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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549-1004
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934 (Fee Required)
For the 52-Week Period Ended Commission File
January 1, 1994 No. 0-17540
MONTGOMERY WARD HOLDING CORP.
(Exact name of registrant as specified in its charter)
DELAWARE 36-3571585
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
One Montgomery Ward Plaza, Chicago, Illinois 60671-0042
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, including area code: (312) 467-2000
Securities registered pursuant to Section 12(b) of the Act
Title of each class Name of each exchange
on which registered
Not Applicable None
Securities registered pursuant to Section 12(g) of the Act:
Class A Common Stock, Series 1, $.01 Par Value
(Title of class)
Class A Common Stock, Series 2, $.01 Par Value
(Title of class)
Voting Trust Certificates representing Shares of Class A Common
Stock, Series 1, $.01 Par Value
(Title of class)
Voting Trust Certificates representing Shares of Class A Common
Stock, Series 2, $.01 Par Value
(Title of class)
Class B Common Stock, $.01 Par Value
(Title of class)
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein, and
will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X .
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes X . No .
At March 23, 1994, there were 19,546,540 shares of Class A Common
Stock and 25,000,000 shares of Class B Common Stock of the
Registrant outstanding.
Part III incorporates information by reference from the proxy
statement for the annual meeting of shareholders to be held on May
20, 1994.
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<PAGE>
PART I
Item 1. Business.
General
Montgomery Ward Holding Corp., a Delaware corporation formerly
named BFB Acquisition Corp. (the Company or MW Holding), was
incorporated in 1988 solely for the purpose of acquiring Montgomery
Ward & Co., Incorporated (Montgomery Ward) from Marcor Inc., a
wholly-owned subsidiary of Mobil Corporation. The acquisition of
Montgomery Ward by the Company was consummated on June 23, 1988.
The Company and its subsidiaries are engaged in retail
merchandising and direct response marketing (including insurance)
in the United States. See Note 22 to the Consolidated Financial
Statements for financial information regarding these segments.
Founded in 1872 and incorporated in Illinois in 1968, Montgomery
Ward is one of the nation's largest retail merchandising
organizations. As of January 1, 1994, Montgomery Ward operated 364
retail stores in 39 states with approximately 28 million square
feet of selling space. In addition, Montgomery Ward operated 17
liquidation centers which sell overstock merchandise, 21
distribution facilities and 117 product service centers.
Montgomery Ward's retail operations are supported by its
corporate buying division which has its principal office in
Chicago, and includes foreign purchasing offices in Italy, Hong
Kong, Taiwan, Japan, Indonesia, Thailand, Singapore and Korea. In
addition to its buying staff, the corporate buying division employs
designers and technical teams to ensure quality control of its
merchandise.
Merchandising
Montgomery Ward offers a broad range of quality national brands
and proprietary brands as well as its own private label goods in
the following specialty categories:
Product Category Specialty Store Name
Appliances and electronics Electric Avenue
Home furnishings Home Ideas, including Rooms & More
Automotive Auto Express
Apparel The Apparel Store, including
The Kids Store
Jewelry Gold 'N Gems
<PAGE>
Item 1. Business. (continued)
Merchandising (continued)
Each specialty concept combines a focus on specific customer
needs, dominant merchandise assortments, updated presentation and
marketing strategies. During 1993, several programs were initiated
to generate future sales increases as well as to improve
profitability.
Electric Avenue has a significant national brand name presence
including Sony electronics, Maytag appliances, General Electric
electronics and appliances, Panasonic products, and Nintendo and
Sega games. The Home Office assortment has been expanded and now
includes IBM, Apple, Packard Bell and Compaq products. To
complement the national brands, Montgomery Ward offers electronics
and appliances featuring the Bell & Howell and Admiral names under
trademark licensing agreements.
Montgomery Ward is one of the three largest furniture retailers
in the United States. The Rooms & More strategy initiated in 1993
features grouped and accessorized settings. The groups offer a
full array of styles and simplify coordinating home furnishings for
customers. For added customer appeal, tiered discounts are offered
on the purchase of multiple pieces. Bassett, Simmons, La-Z-Boy and
Lane are part of a broad name brand selection, and Natuzzi is a
more recent addition. Montgomery Ward is dominant in sales of
brand name mattresses and is one of the few retailers who carry the
four "S's" in bedding (Sealy, Simmons, Serta and Spring Air).
Auto Express offers brand name tires such as Michelin, B.F.
Goodrich and Bridgestone as well as private label tires under the
Road Tamer name. Montgomery Ward sells replacement parts and
accessories including NAPA auto parts, Monroe shock absorbers and
Champion batteries. In addition to the sale of tires and parts,
Montgomery Ward offers installation and minor repair service on a
prompt basis and promotes services such as "59 minute installation
of tires".
Significant progress has been made in Montgomery Ward's apparel
offering through acquisition and expansion of "department store"
brand names such as Lee, Bugle Boy, Danskin, Villager, Cherokee,
Ship 'N Shore Sport and Botany 500. During 1993, Montgomery Ward
purchased the rights to the Ship 'N Shore trademark. A product
development organization formed late in 1992 continues to develop
proprietary products such as Evenflo. This product sourcing
organization coordinates activities among Montgomery Ward's import
organization, foreign buying offices, quality control and logistics
functions.
<PAGE>
Item 1. Business. (continued)
Merchandising (continued)
In order to execute Montgomery Ward's strategic initiatives for
expansion through new market areas, new retail formats and
expansion of name brands, Bernard W. Andrews rejoined the senior
management team in early 1994 as President and Chief Operating
Officer of Montgomery Ward, and Robert F. Connolly rejoined as
Executive Vice President, Apparel.
The Company considers logistics to be important to its operations
and continued to invest in logistics during 1993. A state-of-the-
art distribution center in Tampa, Florida was opened to service
Montgomery Ward's eastern territory. The new Tampa facility, along
with the facilities opened in Baltimore in 1992 and one in southern
California in 1991, incorporates new distribution management
systems which are more dynamic in tracking merchandise and
facilitating inventory planning and customer service. The Company
plans to open a new distribution facility in Phoenix, Arizona in
April, 1994.
In addition, the Company recently launched a Hispanic marketing
program. "Programa Bienvenidos" is designed to attract and retain
Hispanic customers using celebrity personality Cristina Saralegui
as spokeswoman. A credit program using Spanish-language credit
applications, store signage and credit solicitors is another
important element of the program.
Montgomery Ward's retail business is seasonal, with one-third of
the sales traditionally occurring in the fourth quarter. The
results of Montgomery Ward's operations are also subject to changes
in consumer demand associated with general economic conditions,
which is especially true with respect to demand for durable goods
and other "big ticket" merchandise.
Account Purchase Agreement
Montgomery Ward extends credit to its customers under an open-end
revolving credit plan. Montgomery Ward's private label credit card
sales were 57.4% and 54.0% of total sales for 1993 and 1992,
respectively. Bankcard sales were an additional 13.3% and 13.8% of
total sales for 1993 and 1992, respectively. Prior to June 23,
1988, Montgomery Ward financed the receivables under its revolving
credit plan by the sale of such receivables to a wholly-owned
subsidiary, Montgomery Ward Credit Corporation (Montgomery Ward
Credit). On June 23, 1988, Montgomery Ward Credit became a wholly-
owned subsidiary of General Electric Capital Corporation (GE
Capital).
<PAGE>
Item 1. Business. (continued)
Account Purchase Agreement (continued)
In June 1988, Montgomery Ward and Montgomery Ward Credit entered
into an Account Purchase Agreement pursuant to which Montgomery
Ward Credit purchases receivables from time to time and provides
services to Montgomery Ward. Under this agreement, Montgomery Ward
Credit has the exclusive right to operate the Montgomery Ward
private label credit card system and the obligation to purchase for
their face value (and Montgomery Ward is obligated to sell) all the
receivables generated by the Montgomery Ward private label credit
card system, including those generated through MW Direct, up to $6
billion at any time outstanding. If Montgomery Ward desires to
sell its customer receivables to Montgomery Ward Credit at a time
when Montgomery Ward Credit owns $6 billion or more of such
receivables, alternative arrangements, such as the sale of
receivables to banks or other financial institutions, would be
required unless Montgomery Ward Credit agrees to purchase the
excess. As of January 1, 1994, there were $4.9 billion of
Montgomery Ward private label credit card receivables owned by
Montgomery Ward Credit.
Pursuant to the Account Purchase Agreement, Montgomery Ward
Credit bears certain credit promotion expenses, while Montgomery
Ward retains certain specified in-store service responsibilities
with respect to credit operations. Decisions regarding certain
credit matters are determined by a management committee with
representatives from each party. Under the Account Purchase
Agreement, Montgomery Ward is required to pay Montgomery Ward
Credit the excess interest costs on a monthly basis if a blended
interest rate applicable to Montgomery Ward Credit's finance costs
with respect to the receivables exceeds 10% per annum. To date,
the blended interest rate has been less than 10%.
The risk of credit losses is shared by Montgomery Ward and
Montgomery Ward Credit. Montgomery Ward Credit bears the risk up
to 3.9% of average gross receivables (the prime layer), Montgomery
Ward bears the risk in excess of such prime layer up to 5%,
Montgomery Ward and Montgomery Ward Credit equally share losses
between 5% and 8%, and Montgomery Ward Credit bears the losses in
excess of 8% of average gross receivables. Actual credit losses
decreased to 5.5% of average gross receivables for 1993, from the
5.8% experienced in 1992. The decrease in credit losses was caused
by an 11.9% decrease in bankruptcy charge-offs. However, the
significance of Montgomery Ward's California customer base and the
economic difficulties experienced in that region contributed to a
significant portion of the charge-offs.
<PAGE>
Item 1. Business. (continued)
Account Purchase Agreement (continued)
Under the terms of the Account Purchase Agreement, a portion of
Montgomery Ward's 1991 liability for credit losses and, at
Montgomery Ward's election, its liabilities for credit losses for
1992 through 1997 are payable to Montgomery Ward Credit in early
1998 with interest payable at a rate equal to rates on comparable
borrowings of Montgomery Ward. In early 1994, the Account Purchase
Agreement was amended to incorporate the 1997 liabilities. In
exchange for Montgomery Ward's agreement to allow Montgomery Ward
Credit to increase finance charge rates in selected states,
Montgomery Ward receives a share of incremental finance charges
resulting from such increases which is available for offset against
amounts due for credit losses and earns interest at the same rate.
Incremental finance charges are generated only on purchases
subsequent to the date such finance charge rates are increased.
The Company has executed notes for the credit losses which totalled
$108 million at the end of 1993. The finance charge offset for
1993 was $9 million. Under the agreement, the notes payable to
Montgomery Ward Credit are limited to $300 million at any time,
with any excess to be paid currently in cash. The Company does not
expect credit losses for the period through 1997 to exceed the $300
million limitation. In the event that, due to the increase in
finance charge rates, any refunds are required to be made,
Montgomery Ward and Montgomery Ward Credit have agreed to share the
financial risk. Legislation has from time to time been introduced
in certain states which, if enacted, may require rescinding all or
a portion of such rate increases, in which case, Montgomery Ward's
share of rate increases may be substantially reduced. See Note 3
to the Consolidated Financial Statements.
Montgomery Ward Credit has the right of first refusal to
implement certain new financing programs proposed by Montgomery
Ward.
