Shareholders' equity at October 26, 1996 decreased $85 million from the
level at October 28, 1995. The decrease includes a non-cash pre-tax charge of
$241 million ($165 million after-tax) for the adoption of Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of" in the fourth quarter of
1995.
In the third quarter of 1996, the Registrant announced that its Board
of Directors called for the redemption of all of the outstanding $2.20 Series A
Convertible Preferred Stock ("Preferred Stock"). Approximately 83 percent of the
Preferred Stock has been converted into shares of the Registrant's Common Stock.
On December 2, 1996, the Registrant announced that a definitive
agreement was signed whereby the Registrant will acquire Eastbay, Inc., a direct
marketer of athletic footwear, apparel, equipment and licensed and private label
products. The total purchase price will be approximately $146 million and it is
expected that the acquisition will be completed in early 1997. Current and
projected Registrant cash flows are expected to be sufficient to fund the
transaction.
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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
through 8 of Part I, Item 1.
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 15
through 17. The exhibits which are in this report immediately follow the index.
(b) Reports on Form 8-K
On August 14, 1996 the Registrant announced that its Board of Directors
called for the redemption of all of the outstanding shares of the Registrant's
$2.20 Series A Convertible Preferred Stock ("Preferred Stock") on October 23,
1996 at the redemption price of $45 per share. Shares of Preferred Stock may be
converted into shares of the Registrant's Common Stock at the rate of 5.68
shares of Common Stock for each share of Preferred Stock. Conversion rights
expired at 5:00 p.m. New York City time on October 18, 1996.
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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: December 9, 1996 /s/ Andrew P. Hines
---------------- ---------------------
ANDREW P. HINES
Senior Vice President
and Chief Financial Officer
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WOOLWORTH CORPORATION
INDEX OF EXHIBITS REQUIRED BY ITEM 6(a) OF FORM 10-Q
AND FURNISHED IN ACCORDANCE WITH ITEM 601 OF REGULATION S-K
Exhibit No. in Item 601
of Regulation S-K Description
1 *
2 *
3(i)(a) Certificate of Incorporation of the
Registrant, as filed by the Department of
State of the State of New York on April 7,
1989 (incorporated herein by reference to
Exhibit 3(a) to the Registration Statement
on Form S-4 filed by the Registrant with the
Securities and Exchange Commission ("SEC")
on May 9, 1989 (Registration No. 33-28469)
(the "S-4 Registration Statement").
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 "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 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
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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) (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 Agreement with John A. Wozniak dated
November 11, 1996.
11 Computation of Net Income (Loss) Per Common
Share.
12 Computation of Ratio of Earnings to Fixed
Charges.
13 *
15 Letter re: Unaudited Interim Financial
Statements.
16 *
17 *
18 *
19 *
20 *
21 *
22 *
-16-
17
23 *
24 *
25 *
26 *
27 Financial Data Schedule, which is submitted
electronically to the SEC for information
only and not filed.
99 Independent Accountants' Review Report.
-----------------
* Not applicable
-17-
18
Exhibits filed with this Form 10-Q:
Exhibit No.
10 Agreement with John A. Wozniak dated
November 11, 1996
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.
1
EXHIBIT 10
November 11, 1996
Mr. John A. Wozniak
6 Cromwell Drive
Chester, New Jersey 07930
Dear John:
This letter sets forth our understanding and agreement with respect to
your resignation as Vice President and Controller of Woolworth Corporation
("Woolworth"), effective on the Termination Date, as hereinafter defined, and
sets forth the arrangements to which we have agreed.
1. Termination of Employment. Your employment with the Company shall
continue until the date specified by the Company in a written notice to you,
which date is expected to be 30 days following the date on which your successor
commences employment with the Company (the date of termination of your
employment being herein referred to as the "Termination Date"). You shall resign
as Vice President and Controller of the Company, and from all other positions
you hold with the Company or any of its subsidiaries, as of the date the Company
delivers to you the notice referred to in the preceding sentence and you shall
execute and deliver a letter of resignation in the form annexed hereto as
Exhibit A as of such date.