The Account Purchase Agreement will be in effect until December
31, 2004 and thereafter from year to year unless either party gives
to the other not less than ten years prior notice of its election
to terminate. Except upon the occurrence of certain events of
default, the Account Purchase Agreement may not be terminated by
either party prior to December 31, 2004. GE Capital has guaranteed
Montgomery Ward Credit's obligations under the Account Purchase
Agreement.
<PAGE>
Item 1. Business. (continued)
Signature Financial/Marketing, Inc.
Montgomery Ward offers life and health insurance, revolving
credit insurance, club products and other consumer services through
its subsidiary, Signature Financial/Marketing, Inc. (Signature).
Signature is one of the largest direct marketing companies in the
United States.
Signature's club products include auto clubs (the third largest
in the United States), a credit card registration plan, a home
protection plan, a senior citizen club, travel services, a dining
card, a dental services plan and a legal services plan, which is
the largest of its kind in the United States. Signature solicits
business primarily through direct mail, telemarketing and customer
statement inserts by segmenting lists and targeting specific
customers. During 1993, Signature sent out over 300 million pieces
of mail and made over 50 million outbound calls from its 12
telemarketing centers located throughout the United States.
Customer service is a key to success in this business. Accordingly,
Signature operates a 24-hour a day, 365-day a year service for its
products for which emergency help (e.g. emergency road service) is
a necessary component. Signature also provides other credit card
enhancement programs to Montgomery Ward's credit cardholders, and
Montgomery Ward credit cardholders comprise the majority of
Signature's customers. Montgomery Ward has a total of 8.2 million
promotable accounts on file to which Signature markets its
products. These accounts, which are its best targets for direct
marketing, provide Signature with significant marketing
opportunities. The size and customer dynamics of the Montgomery
Ward file have allowed Signature to attain economies of scale which
have lowered its marketing and operating costs.
On February 24, 1994, Signature entered into a definitive
agreement, subject to approval by the California Department of
Corporations, to acquire Greater California Dental Plan Services,
Inc. and National Dental Services, Inc., which are dental referral
services. Through acquisition of these companies, Signature will
be able to expand its customer base into new demographic and
geographic markets.
Signature also markets its products and services to the customers
of more than 50 other entities providing an additional 28.2 million
promotable accounts, including some of the nation's largest
financial institutions, oil companies and retailers. Clients
include Citibank, American Express and Mobil Oil Company. With its
economies of scale, Signature can offer its products and services
to customers of its third party clients at competitive values and
pay third party clients attractive commissions. Revenues from
third party clients were 31% of Signature's total volume in 1993.
<PAGE>
Item 1. Business. (continued)
Signature Financial/Marketing, Inc.
Signature rents customer lists from these entities for the purpose
of such marketing.
Under the terms of a letter agreement dated June 24, 1988 among
Signature, Montgomery Ward Credit and Montgomery Ward, Montgomery
Ward Credit purchases the customer accounts receivable of Signature
on terms similar to those contained in the Account Purchase
Agreement, except for certain fees. In 1993, approximately $5
million was paid by Signature to Montgomery Ward Credit for
administrative services provided by Montgomery Ward Credit in
connection with Signature products.
See Note 17 to the Consolidated Financial Statements for
restrictions on dividends which may be paid by insurance
subsidiaries of Signature.
Corporate Expansion
The Company has opened 67 stores over the last six years. These
new stores represent 18% of the Company's total stores. The
considerable cash flow generated by Montgomery Ward's operations
and the real estate opportunities resulting from consolidation in
the department store industry have allowed the Company to greatly
improve its locations and position the chain for future growth.
Montgomery Ward anticipates opening a number of new full-line
stores which encompass the specialty store strategies. Several of
the new stores will be opened in or near existing Montgomery Ward
markets to further leverage advertising expenditures, existing
distribution facilities and the corporate administrative structure.
In 1991, Montgomery Ward, through two newly formed subsidiaries,
became a 50% partner in Montgomery Ward Direct L.P. (MW Direct), a
specialty catalog business. The other 50% partners are subsid-
iaries of Fingerhut Companies, Inc. MW Direct generated $116
million in revenues in 1993, compared to $46 million in 1992, an
increase of 152%. These revenues are not included in the
Company's revenues. The Company believes that the recent departure
of a major competitor from the customer-direct catalog business
will provide a significant opportunity for MW Direct since the
demographics of the competitor's customer-direct catalog customers
are similar to those targeted by MW Direct.
In December 1993, the Company announced its plan to deploy a new
retail specialty format focusing on products for the home. The new
"Electric Avenue & More" format is a free standing home fashion
store for mid-sized markets focusing on high quality name brand
<PAGE>
Item 1. Business. (continued)
Corporate Expansion (continued)
products at exceptional value. The new format combines the
strengths of Electric Avenue and Rooms & More and utilizes less
square footage than a full-line Montgomery Ward store. Montgomery
Ward intends to open its first two locations in mid-1994 in
Owensboro, Kentucky and LaCrosse, Wisconsin, and has planned to
open a total of six stores during 1994.
Montgomery Ward considers acquisitions, particularly those that
would have synergies with existing businesses, to be an area of
growth for the Company and is actively seeking such opportunities.
In March 1994, Montgomery Ward entered into a definitive agreement
to acquire Lechmere, Inc. (Lechmere), a privately-held retailer.
Lechmere currently operates 24 high volume stores in the northeast
United States with 1993 sales exceeding $800 million. Five new
stores are planned for 1994.
Montgomery Ward's acquisition of Lechmere will add substantial
volume to a successful specialty category of the company's
business. Lechmere's strong regional presence will significantly
enhance Montgomery Ward's market share in the area. Since Electric
Avenue and Lechmere are dominant in key brand names, the
acquisition will enhance buying power. Lechmere's greater emphasis
in upper end price points will broaden the Company's targeted
consumer group and provide alternative specialty concepts for
future expansion.
Competition and Regulation
The sale of merchandise by Montgomery Ward is conducted under
highly competitive conditions. Buying and selling are each done in
open competitive markets. Montgomery Ward's stores are in
competition with specialty stores, department stores and other
types of retail outlets in the areas in which they operate. To
meet this competition, Montgomery Ward is continuously striving to
improve the efficiency and effectiveness of its operations and to
modernize and specialize its facilities.
<PAGE>
Item 1. Business. (continued)
Competition and Regulation (continued)
Signature's insurance operations are a highly regulated business
conducted under highly competitive conditions. Insurance companies
operate pursuant to rules and regulations promulgated by various
state insurance departments and are required to file reports with
such agencies at least quarterly.
The requirements of environmental protection laws and regulations
have not had a material effect upon Montgomery Ward's operations.
Compliance may, in certain cases, lengthen the lead time of
expansion plans and could increase construction and operating
costs.
Associates
At January 1, 1994, Montgomery Ward employed the equivalent of
51,350 full-time associates. During certain seasons, temporary
associates are added and peak employment is approximately
63,900 associates during the Christmas season. Approximately 2,800
associates are covered by various collective bargaining agreements
expiring at various times during the next three years. Montgomery
Ward has experienced no major labor-related interruption or
curtailment of operations during the last 15 years and considers
its labor relations to be good.
Item 2. Properties.
At January 1, 1994, the Company owned or leased 469 retail,
distribution and other operating facilities. The Company's
properties are located throughout the continental United States and
cover approximately 55 million square feet.
These properties are summarized as follows:
Number of Approximate
Use Locations Total Square Feet
Retail Stores:
Full Line . . . . . . . . .337 43,731,000
Limited Line. . . . . . . . 27 1,031,000
Corporate Office
Complex . . . . . . . . . . 1 2,975,000
Miscellaneous Operating
Locations . . . . . . . . .104 7,147,000
Total Locations. . . . .469 54,884,000
<PAGE>
Item 2. Properties. (continued)
Owned and leased retail stores include approximately 28 million
square feet of selling space and 17 million square feet devoted to
storage, office and related uses. Miscellaneous operating
locations include warehouses, office buildings and distribution
centers, but exclude vacant land parcels and properties held for
disposition. See Note 13 to the Consolidated Financial Statements
for information with respect to leased properties.
The nationwide scope of Montgomery Ward's operations helps
minimize the impact of changes in the economies of specific regions
on the overall performance of its retail stores and allows
Montgomery Ward to merchandise to a variety of demographic
profiles. The regional distribution of Montgomery Ward retail
stores as of January 1, 1994 is indicated in the following table:
State Total
Alabama 3
Arizona 11
Arkansas 4
California 57
Colorado 13
Florida 21
Georgia 3
Idaho 1
Illinois 36
Indiana 8
Iowa 5
Kansas 6
Kentucky 1
Louisiana 6
Maryland 16
Michigan 15
Minnesota 10
Missouri 9
Montana 2
Nebraska 2
Nevada 3
New Hampshire 3
New Mexico 3
New York 12
North Carolina 3
North Dakota 1
Ohio 5
Oklahoma 6
Oregon 8
Pennsylvania 14
South Carolina 2
Tennessee 2
Texas 44
Vermont 1
Virginia 18
Washington 3
West Virginia 5
Wisconsin 1
Wyoming 1
364
<PAGE>
Item 3. Legal Proceedings.
The Company and its subsidiaries are engaged in various
litigation and have a number of unresolved claims. While the
amounts claimed are substantial and the ultimate liability with
respect to such litigation and claims cannot be determined at this
time, management is of the opinion that such liability, to the
extent not provided for through insurance or otherwise, is not
likely to have a material impact on the financial condition or the
results of operations of the Company.
In 1979, a suit entitled "United States v. Midwest Solvent
Recovery, Inc., et.al." (Civil Action Number H-79-556) was
initiated by the United States Department of Justice on behalf of
the Environmental Protection Agency in the U.S. District Court for
the Northern District of Indiana, and an Amended Complaint was
filed in January 1984. This suit is against Standard T Chemical
Company, Inc., a Delaware corporation and wholly-owned subsidiary
of Montgomery Ward (Standard T), and others involving two waste
disposal sites and seeks reimbursement for the cost of surface
clean-up, investigation studies concerning possible contamination
of the soil and ground water and remedial action. In January 1990,
the United States filed a second Amended Complaint seeking inter
alia, treble damages and monetary sanctions. Standard T has signed
a consent decree, yet to be entered by the Court, whereby it is
obligated to provide a financial assurance up to $3 million for
remediation of the site and will be assessed civil penalties in the
amount of $.1 million. The Company currently anticipates that its
obligation will not exceed those amounts.
In 1985, the New York Environmental Protection Agency brought an
action for remediation of a site in Staten Island, New York against
the owner of the property. The owner asserted that Montgomery Ward
and Standard T, among others, generated wastes that were disposed
of at the site. Standard T is in the process of completing the
cleanup of this site and has purchased the site from the owner for
$1.45 million.
In February 1986, Standard T, along with approximately 330 other
companies, was notified by the United States Environmental
Protection Agency that the agency was mandating a remediation of
the contamination of the American Chemical Services, Inc. (A.C.S.)
site under authority vested in it by the Comprehensive
Environmental Response, Compensation and Liability Act of 1980.
Standard T and a Montgomery Ward paint factory were each identified
as a Potentially Responsible Party (PRP), under the terms of the
Act because of their alleged status as generators of hazardous
waste ultimately disposed of at the A.C.S. site. The Company will
pay its proportionate share of the costs of the studies, and may
<PAGE>
Item 3. Legal Proceedings. (continued)
ultimately pay a share of the costs of abating the contamination of
the A.C.S. property. These costs cannot be estimated with any
degree of accuracy at this time. Thus, the Company is currently
not in a position to estimate the range or amount of potential
exposure in this matter with a high degree of certainty.