2. Payments. Provided you continue to be employed by the Company on the
Termination Date and have satisfactorily performed your responsibilities through
such date, including cooperating in the transfer of your responsibilities to
your successor, the Company shall make the following payments to you:
a. On the Termination Date, $7,115, being the amount payable to you
pursuant to the provisions of the Company's severance policy.
b. On the Termination Date, an additional amount of $39,135.
c. On the Termination Date, in accordance with the Company's normal
policies and practices, (i) salary and reimbursement of any business expenses
related to the period prior to the Termination Date and (ii) an amount in lieu
of any accrued but unused vacation as of the Termination Date.
d. Provided that the Termination Date is earlier than March 8, 1997, on
the Termination Date, an amount equal to the difference between the fair market
value of one share of the Company's Common Stock on the trading day preceding
the Termination Date and $15.375, multiplied by 5,000 and the stock option
granted to you on March 8, 1995 shall thereupon be cancelled. For purposes of
2
2
the preceding sentence, the "fair market value" of a share of the Company's
Common Stock shall be the average of the high and the low prices at which such
Common Stock traded on the New York Stock Exchange on the relevant trading day.
e. If you have not commenced other full-time employment on the date
three months' from the Termination Date, the Company shall, for the one-month
period commencing on such date, and in each of the 11 monthly periods
thereafter, pay you $15,417, provided, however, that (i) during the period that
such payments are being made, you must, in the opinion of an out-placement
counselor designated by the Company, be actively engaged in a search for
full-time employment and (ii) the Company shall have no obligation to continue
such payments, and such payments shall cease, on the date you commence other
full-time employment.
f. You shall be eligible to receive a payment under the Company's
Annual Incentive Compensation Plan for 1996 and the Long-Term Incentive
Compensation Plan for the 1994-96 plan period in accordance with the terms of
those plans; provided, however, that if the Date of Termination is earlier than
January 26, 1997, such payments, if any, shall be prorated as of the Termination
Date. You shall not be entitled to receive any payment under the Annual
Incentive Compensation Plan for 1997 or under the Long-Term Incentive
Compensation Plan for any other period.
g. All amounts payable to you hereunder shall be subject to appropriate
withholding for federal, state, and local income taxes.
3. Stock Option and Stock Purchase Plans. All unexercised stock options
granted to you prior to the date hereof, and not exercised or cancelled on or
before the Termination Date, pursuant to the provisions of the 1995 Woolworth
Stock Option and Award Plan (the "Option Plan"), shall remain exercisable in
accordance with the relevant provisions of the Option Plan. Your "effective date
of termination" for purposes of the Option Plan shall be the Termination Date
and your termination shall, for the purposes of such plan, be treated as your
resignation from your position with the Company.
Your right to participate in the 1994 Woolworth Employees Stock
Purchase Plan shall be in accordance with the terms of such plan and shall cease
as of the Termination Date.
4. Pension Benefits. For purposes of calculating your benefit accrual
under the Woolworth Retirement Plan and the Excess Cash Balance Plan for the
plan year in which the Termination Date occurs, your W-2 Compensation (as that
term is defined in such plans) shall include the amounts payable to you under
the provisions of Sections 2(a) and 2(b) hereof.
5. Other Benefits. (a) Your participation in the medical, drug, dental,
life insurance, and voluntary accidental death and dismemberment plans for
active employees of the Company shall cease on the Termination Date, subject to
your right to continue coverage under the provisions of COBRA. In the event that
you elect to continue such coverage under the provisions of COBRA, the Company
shall make on your behalf any additional premium payments beyond those you would
be required to
3
3
make if you were a full-time employee of the Company for the period ending on
the earlier of the first anniversary of the Termination Date or 30 days
following the date on which you commence other full-time employment.
(b) The Company shall provide to you, at its expense, until the earlier
of the first anniversary of the Termination Date or such time as you shall have
secured other full-time employment, the services of an out-placement consultant.
6. Confidentiality. You will not disclose, at any time, to any person,
nonpublic information of any kind concerning the Company or any of its
subsidiaries, including, but not limited to, nonpublic information concerning
finances, financial plans, accounting methods, strategic plans, operations,
personnel, organizational structure, methods of distribution, suppliers,
customers, client relationships, marketing strategies, or the like.
If you engage in such wrongful conduct or otherwise violate the
provisions of this Section 6, you will forfeit your entitlement to any rights
granted by this letter agreement (except as otherwise provided under applicable
law) and the Company shall not have any further obligation under this letter
agreement. In addition, you agree that the Company shall have such other rights,
including but not limited to injunctive relief, as may be provided under
applicable law.
7. Release from Claims. In consideration of all of the foregoing, you
hereby agree to release and forever discharge the Company and its subsidiaries
and affiliates, and their respective officers and directors, from any and all
actions, causes of action, claims, demands, and liabilities of whatsoever nature
arising out of, or in connection with, your employment with the Company and any
of its subsidiaries and affiliates, whether arising before or after the date
hereof. The foregoing shall include, but not be limited to, any claim of
employment discrimination under the Age Discrimination in Employment Act of
1967, or any other federal or state labor relation law, equal employment
opportunity law, or civil rights law, regulation or order. Federal law requires
that we advise you to consult with an attorney of your choice (at your own
cost). In addition, federal law also provides that you have 21 days from the
date of this letter, including any release of the Company and its subsidiaries,
from liability as provided in this paragraph. Furthermore, you have the right to
change your mind at any time within one week after signing. In addition, you
hereby acknowledge that you have been given full opportunity to review this
letter, including sufficient opportunity to review this letter, including
sufficient opportunity for appropriate review with any advisors selected by you.
The foregoing shall not constitute a release of any and all claims you may have
against the Company for breach of any of the provisions of this letter
agreement.
You understand and agree that the payments and benefits provided for in
this agreement shall be in lieu of any and all amounts that would be payable to
you, and that no other amounts will be paid to you for any reason whatsoever.
4
4
8. Assignment. Neither this letter agreement, nor any of the rights
arising hereunder, may be assigned by you. You agree to execute such additional
documents as the Company may require to carry out this letter agreement.
9. Miscellaneous. This letter agreement represents our total
understanding and agreement with regard to the subject matter hereof, and
supersedes any previous discussions or writings. This letter agreement may not
be amended or modified, and no term or provision hereof may be waived or
discharged, unless agreed to in writing by you and the Company. The invalidity
or unenforceability of any provision of this letter agreement shall not affect
the validity or enforceability of any other provision hereof.
The section headings herein are for convenience of reference only and
shall not affect or be utilized in the construction or interpretation of this
agreement.
This letter agreement may be executed in counterparts, each of which,
when so executed, shall be deemed an original and all of which, when taken
together, shall constitute one and the same agreement.
The offer of the Company contained in this letter agreement shall
terminate and be of no further force and effect at 12:01 A.M. New York City time
on the twenty-second day following the delivery of this letter to you, unless
you have signed and returned the letter to us, unaltered, before such date and
time.
10. Governing Law. This letter agreement shall be governed by, and
construed under, the laws of the State of New York applicable to contracts made
between residents of such state and to be wholly performed in such state.
If this letter agreement correctly sets forth our agreement, please
execute the duplicate copy of this letter agreement enclosed for that purpose,
and deliver it to us, at which time this letter agreement shall serve as a
binding and enforceable agreement between us.
Very truly yours,
WOOLWORTH CORPORATION
By:/s/ Patricia A. Peck
Agreed: ----------------------------
/s/ John A. Wozniak
- -----------------------------
John A. Wozniak
Witnessed:
/s/ John F. Gillespie
- -----------------------------
Date: 12/9/96
------------------------
5
5
EXHIBIT A
__________________, 19__
Board of Directors
Woolworth Corporation
233 Broadway
New York, New York 10279
Gentlemen and Ladies:
I hereby resign my position as Vice President and Controller of
Woolworth Corporation, and from any other position as an officer or director
that I may hold with Woolworth Corporation or with any subsidiary or affiliate
thereof, effective at the close of business on [DATE OF NOTICE].
Yours truly,
John A. Wozniak
1
EXHIBIT 11
WOOLWORTH CORPORATION
COMPUTATION OF NET INCOME (LOSS) PER COMMON SHARE
(Unaudited)
(in millions, except per share amounts)
Thirteen weeks ended Thirty-nine weeks ended
------------------------- --------------------------
Oct. 26, Oct. 28, Oct. 26, Oct. 28,
1996 1995 1996 1995
-------- -------- -------- --------
FINANCIAL STATEMENT PRESENTATION
Weighted-average number of common shares outstanding 133.6 132.8 133.3 132.8
======= ======= ======= =======
Net income (loss) $ 68.9 $ 33.8 $ 69.3 $ (57.5)
Less Preferred Dividends -- -- (0.1) (0.1)
------- ------- ------- -------
Net income (loss) applicable to common shares $ 68.9 $ 33.8 $ 69.2 $ (57.6)
======= ======= ======= =======
Net income (loss) per share of common stock $ 0.52 $ 0.26 $ 0.52 $ (0.43)
======= ======= ======= =======
PRIMARY(1)
Weighted-average number of common shares
outstanding and common share equivalents 134.6 132.8 134.0 132.8
======= ======= ======= =======
Net income (loss) applicable to common shares $ 68.9 $ 33.8 $ 69.2 $ (57.6)
======= ======= ======= =======
Primary net income (loss) per share of common stock $ 0.51 $ 0.26 $ 0.52 $ (0.43)
======= ======= ======= =======
FULLY DILUTED (1), (2)
Weighted-average number of common shares outstanding
and fully diluted common share equivalents 135.1 132.9 134.7 132.9
Assumed conversion of preferred stock -- 0.6 -- 0.6
------- ------- ------- -------
Adjusted weighted-average number of common
shares and common share equivalents 135.1 133.5 134.7 133.5
======= ======= ======= =======
Net income (loss) applicable to common shares $ 68.9 $ 33.8 $ 69.3 $ (57.5)
======= ======= ======= =======
Fully diluted net income (loss) per share of common stock $ 0.51 $ 0.26 $ 0.51 $ (0.43)
======= ======= ======= =======
(1) This calculation is submitted in accordance with Securities Exchange
Act of 1934 Release No. 9083 although not required by footnote 2 to
paragraph 14 of APB Opinion No. 15 because it results in dilution of
less than 3%.