On or about December 10, 1990, the Company was served with a
Complaint and Notice of Opportunity for Hearing (Complaint),
alleging certain violations by the Company of the Federal Toxic
Substances Control Act (TSCA). The Complaint contains twenty-two
counts and alleges that the Company violated various regulations
concerning the use, disposal, storage and marking of
polychlorinated biphenyls (PCBs) at a warehouse facility located in
Kansas City, Missouri. The Complaint seeks a total civil penalty
of $.3 million.
Standard T and Montgomery Ward are also involved at various
stages with several other sites where Standard T and Montgomery
Ward have been notified or sued as a PRP.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
EXECUTIVE OFFICERS OF THE REGISTRANT
Listed below are the names and ages of the executive officers of
the Company as of March 18, 1994, and the positions each has held
during the past five years:
Bernard F. Brennan, 55, has been Chief Executive Officer and a
director of the Company since February 9, 1988, Chairman since
June 17, 1988 and was President from February 9, 1988 through
September 10, 1992. Mr. Brennan has been Chief Executive Officer
and a director of Montgomery Ward since May 13, 1985 and became
Chairman of Montgomery Ward on June 24, 1988. He served as
President from May 13, 1985 through September 10, 1992. Mr.
Brennan has been a director of Itel Corporation since 1988 and a
director of ANTEC Corporation since October 1993.
Richard M. Bergel, 58, has been Vice Chairman of the Company
since June 25, 1993. Prior thereto he was an Executive Vice
President since June 17, 1988 and a director since June 24, 1988.
Mr. Bergel has been Vice Chairman, Operations and Catalog of
Montgomery Ward since June 25, 1993. Prior thereto, he was
Executive Vice President and President of Specialty Catalogs of
Montgomery Ward from June 16, 1991 to June 24, 1993. He was
President of Store Operations from March 3, 1989 through June 24,
<PAGE>
Executive Officers of the Registrant (continued)
1993. Mr. Bergel has been Chief Executive Officer of MW Direct
since October 21, 1991.
Bernard W. Andrews, 52, has been President and a director of the
Company since January 28, 1994. Mr. Andrews has been President and
Chief Operating Officer of Montgomery Ward since January 28, 1994.
Prior thereto, he served as Executive Vice President of Operations
of Circuit City Stores, Incorporated from March 1991 to January
1994, and Executive Vice President of Marketing from October 1990
to February 1991. He was Executive Vice President and President of
Marketing of Montgomery Ward from May 18, 1990 through June 16,
1990 and Executive Vice President and President of Home and
Automotive Group from August 18, 1986 to May 17, 1990.
Spencer H. Heine, 51, has been an Executive Vice President,
Secretary and General Counsel of the Company since September 30,
1991 and a director since May 15, 1992. Prior thereto, he was
Senior Vice President, Secretary and General Counsel of the Company
from June 17, 1988 through September 29, 1991. Mr. Heine has been
Executive Vice President, Legal and Financial Services of
Montgomery Ward since September 30, 1991. He served as Senior Vice
President-Legal and Real Estate from March 28, 1990 through
September 29, 1991 and was named a Senior Vice President on March
1, 1988. Prior thereto, he was Vice President, General Counsel and
Secretary since December 16, 1985. Mr. Heine has been Chairman and
Chief Executive Officer of Signature since March 8, 1993. Prior
thereto, he also served as President of Signature since September
30, 1991.
Robert A. Kasenter, 47, has been an Executive Vice President of
the Company since February 21, 1992. Prior thereto, he was a
Senior Vice President of the Company since June 17, 1988.
Mr. Kasenter has served as Executive Vice President, Human
Resources of Montgomery Ward since January 27, 1992 and was Senior
Vice President-Human Resources and Customer Satisfaction from
June 23, 1988 to January 26, 1992.
Edwin G. Pohlmann, 46, has been an Executive Vice President since
September 30, 1991 and served as Chief Financial Officer of the
Company from September 30, 1991 to August 30, 1992. Prior thereto,
he was Senior Vice President and Chief Accounting Officer from May
18, 1990 to September 29, 1991, and Senior Vice President-Finance
from June 17, 1988 through May 17, 1990. Mr. Pohlmann has been
Executive Vice President, Merchandise and Store Operations of
<PAGE>
Executive Officers of the Registrant (continued)
Montgomery Ward since November 16, 1993. Prior thereto, he was
Executive Vice President, Merchandise Control from June 25, 1993
through November 15, 1993, Executive Vice President, Stores and
Finance of Montgomery Ward from January 27, 1992 to June 24, 1993
and prior thereto, Executive Vice President and Chief Financial
Officer since September 30, 1991. He served as Senior Vice
President-Store Operations of Montgomery Ward from June 16, 1991
through September 29, 1991 and was Senior Vice President-Finance of
Montgomery Ward from March 1, 1988 through June 15, 1991.
Robert R. Schoeberl, 58, has been an Executive Vice President of
the Company since June 24, 1992. Prior thereto, he served as Vice
President from June 24, 1988 to June 23, 1992. Mr. Schoeberl has
been Executive Vice President-Home and Auto of Montgomery Ward
since September 9, 1993, Executive Vice President-Electric Avenue
and Auto Express from June 24, 1992 through September 8, 1993,
Senior Vice President-Electric Avenue from February 20, 1992 to
June 23, 1992 and Senior Vice President-Auto Express from July 3,
1991 to February 19, 1992. Prior thereto, he served as Vice
President and General Merchandise Manager, Auto Express from May
18, 1990 to July 2, 1991, Vice President and General Merchandise
Manager, Auto Express and Four Seasons from June 4, 1989 to May 17,
1990 and Vice President and General Merchandise Manager, Automotive
from July 2, 1987 to June 3, 1989.
John L. Workman, 42, has been Executive Vice President, Chief
Financial Officer and Assistant Secretary of the Company since
January 28, 1994. Prior thereto, he served as Senior Vice
President, Chief Financial Officer and Assistant Secretary since
August 31, 1992 and Vice President and Assistant Secretary since
May 15, 1992. Mr. Workman has been Executive Vice President and
Chief Financial Officer of Montgomery Ward since January 28, 1994
and served as Senior Vice President and Chief Financial Officer
from August 31, 1992 to January 27, 1994. Prior thereto, he served
as Vice President and Corporate Controller from January 16, 1991
through August 30, 1992 and Corporate Controller from August 2,
1988 through January 15, 1991.
Tommy T. Cato, 52, served as an Executive Vice President of the
Company from May 15, 1992 until his current leave of absence which
began on February 4, 1994. Mr. Cato was Executive Vice President-
Logistics and Product Service of Montgomery Ward from November 8,
1990 until February 4, 1994 and was Senior Vice President-Logistics
from March 3, 1989 until November 7, 1990. Mr. Cato is also on a
leave of absence from Montgomery Ward.
<PAGE>
Executive Officers of the Registrant (continued)
Richard C. Rusthoven, 53, served as an Executive Vice President
of the Company from May 15, 1992 until his current leave of absence
which began on November 1, 1992. Mr. Rusthoven was Executive Vice
President-Apparel of Montgomery Ward since February 20, 1992 and
was Senior Vice President-Apparel from July 3, 1991 to February 19,
1992. He served as Vice President and General Merchandise Manager,
Men's Apparel, Footwear and Accessories from June 6, 1990 to July
2, 1991. Prior thereto, he served as President and Chief Operating
Officer of Baddour, Inc., parent company of Fred's Dollar Stores in
Memphis, Tennessee from March 1990 to June 1990, and President and
Chief Executive Officer, Gentlemen's Warehouse from August 1989 to
March 1990. Currently, Mr. Rusthoven is also on a leave of absence
from Montgomery Ward.
Carol J. Harms, 40, has been a Vice President and Treasurer of
the Company since January 1, 1989. Ms. Harms has been Vice
President and Treasurer of Montgomery Ward since May 1, 1988.
Robert F. Connolly, 50, has been Executive Vice President,
Apparel of Montgomery Ward since February 2, 1994. Prior thereto,
he was Senior Vice President and General Merchandise Manager,
Women's and Intimate Apparel, Accessories, Health and Beauty Aids
and Sundries of Wal-Mart Stores, Incorporated from August 1989 to
December 1993. He served as Vice President and General Merchandise
Manager, Women's Apparel of Montgomery Ward from December 1987 to
July 1989.
Gene C. McCaffrey, 48, has been Executive Vice President-
Marketing of Montgomery Ward since August 4, 1992. Mr. McCaffrey
served as Senior Vice President-Advertising from November 11, 1991
to August 3, 1992, Senior Vice President and General Merchandise
Manager, Intimates, Footwear and Accessories from September 19,
1991 to November 10, 1991 and Senior Vice President-Merchandise
Planning from July 3, 1991 to September 18, 1991. Prior thereto,
he served as Vice President-Merchandise Planning from February 19,
1991 to July 2, 1991, Vice-President-Apparel Planning and Field
Merchandising from October 11, 1990 to February 18, 1991, Vice
President-Apparel Planning and Product Development from July 28,
1989 to October 10, 1990 and Vice President-Apparel Marketing,
Planning and Development from January 4, 1989 to July 27, 1989.
<PAGE>
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters.
There is no established public trading market for the Common
Stock of the Company. All shares are subject to restrictions on
transfers contained in the BFB Acquisition Corp. Stockholders
Agreement dated as of June 17, 1988, as amended and restated
(Stockholders Agreement), or the Terms and Conditions (Terms and
Conditions) imposed under the Montgomery Ward & Co., Incorporated
Stock Ownership Plan (Stock Ownership Plan). It is not expected
that a market will develop in the near term.
Transfers of shares of Class A Common Stock are restricted for
a period of three years from certain applicable dates under the
Stockholders Agreement and the Terms and Conditions. Transfers of
Class A shares purchased other than pursuant to the Stock Ownership
Plan are restricted for a period of three years from the holder's
first acquisition of any such shares, while transfers of shares
received under the Stock Ownership Plan are restricted for a period
of three years after the award of such shares, exercise of purchase
rights for such shares or grant of options with respect to such
shares. After the applicable three-year periods, limited transfers
of such shares which have become vested in accordance with the
Stockholders Agreement or the Terms and Conditions are permitted,
subject to certain rights of first refusal. All of the Class B
shares and virtually all of the outstanding Class A shares are
eligible for transfer.
Montgomery Ward declared and paid dividends of $23 million to the
Company in 1993, which declared and paid dividends of $23 million
on its common stock in 1993. For information concerning
limitations on the amount of dividends which Montgomery Ward may
pay, see Note 12 to the Consolidated Financial Statements. Future
payments of dividends, if any, are dependent upon future levels of
earnings and capitalization.
As of March 21, 1994, there were three holders of record of Class
A Common Stock, Series 1, one such holder of Class A, Common Stock,
Series 2, and one such holder of Class B Common Stock. At that
date, there were 147 holders of record of Voting Trust Certificates
representing beneficial ownership in shares of Class A Common
Stock, Series 1, of which 1,231,097 shares are pledged as
collateral for notes issued to effect the repurchase of shares.
See Note 15 to the Consolidated Financial Statements. There were
294 holders of record of Voting Trust Certificates representing
beneficial ownership in shares of Class A Common Stock, Series 2.
<PAGE>
Item 6. Selected Financial Data
The following summary of certain financial information for each
of the five fiscal years in the period ended January 1, 1994 has
been derived from the Consolidated Financial Statements of MW
Holding. Such information for each fiscal year should be read in
conjunction with the Consolidated Financial Statements and notes
thereto and the report of Arthur Andersen & Co. beginning on page
26.
<TABLE>
As of and for the
52-Week 53-Week 52-Week
Period Ended Period Ended Period Ended
Dec. 30, Dec. 29, Dec. 28, Jan. 2, Jan. 1,
1989 1990 1991 1993 1994
<S>
(Dollars in millions, except per share amounts)
Total <C> <C> <C> <C> <C>
Revenues $5,461 $5,584 $5,654 $5,781 $6,002
Net Income
(a) 151 153 135 100 101
Net Income
Applicable
to Common
Share-
holders(a) 138 140 122 92 101
Net Income
per Class A
Common
Share (a) 2.71 2.79 2.40 2.01 2.29
Total
Assets 3,837 3,906 3,948 3,485 3,835
Long-Term
Debt 729 651 521 125 213
Obligations
Under
Capital
Leases 119 111 104 95 89
Total Share-
holders'
Equity 287 421 520 553 607
Redeemable
Preferred
Stock 90 90 90 - -
Cash Divi-
dends per
Common
Share - - - .25 .50
(a) 1992 amounts are presented before cumulative effect of
changes in accounting principles. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" for a discussion of the significant impact of
these changes.
</TABLE>
<PAGE>
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
The following discussion and analysis of results of operations
for the Company compares 1993 to 1992, as well as 1992 to 1991.
Montgomery Ward is on a 52- or 53-week fiscal year basis. As a
result, 1993 and 1991 are 52-week years, and 1992 is a 53-week
year. All dollar amounts are in millions, and all income and
expense items and gains and losses are shown before income taxes,
unless specifically stated otherwise.
The Company's retail business is seasonal, with one-third of the
sales traditionally occurring in the fourth quarter.
Results of Operations: 1993 Compared with 1992
Net income applicable to common shareholders before applying the
cumulative impact of accounting changes on retained earnings as of
December 29, 1991 increased by $9, or 10%. Consolidated net income
in 1993 was $101, an increase of $41, or 68%, from the prior year.
Net income for 1992 reflects a charge of $40 for the cumulative
effect of changes in accounting principles as a result of adoption
of Financial Accounting Standards Board (FASB) Statements No. 106,
"Employers' Accounting for Postretirement Benefits other than Pensions"
and No. 109, "Accounting for Income Taxes". Income tax expense of
$59 increased $9, or 18%, from 1992, of which $2 was due to the
impact of the increase in the Federal income tax rate from 34% to
35%.
Consolidated total revenues (net sales and direct response
marketing revenues, including insurance) were $6,002 compared with
$5,781 in 1992. Net sales increased $200, or 4%, over 1992, with
an increase of $301, or 6%, from prior year net of the impact of
the 53rd week in 1992. Apparel sales increased 1%, and hardlines
sales experienced increases of 6%. Net of the impact of the 53rd
week in 1992, apparel sales increased 2%, and hardlines sales
increased 8%. Management believes merchandise sales increases
reflect the positive impact of new strategic programs implemented
throughout Montgomery Ward as previously discussed. Sales on a
comparable store basis, which reflect only the stores in operation
for 1993 and 1992, increased 2%. Direct response marketing
revenues increased $21, or 6%, to $400. The increase was primarily
due to increased club membership levels.
Gross margin dollars (net sales less cost of goods sold) were
$1,377, a decrease of $7, or 1%, from last year. This decrease was
primarily due to the decrease in the margin rate on sales ($57) and
increased occupancy costs primarily as a result of new store
openings ($10), partially offset by the gross margin impact of the
increased sales ($62). The strong sales increase in Electric
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations. (continued)
Results of Operations: 1993 Compared with 1992 (continued)
Avenue of 11% had an impact on the overall Company margin rate as
Electric Avenue generally has lower margin rates than other
merchandise categories. Benefits, losses and expenses of direct
response operations increased $14, or 5%, over last year. The
increase was primarily due to increased costs as a result of
increased club memberships.
Operating, selling, general and administrative expenses decreased
$8, or 1%, from the prior year. This decrease was attributable to
decreased advertising and other promotional costs of $27, decreased
health care and insurance costs of $21 and increased product
service income of $10. These decreases were partially offset by
the impact of new store openings of $33 and the increased provision
for estimated costs to be incurred in connection with the Account
Purchase Agreement of $17.
Net interest expense of $43 decreased $2, or 4%, from the prior
year. The decrease in interest expense due to lower interest rates
on borrowings was offset by decreased investment income due to
lower investment balances and rates.
There was no preferred stock dividend requirement in 1993 as the
preferred stock was redeemed at face value on September 30, 1992.
Results of Operations: 1992 Compared with 1991
Consolidated net income before the cumulative effect of changes
in accounting principles was $100 for 1992, compared with net
income of $135 in 1991. Effective December 29, 1991, the Company
adopted Financial Accounting Standards Board (FASB) Statements No.
106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions" and No. 109, "Accounting for Income Taxes". The cumulative
effect of these changes was a charge of $40 which resulted in net
income of $60. The adoption of FAS No. 109 caused the effective
tax rate to increase 10%, or $15, in 1992.
Consolidated total revenues were $5,781, compared with $5,654 in
1991. Net sales increased $108, or 2%, from 1991, $101 of which
was the impact of the 53rd week in 1992. Sales on a comparable
store basis, which reflects only those stores in operation for all
of 1992 and 1991, remained even with 1991. The Company believes
"big ticket" sales such as appliances, furniture and jewelry are
sensitive to general economic conditions and were negatively
impacted in 1992 due to the uncertain economy. Sales results
continue to be unfavorably impacted by California's severe economic
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations. (continued)
Results of Operations: 1992 Compared with 1991 (continued)
downturn. Sales in California represent a significant portion of
Montgomery Ward's revenues. Further, sales of seasonal items were
depressed by the unseasonably cool weather during most of 1992. In
addition, automotive revenues were negatively impacted by the
settlements of actions taken by various state regulatory
authorities for unfair practices against a major competitor. In
response to these issues, Montgomery Ward embarked on a new
strategy in Electric Avenue and instituted a program in Auto
Express focusing on brand name tires and batteries and delivery of
outstanding customer service. Direct response marketing revenues
increased $19, or 5%, to $379. The increase was primarily due to
increases in club memberships and dues.
Gross margin dollars were $1,384, an increase of $12, or 1%, from
1991. This increase was due to the gross margin impact of the
increase in sales ($34) and a decreased LIFO provision ($9). These
increases were partially offset by the decrease in the margin rate
on sales ($11), and increased occupancy charges primarily as a
result of new store openings ($20). Benefits, losses and expenses
of direct response operations increased $11, or 4%, to $286,
primarily due to increased expenses of $17 as a result of increased
club memberships, partially offset by the impact of reduced
insurance benefit levels and other items of $6.
Operating, selling, general and administrative expenses increased
$56, or 5% from 1991. This increase is primarily due to the impact
of new store openings of $39, decreased income as a result of the
1991 gain on sale of the investment in Office Max, Inc. of $17,
increased advertising and other promotional costs of $12 and
increased operating and other administrative costs of $4. Due to
improved operating efficiencies in existing stores, these increases
were partially offset by decreased store payroll costs of $13 and
the decreased provision for estimated costs to be incurred in
connection with the Account Purchase Agreement of $3.
Net interest expense decreased $11, or 20%, from the prior year
due to a $24 decrease in interest expense incurred on decreased
borrowings combined with favorable interest rates in 1992 and the
impact of the debt restructuring which occurred in September 1992.
These decreases were partially offset by a decrease in investment
income due to lower investment balances combined with less
favorable interest rates in 1992 of $13.
<PAGE>
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations. (continued)
Discussion of Financial Condition
Montgomery Ward is the only direct subsidiary of MW Holding and
therefore Montgomery Ward and its subsidiaries are MW Holding's
sole source of funds. Montgomery Ward has entered into an Amended
and Restated Credit Agreement dated as of September 22, 1992, as
amended (Restated Credit Agreement) with various lenders. The
Restated Credit Agreement, which expires September 23, 1996,
provides for a revolving facility in the principal amount of $350.
As of January 1, 1994, no borrowings were outstanding under the
Restated Credit Agreement. Concurrently, Montgomery Ward also
entered into a Short Term Credit Agreement dated as of September
22, 1992, as amended (Short Term Agreement) with various lenders.
The Short Term Agreement, which expires September 22, 1994,
provides for a revolving facility in the principal amount of $200.
As of January 1, 1994, no borrowings were outstanding under the
Short Term Agreement. Borrowings to date under the Restated Credit
Agreement and the Short Term Agreement have been used for working
capital purposes, to retire certain indebtedness of Montgomery Ward
and to redeem outstanding Junior and Senior Preferred Stock of the
Company. The aforementioned borrowings are unsecured.
Under the Restated Credit Agreement and the Short Term Agreement,
Montgomery Ward may select among several interest rate options,
including a rate negotiated with one or more of the various
lenders. The interest rates for the aforementioned bank borrowings
are based on market rates and significant increases in market
interest rates will increase interest payments required. A
commitment fee is payable based upon the unused amount of each
facility, although under certain circumstances, an additional fee
may be payable to lenders not participating in a negotiated rate
loan.
On March 1, 1993, Montgomery Ward entered into Note Purchase
Agreements involving the private placement of $100 of Senior Notes
which have maturities of from five to twelve years at fixed
interest rates varying from 7.07% to 8.18%.
During 1993, Montgomery Ward entered into a Term Loan Agreement
dated as of November 24, 1993 with various banks (Term Loan
Agreement). The Term Loan Agreement provides for a one-year period
in which to borrow a total of $165, which is to be repaid upon the
fifth anniversary of the Term Loan Agreement. This loan will be
used to partially finance the acquisition of Lechmere as discussed
below. As of January 1, 1994, no borrowings were outstanding under
the Term Loan Agreement.
<PAGE>
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations. (continued)
Discussion of Financial Condition (continued)
The Restated Credit Agreement, the Short Term Agreement, the Term
Loan Agreement and the Note Purchase Agreements (collectively, the
Agreements) impose various restrictions on Montgomery Ward,
including the satisfaction of certain financial tests which include
restrictions on payments of dividends. Under the terms of the
Restated Credit Agreement, the Short Term Agreement and the Term
Loan Agreement which are currently the most restrictive of the
financing agreements as to dividends, distributions and
redemptions, Montgomery Ward may not pay dividends or make any
other distributions to the Company or redeem any Common Stock in
excess of (1) $50 on a cumulative basis, plus (2) 50% of
Consolidated Net Income of Montgomery Ward (as defined in the
Agreements) after December 28, 1991, plus (3) the amount of any
distribution made by Montgomery Ward for the purpose of redeeming
the Senior Preferred Stock and the Junior Preferred Stock of the
Company (which were redeemed on September 30, 1992), plus (4)
capital contributions received by Montgomery Ward after December
28, 1991, plus (5) net proceeds received by Montgomery Ward from
(a) the issuance of capital stock including treasury stock but
excluding Debt-Like Preferred Stock (as defined in the Agreements),
or (b) any indebtedness which is converted into shares of capital
stock other than Debt-Like Preferred Stock of Montgomery Ward or
the Company, after December 28, 1991, plus (6) an adjustment of $45
for 1993 through 1996, $30 in 1997 and $15 in 1998. To date,
Montgomery Ward has been in compliance with all such financial
tests.