(2) This calculation is submitted for the 1995 loss in accordance with
Regulation S-K, Item 601(b)(11) although it is contrary to paragraph 40
of APB Opinion No. 15 because it produces an anti-dilutive result.
1
EXHIBIT 12
WOOLWORTH CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
($ in millions)
39 weeks Fiscal Years Ended
ended ---------------------------------------------------------------------
Oct. 26, Jan. 27, Jan. 28, Jan. 29, Jan. 30, Jan. 25,
1996 1996 1995 1994 1993 1992
-------- -------- -------- -------- -------- -------
EARNINGS
Net income (loss) $ 69 $(164) $ 47 $(495) $ 280 $ (53)
Income tax expense (benefit) 46 (69) 49 (303) 157 (30)
Gross interest expense, excluding
capitalized interest 58 124 110 86 94 99
Portion of rents deemed representative
of the interest factor (1/3) 56 224 211 210 199 192
----- ----- ----- ----- ----- -----
$ 229 $ 115 $ 417 $(502) $ 730 $ 208
===== ===== ===== ===== ===== =====
FIXED CHARGES
Gross interest expense $ 58 $ 124 $ 111 $ 86 $ 94 $ 99
Portion of rents deemed representative
of the interest factor (1/3) 56 224 211 210 199 192
----- ----- ----- ----- ----- -----
$ 114 $ 348 $ 322 $ 296 $ 293 $ 291
===== ===== ===== ===== ===== =====
RATIO OF EARNINGS TO FIXED
CHARGES 2.0 .3 1.3 -- 2.5 .7
===== ===== ===== ===== ===== =====
Earnings were not adequate to cover fixed charges by $233 million, $798 million
and $83 million for the fiscal years ended January 27, 1996, January 29, 1994
and January 25, 1992, respectively.
1
EXHIBIT 15
Accountants' Acknowledgment
Woolworth Corporation
New York, New York
Board of Directors:
Re: Registration Statement Numbers 33-43334 and 33-86300 on Form S-3 and Numbers
2-98142 and 33-10783 on Form S-8.
With respect to the subject registration statements, we acknowledge our
awareness of the use therein of our report dated November 12, 1996 related to
our review of interim financial information.
Pursuant to Rule 436(c) under the Securities Act of 1933, such report is not
considered a part of a registration statement prepared or certified by an
accountant or a report prepared or certified by an accountant within the meaning
of Sections 7 and 11 of the Act.
/s/ KPMG Peat Marwick LLP
New York, New York
December 9, 1996
5
1,000,000
9-MOS
JAN-25-1997
JAN-28-1996
OCT-26-1996
17
0
0
0
1,681
263
1,109
0
3,711
1,052
0
0
0
0
1,283
3,711
5,724
5,724
3,953
3,953
151
0
57
115
46
69
0
0
0
69
.52
.52
1
EXHIBIT 99
Independent Auditors' Review Report
The Board of Directors and Shareholders
Woolworth Corporation:
We have reviewed the condensed consolidated balance sheets of Woolworth
Corporation and subsidiaries as of October 26, 1996 and October 28, 1995, and
the related condensed consolidated statements of operations, retained earnings,
and cash flows for the thirteen week and thirty-nine week periods ended October
26, 1996 and October 28, 1995. These condensed consolidated financial statements
are the responsibility of the Woolworth Corporation's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the condensed consolidated financial statements referred to above for
them to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Woolworth Corporation and
subsidiaries as of January 27, 1996, and the related consolidated statements of
operations, changes in shareholders' equity, and cash flows for the year then
ended (not presented herein); and in our report dated March 12, 1996, we
expressed an unqualified opinion on those consolidated financial statements. In
our opinion, the information set forth in the accompanying condensed
consolidated balance sheet as of January 27, 1996, is fairly stated, in all
material respects, in relation to the consolidated balance sheet from which it
has been derived.
/s/ KPMG Peat Marwick LLP
New York, New York
November 12, 1996