By Agreement and Plan of Merger dated March 17, 1994, with
Lechmere, LMR Acquisition Corporation (LMR) and certain
stockholders of LMR, Montgomery Ward had agreed to acquire in a
merger transaction all the stock of LMR, which owns 100% of the
stock of Lechmere. The aggregate purchase price is comprised of a
closing price to be delivered at closing and a contingent purchase
price payable in 1995 of up to $20 in cash and the issuance of up
to 400,000 shares of Class A Common Stock, Series 1 (or at the
option of Montgomery Ward, if duly authorized, up to 400,000 shares
of Class A Common Stock, Series 3). The closing price consists of
$90 in cash and a $10 promissory note (the Note) of Montgomery
Ward, which bears interest at a rate of 4.87% per annum. Seventy-
five percent of the accrued interest on and principal of the Note
are payable 540 days after the date of the Note and the balance is
payable three years after the date of the Note. The Note, which is
to be secured by a standby letter of credit, is to be reduced in
the event of certain specified contingencies. The exact amount, if
any, of the contingent price to be paid is dependent on Lechmere
achieving or exceeding a specified gross margin amount during the
period commencing February 27, 1994 and ending February 25, 1995.
<PAGE>
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations. (continued)
Discussion of Financial Condition (continued)
As part of the closing, Montgomery Ward will advance an amount
(currently projected not to exceed $110) sufficient to enable
Lechmere to retire its then outstanding bank debt and subordinated
debt. The closing is scheduled for the end of March 1994.
To finance the acquisition of Lechmere, to retire Lechmere's bank
debt and subordinated debt and to provide funds for Lechmere's
ongoing working capital and capital expenditure needs in excess of
the funds provided from Lechmere's operations, Montgomery Ward
expects to borrow under its Restated Credit Agreement, Short Term
Agreement and Term Loan Agreement.
The Company has repurchased 3,905,550 shares held by certain
former officers of the Company, Montgomery Ward and Signature and
their permitted transferees by making cash payments and issuing
installment notes in the aggregate of approximately $54. As of
January 1, 1994, the outstanding balance of these notes was $32.
See Note 15 to the Consolidated Financial Statements. These
installment notes bear interest at varying rates, are payable over
a multi-year period (generally three to five years) and are secured
by shares of Common Stock, the fair market value of which is equal
to the outstanding principal amount under each note. Under the
Agreements, Montgomery Ward expects to be able to advance the
Company sufficient funds to allow the Company to make the required
installment payments in 1994.
Currently available external sources of funds include $550 in
multi-year revolving loan commitments which were obtained in
September 1992 of which $200 will expire on September 22, 1994 and
$350 will expire on September 23, 1996. Also, under the terms of
the Term Loan Agreement, $165 is available and will expire on
November 23, 1994. During 1993, the average daily balance of
borrowings under these commitments was $248. As of January 1,
1994, all borrowings have been repaid.
Under the laws and regulations applicable to insurance companies,
some subsidiaries of Signature are limited in the amount of
dividends they may pay. For information concerning limitations on
the amount of dividends Signature may pay, see Note 17 to the
Consolidated Financial Statements. During 1993, Signature paid
dividends aggregating $35.
Future cash needs are expected to be provided by ongoing
operations, the sale of customer receivables to Montgomery Ward
Credit, borrowings under the Restated Credit Agreement, the Short
<PAGE>
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations. (continued)
Discussion of Financial Condition (continued)
Term Agreement and the Term Loan Agreement and the disposition of
capital assets related to facility closings. See "Business -
Account Purchase Agreement" for a discussion of the terms of the
sales of customer receivables by Montgomery Ward to Montgomery Ward
Credit.
Montgomery Ward's capital expenditures of $142 for 1993 were
primarily related to opening 14 new stores, closing 6 stores,
relocating 2 stores and implementing specialty-store conversion
strategies in conventional retail stores and various merchandise
fixture and presentation programs. Montgomery Ward regularly
reviews opportunities for acquisitions and joint ventures and
regards such transactions as a possible source for future growth.
If any additional acquisitions are made in the future,
indebtedness may be increased. Montgomery Ward is not
contractually committed to spend all of the capital appropriations
unexpended at January 1, 1994, but generally expects to do so.
1993 1992 1991
Total Capital Expenditures . . .$ 142 $ 146 $ 128
Capital appropriations
authorized during the year . .$ 149 $ 154 $ 180
Cancellations of prior
year's appropriations. . . . .$(23) $(62) $(55)
Unexpended capital
appropriations at year-end . .$ 143 $ 159 $ 213
The Board of Directors declared a cash dividend of $.50 per share
for a total of $23 on August 5, 1993 to shareholders of record on
August 1, 1993. This dividend was paid on August 6, 1993. In June
1992, a dividend of $.25 per share was paid.
In 1993, the FASB issued Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" (FAS No. 115), which is effective for fiscal
years beginning after December 15, 1992. The Company plans to
adopt this statement during 1994. All of the debt securities are
deemed to be classified as "available-for-sale" under FAS No. 115,
and will be stated at fair market value with all changes in
unrealized gains or losses included in Shareholders'
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations. (continued)
Discussion of Financial Condition (continued)
Equity. Due to the nature of FAS No. 115, and the volatility of
the market, the impact of adoption of this statement is not
reasonably estimable at this time.
Item 8. Financial Statements.
Page
Report of Independent Public
Accountants . . . . . . . . . . . . . . . 26
Consolidated Balance Sheet at
January 1, 1994 and
January 2, 1993 . . . . . . . . . . . . . 29
For the 52-Week Periods Ended
January 1, 1994 and December
28, 1991 and the 53-Week
Period Ended January 2, 1993
Consolidated Statement of
Income. . . . . . . . . . . . . . . . . 27
Consolidated Statement of
Shareholders' Equity. . . . . . . . . . 30
Consolidated Statement of
Cash Flows. . . . . . . . . . . . . . . 33
Notes to Consolidated Financial
Statements. . . . . . . . . . . . . . . . 35
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders
of Montgomery Ward Holding Corp.:
We have audited the accompanying consolidated balance sheet of
Montgomery Ward Holding Corp. (a Delaware Corporation) and
Subsidiary as of January 1, 1994 and January 2, 1993, and the
related consolidated statements of income, shareholders' equity and
cash flows for the fiscal years ended January 1, 1994, January 2,
1993 and December 28, 1991. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the consolidated financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of Montgomery Ward Holding Corp. and Subsidiary as of
January 1, 1994 and January 2, 1993 and the results of their
operations and their cash flows for the fiscal years ended January
1, 1994, January 2, 1993 and December 28, 1991, in conformity with
generally accepted accounting principles.
As discussed in Notes 6 and 9 to the consolidated financial
statements, effective December 29, 1991, the Company changed its
methods of accounting for postretirement benefits other than
pensions and income taxes.
Arthur Andersen & Co.
Chicago, Illinois,
February 15, 1994
<PAGE>
MONTGOMERY WARD HOLDING CORP.
CONSOLIDATED STATEMENT OF INCOME
(Millions of dollars)
52-Week 53-Week 52-Week
Period Ended Period Ended Period Ended
Jan. 1, Jan. 2, Dec. 28,
1994 1993 1991
Revenues
Net sales, including
leased and licensed
department sales. . . . $5,602 $5,402 $5,294
Direct response
marketing revenues,
including insurance . . 400 379 360
Total Revenues . . . . 6,002 5,781 5,654
Costs and Expenses
Cost of goods sold,
including net
occupancy and
buying expense. . . . . 4,225 4,018 3,922
Benefits, losses, and
expenses of direct
response operations
(Note 11) . . . . . . . 300 286 275
Operating, selling,
general and adminis-
trative expenses
(Notes 8 and 19). . . . 1,274 1,282 1,226
Interest expense, net
of investment income
(Note 18) . . . . . . . 43 45 56
Total Costs and
Expenses. . . . . . . 5,842 5,631 5,479
Income Before
Income Taxes . . . . . . 160 150 175
Income Tax Expense
(Note 9) . . . . . . . . 59 50 40
Net Income before
cumulative effect
of changes in
accounting principles. . 101 100 135
Cumulative Effect of
Changes in Accounting
Principles:
Income Taxes (Note 9) . . - 50 -
Postretirement
Benefits, net
(Note 6) . . . . . . . - (90) -
Net Income . . . . . . . . 101 60 135
Preferred Stock
Dividend Requirements
(Note 14). . . . . . . . - 8 13
Net Income Applicable to
Common Shareholders. . . $ 101 $ 52 $ 122
See notes to consolidated financial statements.
<PAGE>
MONTGOMERY WARD HOLDING CORP.
CONSOLIDATED STATEMENT OF INCOME (Continued)
(Millions of dollars, except per share amounts)
52-Week 53-Week 52-Week
Period Ended Period Ended Period Ended
Jan. 1, Jan. 2, Dec. 28,
1994 1993 1991
Net Income Per Class A
Common Share before
cumulative effect of
changes in accounting
principles . . . . . . . .$2.29 $ 2.01 $ 2.40
Cumulative effect of
changes in accounting
principles . . . . . . . .$ - $(.88) -
Net Income per Class A
Common Share (Note 15) . .$2.29 $1.13 $2.40
Net Income Per Class B
Common Share before
cumulative effect of
changes in accounting
principles . . . . . . . .$2.04 $ 1.87 $ 2.48
Cumulative effect of
changes in accounting
principles . . . . . . . .$ - $(.82) -
Net Income per Class B
Common Share (Note 15) . .$2.04 $1.05 $2.48
Cash Dividends declared
per Common Share
Class A . . . . . . . . .$ .50 $ .25 -
Class B . . . . . . . . .$ .50 $ .25 -
See notes to consolidated financial statements.
<PAGE>
MONTGOMERY WARD HOLDING CORP.
CONSOLIDATED BALANCE SHEET
(Millions of dollars)
ASSETS
January 1, January 2,
1994 1993
Cash and cash equivalents. . . . . . . . . $ 98 $ 81
Short-term investments . . . . . . . . . . . 19 11
Investments of insurance operations
(Note 4) . . . . . . . . . . . . . . . . 296 277
Total Cash and Investments . . . . . . . 413 369
Trade and other accounts receivable. . . . . 62 47
Accounts and notes receivable from
affiliates (Note 3). . . . . . . . . . . . 4 18
Total Receivables. . . . . . . . . . . . 66 65
Federal income taxes receivable
(Note 9) . . . . . . . . . . . . . . . . . - 3
Merchandise inventories (Note 5) . . . . . .1,242 1,038
Prepaid pension contribution (Note 6). . . . 310 291
Properties, plants and equipment,
net of accumulated depreciation
and amortization (Note 7). . . . . . . . .1,263 1,222
Direct response and insurance
acquisition costs. . . . . . . . . . . . . 295 280
Other assets (Note 8). . . . . . . . . . . 246 217
Total Assets . . . . . . . . . . . . . . . $3,835 $3,485
LIABILITIES AND SHAREHOLDERS' EQUITY
Trade accounts payable . . . . . . . . . . $1,358 1,210
Federal income taxes payable (Note 9). . . . 7 -
Accrued liabilities and other
obligations (Notes 3, 6, 10,
11 and 15) . . . . . . . . . . . . . . . 1,197 1,148
Insurance policy claim reserves
(Notes 2 and 11) . . . . . . . . . . . . . 237 241
Long-term debt (Note 12) . . . . . . . . . . 213 125
Obligations under capital leases
(Note 13). . . . . . . . . . . . . . . . 89 95
Deferred income taxes (Note 9) . . . . . . . 127 113
Total Liabilities. . . . . . . . . . . .3,228 2,932
Commitments and Contingent
Liabilities (Notes 12, 20 and 21)
Shareholders' Equity (Note 15)
Common stock . . . . . . . . . . . . . . . - -
Capital in excess of par value . . . . . . 19 16
Retained earnings. . . . . . . . . . . . . 658 580
Unrealized gain on marketable
equity securities . . . . . . . . . . . . 3 3
Less: Treasury stock, at cost . . . . . (73) (46)
Total Shareholders' Equity . . . . . . 607 553
Total Liabilities and
Shareholders' Equity . . . . . . . . . . $3,835 $3,485
See notes to consolidated financial statements.
<PAGE>
MONTGOMERY WARD HOLDING CORP.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(Millions of dollars, except per share amounts)
Class A Class B Capital
Common Common in
Stock Stock Excess Treasury Total
$ .01 $ .01 of Unre- Stock, Share-
Par Par Par Retained alized at holders'
Value Value Value Earnings Gains Cost Equity
(Number of shares
in thousands)
Balance,
December
29,199023,885.1 25,000.0 $10 $417 $ - $(6) $421
Net
income. - - - 135 - - 135
Cash
dividends
paid. . - - - (13) - - (13)
Tax benefit
of stock
option exer-
cises and
other share
exchanges . . . - - 3 - - - 3
Change in
unrealized
gain on
marketable
equity
securities. . . - - - - 2 - 2
Shares repur-
chased as
Treasury
stock(2,771.7) - - - - (28) (28)
Shares
issued
upon exer-
cise of
options . . . . 73.5 - - - - - -
Shares
issued
upon exer-
cise of
conversion
rights 3.4 - - - - - -
Balance,
December
28,199121,190.3 25,000.0 $13 $539 $ 2 $(34) $520
See notes to consolidated financial statements.
<PAGE>
MONTGOMERY WARD HOLDING CORP.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (Continued)
(Millions of dollars, except per share amounts)
Class A Class B Capital
Common Common in
Stock Stock Excess Treasury Total
$ .01 $ .01 of Unre- Stock, Share-
Par Par Par Retained alized at holders'
Value Value Value Earnings Gains Cost Equity
(Number of shares
in thousands)
Balance,
December
28,199121,190.3 25,000.0 $13 $539 $ 2 $(34) $520
Cumula-
tive
effect
of
changes
in
account-
ing
princi-
ples. - - - (40) - - (40)
Balance,
December
29,1991
as
re-
stated21,190.3 25,000.0 13 499 2 (34) 480
Net income
before
cumulative
effect of
changes in
accounting
principles. . . . - - - 100 - - 100
Cash divi-
dends paid. . . . - - - (19) - - (19)
Tax benefit
of stock
option exer-
cises and
other share
exchanges - - 2 - - - 2
Change in
unrealized
gain on mar-
ketable
equity
securities. . . . - - - - 1 - 1
Shares repur-
chased as
Treasury
stock (777.7) - - - - (12) (12)
Shares
issued
upon exer-
cise of
options 256.4 - 1 - - - 1
Shares
issued
upon exer-
cise of
conversion
rights 3.4 - - - - - -
Balance,
January
2,1993 20,672.4 25,000.0 $16 $580 $ 3 $(46) $553
See notes to consolidated financial statements.
<PAGE>
MONTGOMERY WARD HOLDING CORP.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(Millions of dollars, except per share amounts)
Class A Class B Capital
Common Common in
Stock Stock Excess Treasury Total
$ .01 $ .01 of Unre- Stock, Share-
Par Par Par Retained alized at holders'
Value Value Value Earnings Gains Cost Equity
(Number of shares
in thousands)
Balance,
January
2,1993 20,672.4 25,000.0 $16 $580 $ 3 $(46) $553
Net
income. - - - 101 - - 101
Cash
dividends
paid. . . - - - (23) - - (23)
Tax benefit
of stock
option exer-
cises and
other share
exchanges - - 2 - - - 2
Shares repur-
chased as
Treasury
stock(1,258.7) - - - - (27) (27)
Shares
issued
upon exer-
cise of
options .192.9 - 1 - - - 1
Shares
issued
upon exer-
cise of
conversion
rights 3.4 - - - - - -
Balance,
January
1,1994 19,610.0 25,000.0 $19 $658 $ 3 $(73) $607
See notes to consolidated financial statements.
<PAGE>
MONTGOMERY WARD HOLDING CORP.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Millions of dollars)
52-Week 53-Week 52-Week
Period Ended Period Ended Period Ended
Jan. 1, Jan. 2, Dec. 28,
1994 1993 1991
Cash flows from operating
activities:
Net income before
cumulative effect of
changes in accounting
principles . . . . . . . $ 101 $ 100 $ 135
Adjustments to reconcile
net income to net cash
provided by operations:
Depreciation and
amortization. . . . . . 98 97 95
Deferred income taxes . . 25 32 (16)
Changes in operating
assets and liabilities:
(Increase) decrease in:
Trade and other accounts
receivable . . . . . . (9) 9 9
Accounts and notes
receivable from
affiliates 14 (1) 12
Merchandise
inventories. . . . . . (204) (38) (73)
Prepaid pension
contribution . . . . . (19) (18) (17)
Other assets. . . . . (53) 55 5
Increase (decrease) in:
Accounts and notes
payable to
affiliates - (30) 11
Trade accounts
payable. 148 (17) 64
Accrued liabilities
and other
obligations. . . . . . 33 21 35
Federal income
taxes payable,
net. . . . (1) (34) (8)
Insurance policy
claim reserves . . . . (4) (21) (28)
Net cash provided
by operations. . . .129 155 224
Cash flows from investing
activities:
Purchase of short-term
investments. . . . . . . (248) (1,221) (2,128)
Purchase of investments
of insurance
operations . . . . . . . (688) (707) (751)
Sale of short-term
investments. . . . . . . . 240 1,367 2,183
Sale of investments
of insurance
operations . . . . . . . . 669 698 729
Disposition of
properties, plants
and equipment, net . . . 3 7 3
Sale of assets held
for disposition. . . . . 3 2 2
Capital expenditures. . . (142) (146) (128)
Net cash used for
investing activities .$(163) $ - $ (90)
See notes to consolidated financial statements.
<PAGE>
MONTGOMERY WARD HOLDING CORP.
CONSOLIDATED STATEMENT OF CASH FLOWS (Continued)
(Millions of dollars)
52-Week 53-Week 52-Week
Period Ended Period Ended Period Ended
Jan. 1, Jan. 2, Dec. 28,
1994 1993 1991
Cash flows from financing
activities:
Proceeds from issuance
of short-term
borrowings . . . . . . .$7,718 $1,823 $ -
Payments on short-term
borrowings . . . . . . (7,718) (1,823) -
Proceeds from issuance
of long-term
borrowings . . . . . . . 100 - -
Payments of long-term
debt . . . . . . . . . . (12) (396) (130)
Payments of obligations
under capital leases . (6) (7) (7)
Proceeds from issuance
of common stock. . . . . 1 1 -
Payments to redeem
preferred stock. . . . . - (90) -
Cash dividends paid . . . (23) (19) (13)
Purchase of treasury
stock, at cost . . . . (11) (7) (7)
Tax benefit of stock
options exercised
and other share
exchanges. . . . . . . . 2 2 3
Net cash provided
by (used for)
financing
activities. . . . . . 51 (516) (154)
Increase (Decrease) in cash
and cash equivalents . . . 17 (361) (20)
Cash and cash equivalents
at beginning of period . . 81 442 462
Cash and cash equivalents
at end of period . . . . .$ 98 $ 81 $ 442
See notes to consolidated financial statements.
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in millions)
1. Company Formation
Montgomery Ward Holding Corp. (the Company or MW Holding),
formerly BFB Acquisition Corp., was formed on February 8, 1988,
for the purpose of acquiring all of the outstanding stock of
Montgomery Ward & Co., Incorporated (Montgomery Ward) from Marcor
Inc. (Marcor), a wholly-owned subsidiary of Mobil Corporation
(Mobil).
2. Major Accounting Policies
Principles of Consolidation
The consolidated financial statements include the Company and all
subsidiaries. Certain prior period amounts have been
reclassified to be comparable with the current period
presentation. In addition, income from investments of insurance
operations was reclassified from Interest expense, net to Direct
response marketing revenues for all periods presented.
Business Segments
The Company and its subsidiaries are engaged in retail
merchandising and direct response marketing (including insurance)
in the United States. Retail merchandising operations are
conducted primarily through Montgomery Ward, while direct
response marketing operations are conducted primarily through
Signature Financial/Marketing, Inc. (Signature), a wholly-owned
subsidiary of Montgomery Ward. Signature markets consumer club
products and insurance products through its subsidiaries. See
Note 22 for information regarding these segments.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, time deposits and
highly liquid debt instruments with a maturity of three months or
less from the date of purchase. The carrying amount reported in
the financial statements for cash and cash equivalents
approximates the fair value of these assets.
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in millions)
2. Major Accounting Policies (continued)
Following is a summary of cash payments for interest and income
taxes and non-cash financing and investing activities:
52-Week 53-Week 52-Week
Period Ended Period Ended Period Ended
Jan. 1, Jan. 2, Dec. 28,
1994 1993 1991
Cash paid for:
Income taxes . . . . . . .$ 46 $ 53 $ 55
Interest . . . . . . . . .$ 55 $ 50 $ 70
Non-cash financing
activities:
Notes issued for
purchase of
Treasury stock. . . . .$ 16 $ 5 $ 21
Non-cash investing
activities:
Change in unrealized
gain on market-
able equity
securities. . . . . . .$ - $ 1 $ 2
Like-kind exchange of
assets. . . . . . . . .$ 6 $ - $ -
The net cumulative effect of changes in accounting principles of
$40 in 1992 has no cash impact.
Investments
In 1993, the FASB issued Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" (FAS No. 115), which is effective for fiscal
years beginning after December 15, 1992. The Company plans to
adopt this statement during 1994. All of the debt securities are
classified as "available-for-sale" and will be stated at fair
market value with all changes in unrealized gains or losses
included in Shareholders' Equity under FAS No. 115. Due to the
nature of FAS No. 115 and the volatility of the market, the impact
of adoption of this statement is not reasonably estimable at this
time.
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in millions)
2. Major Accounting Policies (continued)
Investments of Insurance Operations
Fixed maturities (bonds and redeemable preferred stock) and
mortgage loans are stated at amortized cost. Equity securities
(common stock and nonredeemable preferred stock) are stated at
market. Policy loans and mortgages are carried at face value.
Merchandise Inventories
Merchandise inventories are valued at the lower of cost or
market, using the retail last-in, first-out (LIFO) method.
Depreciation, Amortization and Repairs
Depreciation is computed on a straight-line basis over the
estimated useful lives of the properties, with annual rates ranging
between 2% and 3% for buildings and between 12% and 25% for
fixtures and equipment. Leasehold improvements and assets under
capital leases are amortized on a straight-line basis over no
longer than the primary term of the lease. Upon retirement or
disposition, the cost and the related depreciation or amortization
are removed from the accounts, with the gains or losses included in
income.
Interest relating to construction in progress is capitalized and
amortized over the useful life of the property. Pre-operating
expenditures which are not capital in nature are charged against
income in the year the store is opened. Normal maintenance and
repairs are expensed as incurred. Major repairs that materially
extend the lives of properties are capitalized, and the assets
replaced, if any, are retired.
Direct Response Marketing Revenues
Life and accident and health insurance premiums, which are
recognized as revenue when due from policyholders, are associated
with related benefits and expenses to result in the recognition of
profit over the terms of the policies. Property-liability
insurance premiums and club membership dues are deferred and earned
on a pro rata basis over the terms of the policies and memberships.
Unearned premiums and club memberships of $53 and $52 at January 1,
1994 and January 2, 1993, respectively, are included in Accrued
liabilities and other obligations.
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in millions)
2. Major Accounting Policies (continued)
Direct Response and Insurance Acquisition Costs
Costs allocated to the insurance and club memberships in force at
June 24, 1988 (the acquisition date), as well as the costs of
acquiring new club memberships and insurance business (primarily
marketing expenses), are included in Direct response and insurance
acquisition costs. Costs of acquiring new business have been
deferred when considered recoverable.
Acquisition costs are amortized over the premium-paying periods
of the related policies in proportion to the anticipated premium
revenue to be recognized. Amortization charged to income was
$111, $106 and $89 for 1993, 1992 and 1991, respectively, and is
included in Benefits, losses and expenses of direct response
operations.
Interest Rate Exchange and Cap Agreements
Amounts paid or received pursuant to interest rate exchange and
cap agreements are deferred and amortized as interest expense or
income over the remaining life of the applicable agreement.
Insurance Policy Claim Reserves
Liabilities for future policy benefits have been determined
principally by the net level premium method. These amounts have
been computed by using assumptions that include provisions for risk
of adverse deviation. The assumptions developed for interest rates
(average 6%-8%) and withdrawal rates are based on the experience of
Montgomery Ward Life Insurance Company, a wholly-owned subsidiary
of Signature. The principal mortality tables used to develop the
assumed mortality rates are the 1960 Commissioners' Standard Group
Table, the 1955-1960 and 1965-1970 Basic Mortality Tables and the
1969-1971 U.S. Life Tables. The reserve for claims and related
adjustment expenses is based on estimates of the costs of
individual claims reported and incurred but not reported prior to
year-end. While management believes the reserve for claims and
related adjustment expenses is adequate, the reserve is continually
reviewed and as adjustments become necessary, they are reflected in
current operations.
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in millions)
2. Major Accounting Policies (continued)
Insurance Policy Claim Reserves (continued)
In December, 1992, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standards No. 113,
"Accounting and Reporting for Reinsurance of Short-Duration and
Long-Duration Contracts." This statement was adopted in 1993. The
statement eliminated the reporting of assets and liabilities
relating to reinsured contracts net of the effects of reinsurance
and required that reinsurance recoverables (including amounts
related to claims incurred but not reported) and prepaid
reinsurance premiums be reported as assets. The adoption of this
statement has no impact on the results of operations. The prior
year's financial statements were restated to reflect the
reclassification of reinsurance credits of $52 from Insurance
policy claims reserves to Other Assets.
Federal Income Tax
The Company and its subsidiaries, with the exception of certain
of its insurance subsidiaries, file a consolidated Federal income
tax return. These insurance subsidiaries are eligible to be
included in the consolidated return in 1994.
Prior to 1992, the Company determined its income tax expense and
related deferred federal income taxes in accordance with Statement
of Financial Accounting Standards No. 96, "Accounting for Income
Taxes" (FAS 96). Effective December 29, 1991, the Company adopted
the provisions of FAS 109, "Accounting for Income Taxes". See Note
9 for discussion of the impact on financial position and results of
operations resulting from the adoption of FAS 109.
Postemployment Benefits
In 1992, the Financial Accounting Standards Board (FASB) issued
Statement No. 112, "Employers' Accounting for Postemployment
Benefits". As the Company currently accounts for severance and
other related postemployment costs under the accrual method, the
adoption of FAS 112 will have no material impact on the financial
statements.
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in millions)
3. Accounts and Notes Receivable from Affiliates
Montgomery Ward and Montgomery Ward Credit Corporation
(Montgomery Ward Credit), a subsidiary of GE Capital Corporation
(GE Capital) have entered into an Account Purchase Agreement
pursuant to which Montgomery Ward Credit purchases receivables from
time to time and provides services to Montgomery Ward. Under this
agreement, Montgomery Ward Credit has the exclusive right to
operate the Montgomery Ward private label credit card system and is
obligated to purchase (and Montgomery Ward is obligated to sell)
all the receivables generated by the Montgomery Ward private label
credit card system, up to $6,000 at any time outstanding, for their
face value. Montgomery Ward accounts for the transfer as a sale of
the applicable receivables. Sales of receivables to Montgomery
Ward Credit were $3,991, $3,489 and $3,541 for 1993, 1992 and 1991,
respectively. At January 1, 1994 and January 2, 1993, there were
$4,947 and $4,783 of Montgomery Ward credit card receivables owned
by Montgomery Ward Credit, respectively. Amounts receivable from
Montgomery Ward Credit pursuant to the sale of such receivables are
included in Accounts and notes receivable from affiliates.
Montgomery Ward is exposed to both market risk and credit risk
under the Account Purchase Agreement. Under the Account Purchase
Agreement, Montgomery Ward is required to pay Montgomery Ward
Credit the excess interest costs on a monthly basis if a blended
interest rate applicable to Montgomery Ward Credit's finance costs
with respect to the receivables exceeds 10% per annum. To date,
the blended interest rate has been less than 10%.
Should Montgomery Ward Credit or its guarantor, GE Capital, fail
to perform its obligations under the Account Purchase Agreement,
Montgomery Ward would suffer an accounting loss up to the amount of
Montgomery Ward Credit's share of defaulted indebtedness (as
described below), net of applicable reserves carried by Montgomery
Ward Credit. Montgomery Ward estimates that any accounting loss
would be immaterial at January 1, 1994. Montgomery Ward Credit's
obligations under the Account Purchase Agreement are not
collateralized.
The risk of credit losses is shared by Montgomery Ward and
Montgomery Ward Credit. Montgomery Ward Credit bears the risk up
to 3.9% (the prime layer), Montgomery Ward bears the risk in excess
of such prime layer up to 5%, Montgomery Ward and Montgomery Ward
Credit equally share losses between 5% and 8%, and Montgomery Ward
Credit bears the losses in excess of 8% of average gross
receivables. Actual credit losses were 5.5% for 1993, 5.8% for
1992 and 4.9% for 1991. Montgomery Ward recorded a liability of
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in millions)
3. Accounts and Notes Receivable from Affiliates (continued)
$30 as of December 28, 1991 to GE Capital for its share of credit
losses incurred for 1990 and a portion of 1991. This amount is
classified as Accounts and notes payable to affiliates at
December 28, 1991 and was paid during 1992.
Under the terms of the Account Purchase Agreement, a portion of
Montgomery Ward's 1991 liability for credit losses and, at its
election, its liabilities for credit losses for 1992 through 1997
are now payable to Montgomery Ward Credit in early 1998. The
amounts for periods ending through 1997 will be included in notes
which bear interest at a rate similar to rates Montgomery Ward pays
for comparable borrowings. In exchange for Montgomery Ward's
agreement to allow Montgomery Ward Credit to increase finance
charge rates in selected states, Montgomery Ward receives a share
of incremental finance charges resulting from such increases.
Incremental finance charges are generated only on purchases
subsequent to the date such finance charge rates are increased.
During 1992, rates were increased in certain states effective July
1 and October 1. Montgomery Ward's share is available for offset
against the notes payable in early 1998, and bears interest at the
same rate and for the same term as the notes payable to Montgomery
Ward Credit. Notes payable applicable to credit losses for 1991,
1992 and 1993 were $108 and the finance charge offset applicable to
those notes was $9. During the first quarter of 1994, a payment of
$35 was made towards the amounts due under the Account Purchase
Agreement. Under the agreement, the notes payable to Montgomery
Ward Credit are limited to $300 at any time with any excess to be
paid currently in cash. The Company does not expect credit losses
for the period through 1997 to exceed the $300 limitation. In
addition, legislation has from time to time been introduced in
certain states which, if enacted, may require rescinding all or a
portion of such rate increases, in which case, Montgomery Ward's
share of rate increases may be substantially reduced. In the event
that, due to the increase in finance charge rates, any refunds are
required to be made, Montgomery Ward and Montgomery Ward Credit
have agreed to share the financial risk. The allowance for
estimated losses to be borne by Montgomery Ward, as well as the
unpaid portion applicable to 1991, 1992 and 1993 offset by
Montgomery Ward's share of the finance charges is included in
Accrued liabilities and other obligations.
The Account Purchase Agreement will be in effect until December
31, 2004, and thereafter from year to year unless either party
gives ten years prior notice of its election to terminate.
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions)
4. Investments of Insurance Operations
Following is a summary of Investments of insurance operations in
securities other than related party investments. The fair values
for marketable debt and equity securities are based on quoted
market prices.
January 1, 1994
Amount at
Which
Gross Gross Shown in
Type of Unrealized Unrealized Market Balance
Investment Cost Gains Losses Value Sheet
Fixed maturities
Bonds:
United States
Govern-
ment and
government
agencies
and author-
ities. . . $ 67 $ 3 $ - $ 70 $ 67
Public
utilities. . 80 16 - 96 80
All other
corporate
bonds. . . 26 1 - 27 26
Total
fixed
maturi-
ties .$173 $20 $ - $193 173
Equity
securities:
Common
stock. . . 8 $ 5 $ 13 13
Total
equity
securi-
ties. 8 $ 5 $ 13 13
Mortgage
loans. . . . . 64 64
Policy
loans. . . . 7 7
Short-term
investments. 39
Total invest-
ments $291 $296
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions)
4. Investments of Insurance Operations (continued)
January 2, 1993
Amount at
Which
Gross Gross Shown in
Type of Unrealized Unrealized Market Balance
Investment Cost Gains Losses Value Sheet
Fixed maturities
Bonds:
United States
Govern-
ment and
government
agencies
and author-
ities. . . $ 77 $ 3 $ - $ 80 $ 77
Public
utilities. 83 16 - 99 83
All other
corporate
bonds. . . 40 1 - 41 40
Total
fixed
maturi-
ties. $200 $20 $ - $220 $200
Equity
securities:
Common
stock. . . 9 $ 4 $ 13 13
Total
equity
securi-
ties. 9 $ 4 $ 13 13
Mortgage
loans. . . . . 31 31
Policy
loans. . . . 7 7
Short-term
investments. 26 26
Total
Invest-
ments $273 $277
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions)
4. Investments of Insurance Operations (continued)
The amounts of fixed maturities as of January 1, 1994 are as
follows:
Amortized Market
Cost Value
Due in 1994. . . . . . . . . . . . . . . . .$ 27 $ 28
Due in 1995 through 1999 . . . . . . . . . . 102 112
Due in 2000 through 2004 . . . . . . . . . . 43 52
Due in 2005 and beyond . . . . . . . . . . . 1 1
$173 $193
5. Merchandise Inventories
Merchandise inventories are valued using the retail LIFO method,
which matches current costs with current sales. If inventories had
been valued using the first-in, first-out (FIFO) method, they would
have been $117, $104 and $93 higher than those reported as of
January 1, 1994, January 2, 1993 and December 28, 1991,
respectively.
6. Retirement Plans
Retirement plans of a contributory nature cover a majority of
full-time associates of Montgomery Ward and its subsidiaries.
Retirement benefits are provided by a defined benefit pension plan
as well as by a savings and profit sharing plan. Montgomery Ward
and its subsidiaries contribute to the defined benefit pension plan
to cover any excess of defined minimum benefits over the benefits
available from the savings and profit sharing plan attributable to
the accumulated value of associate contributions.
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions)
6. Retirement Plans (continued)
The components of the pension credit were as follows:
52-Week 53-Week 52-Week
Period Ended Period Ended Period Ended
Jan. 1, Jan. 2, Dec. 28,
1994 1993 1991
Service cost-benefits
earned during the
period. . . . . . . . . .$(11) $(9) $(8)
Interest cost on
projected benefit
obligation. . . . . . . . (45) (44) (47)
Actual return on
assets. . . . . . . . . . 101 (20) 93
Deferral of unantici-
pated investment
performance . . . . . . . (26) 91 (21)
Net pension credit . . . .$ 19 $18 $17
Assumptions:
Discount rate . . . . . . 8.5% 9.0% 9.0%
Increase in future
compensation . . . . . . 6.0% 6.0% 6.0%
Rate of return
on plan assets . . . . . 9.5% 9.0% 10.5%
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions)
6. Retirement Plans (continued)
The funded status of the defined benefit pension plans was as
follows:
January 1, January 2,
1994 1993
Actuarial present value of
accumulated benefit
obligation:
Vested . . . . . . . . . . . . . . . . $565 $523
Nonvested. . . . . . . . . . . . . . 4 6
Accumulated benefit obligation . . . . . 569 529
Additional amounts related
to projected increases in
compensation levels . . . . . . . . . . 9 13
Projected benefit obligation . . . . . . 578 542
Plan assets at fair value,
primarily in equity and
fixed income securities . . . . . . . . 863 802
Plan assets in excess of
projected benefit
obligation. . . . . . . . . . . . . . . $285 $260
Consisting of:
Unrecognized net loss
since initial
application of FAS 87. . . . . . . . $(28) $(34)
Unrecognized prior
service cost since
initial application
of FAS 87. . . . . . . . . . . . . . $ 3 $ 3
Prepaid pension contribution . . . . $ 310 $291
The projected benefit obligation was determined using an assumed
discount rate of 7.5% at January 1, 1994 and 8.5% at January 2,
1993 and an assumed rate of increase in future compensation levels
of 6%. Unrecognized net gains and losses and prior service costs
are amortized over the average future service period.
The savings and profit sharing plan includes a voluntary savings
feature for eligible associates and matching company contributions
based on a fixed percentage of certain associates' contributions.
The company matching expense was $6 for each of 1993, 1992 and
1991, respectively.
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions)
6. Retirement Plans (continued)
Substantially all associates who retire after participation in
the retirement plan for ten years and who are members of the health
care plan for the year prior to retirement are eligible for certain
health care and life insurance benefits, the cost of which is
shared with the retirees. In 1992, the Company established a limit
on its future annual contributions on behalf of retirees at a
maximum of 125% of the projected 1992 company contributions.
During 1993, the Company substantially increased contributions
required of retirees.
In the fourth quarter of 1992, the Company decided to adopt
Statement of Financial Accounting Standards No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions" as of
December 29, 1991. This statement requires the accrual of the cost
of providing postretirement benefits, including medical and life
insurance coverage, during the active service period of the
associate. The Company elected to immediately recognize the
accumulated postretirement liability. This resulted in a one-time,
after-tax charge of $90 (after reduction for income taxes of $59).
The effect of this change on 1992 earnings was not material. The
pro forma effect of the change on years prior to 1992 is not
determinable. Prior to 1992, the Company recognized expense in the
year the benefits were provided.
The components of the net periodic postretirement benefit cost
for 1993 and 1992 were as follows:
1993 1992
Service Cost. . . . . . . . . . . . . . . . . $ 2 $ 2
Interest cost on accumulated
postretirement benefit
obligation . . . . . . . . . . . . . . . . . 12 12
Net periodic postretirement
benefit cost . . . . . . . . . . . . . . . . $14 $14
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions)
6. Retirement Plans (continued)
The status of the Company's liability for postretirement benefits
at January 1, 1994 and January 2, 1993, which are included in
Accrued liabilities and other obligations is as follows:
1993 1992
Accumulated postretirement
benefit obligation:
Retirees. . . . . . . . . . . . . . . . . .$120 $108
Fully eligible active associates. . . . . . 20 19
Other active associates . . . . . . . . . . 25 23
Total accumulated
postretirement benefit
obligation. . . . . . . . . . . . . . . . 165 150
Unrecognized loss. . . . . . . . . . . . . .(22) (5)
Accrued postretirement
benefit obligation. . . . . . . . . . . . .$143 $145
The weighted average discount rate used in measuring the
accumulated postretirement benefit obligation was 7.5% at January
1, 1994 and 8.5% at January 2, 1993. The assumed health care cost
trend rate was not applicable due to caps established on current
cost levels during 1993. In 1992, the assumed health care trend
rate was 12% grading to 6% over 6 years for participants below age
65, and 6% for participants age 65 or older. The impact of a 1%
increase in the medical trend rate on both the accumulated
postretirement benefit obligation and service cost and interest
cost for 1993 is not applicable due to caps established on costs
during 1993.
The Company continues to evaluate ways in which it can better
manage retiree benefits and control the costs. Any changes in the
plan or revisions to assumptions that affect the amount of expected
future benefits may have a significant effect on the amount of the
reported obligation and annual expense.
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions)
7. Properties, Plants and Equipment
The details of the properties, plants and equipment accounts are
shown below at cost.
Balance at Retirements Balance
Beginning Additions or Sales at Close
of Period at Cost at Cost Other of Period
For the 52-week
period ended
December 28, 1991:
Land . . . . . . $ 160 $ 4 $ - $ (1) $ 163
Buildings. . . . 653 53 - (6) 700
Leasehold
improvements . 213 17 3 - 227
Fixtures and
equipment. . . 236 54 2 - 288
Assets under
capital leases 119 - 1 - 118
Total . . . . $1,381 $128 $ 6 $ (7) $1,496
For the 53-week
period ended
January 2, 1993:
Land . . . . . . $ 163 $ 13 $ 1 $ (1) $ 174
Buildings. . . . 700 51 2 (3) 746
Leasehold
improvements . 227 30 2 (1) 254
Fixtures and
equipment. . . 288 52 5 - 335
Assets under
capital leases 118 - 2 (2) 114
Total . . . . $1,496 $146 $12 $(7) $1,623
For the 52-week
period ended
January 1, 1994
Land . . . . . . $ 174 $ 3 $ - $ - $ 177
Buildings. . . . 746 32 - - 778
Leasehold
improvements . 254 38 (3) - 289
Fixtures and
equipment. . . 335 69 (3) - 401
Assets under
capital leases 114 - (1) - 113
Total . . . . $1,623 $142 $(7) $ - $1,758
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions)
7. Properties, Plants and Equipment (continued)
The details of the accumulated depreciation and amortization of
properties, plants and equipment are shown below.
Balance at Retirements Balance
Beginning Additions or Sales at Close
of Period at Cost at Cost Other of Period
For the 52-week
period ended
December 28, 1991:
Buildings. . . . .$ 60 $ 29 $ - $(1) $ 88
Leasehold
improvements . . . 46 14 1 - 59
Fixtures and
equipment. . . . 90 43 1 - 132
Assets under
capital leases . 23 9 1 - 31
Total . . . . .$ 219 $ 95 $ 3 $ (1) $ 310
For the 53-week
period ended
January 2, 1993:
Buildings. . . . .$ 88 $ 24 $ - $(1) $111
Leasehold
improvements . . . 59 17 1 - 75
Fixtures and
equipment. . . . 132 46 2 - 176
Assets under
capital leases . 31 10 2 - 39
Total . . . . .$ 310 $ 97 $ 5 $ (1) $401
For the 52-week
period ended
January 1, 1994
Buildings. . . . .$ 111 $ 23 $ - $ - $134
Leasehold
improvements . . . 75 21 1 - 95
Fixtures and
equipment. . . . 176 49 2 - 223
Assets under
capital leases . 39 5 1 - 43
Total . . . . .$ 401 $ 98 $ 4 $ - $495
Amounts shown as "Other" represent the transfer of certain
properties, plants and equipment to Other assets.
Losses on the sale of properties were $2 for 1992 and $1 for 1991,
respectively. Expenditures for maintenance and repairs were $122,
$115 and $105 for 1993, 1992 and 1991, respectively.
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions)
8. Other Assets
During the fourth quarter of 1991, the Company sold its 14.7%
investment in Office Max, Inc. for $30. The sale resulted in a net
pretax gain of $17 and is included in 1991 Operating, selling,
general and administrative expenses. A note bearing interest at
5.25% was received as proceeds and was classified as Other Assets
at December 28, 1991. The note was paid on January 15, 1992.
9. Income Taxes
In the fourth quarter of 1992, the Company decided to adopt FAS
109, "Accounting for Income Taxes", as of December 29, 1991 and all
quarterly financial data was restated, accordingly. The cumulative
effect on prior years' net income of the adoption of this statement
was a credit of $50. Prior years' financial statements have not
been restated to apply the provisions of FAS 109.
An operating loss carryforward available for Federal income tax
purposes of $5 at December 29, 1990 was utilized in 1991. In
addition, the Company has alternative minimum tax (AMT) credits of
$31, $31 and $21 as of January 1, 1994, January 2, 1993 and
December 28, 1991, respectively, available to offset future Federal
income tax liabilities.
The approximate tax effects of temporary differences and
carryforwards that give rise to the deferred tax liability at
January 1, 1994 are as follows:
Postretirement benefits. . . . . . . . .$ (56)
Accrued liabilities. . . . . . . . . . . (222)
Other deferred tax assets. . . . . . . . (27)
Total deferred tax assets . . . . . . .$(305)
Pension credit . . . . . . . . . . . . . $ 121
Direct response and insurance
acquisition costs . . . . . . . . . . . . 114
Property, plants and equipment . . . . . . 133
Other deferred tax liabilities . . . . . 68
Total deferred tax liabilities. . . . . 436
AMT credits. . . . . . . . . . . . . . . $(31)
Valuation allowance. . . . . . . . . . . 27
Net deferred tax liability. . . . . . . $ 127
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions)
9. Income Taxes (continued)
Income tax expense consists of:
52-Week 53-Week 52-Week
Period Ended Period Ended Period Ended
Jan. 1, Jan. 2, Dec. 28,
1994 1993 1991
Federal
Currently payable . . . . .$28 $15 $42
Deferred. . . . . . . . . . 25 32 (16)
State, local
and foreign . . . . . . . . 6 3 14
Total income
tax expense . . . . . . . .$59 $50 $40
A reconciliation of the statutory to effective federal income tax
rate is as follows:
52-Week 53-Week 52-Week
Period Ended Period Ended Period Ended
Jan. 1, Jan. 2, Dec. 28,
1994 1993 1991
Federal income
tax rate. . . . . . . . . .35% 34% 34%
State taxes, net
of reduction of
Federal tax . . . . . . . . 2 1 5
Targeted Jobs
Tax Credit. . . . . . . . .(1) (2) (1)
Impact of increase
in statutory rate . . . . . 1 - -
Benefit of
financial reporting
operating loss
carryforwards, net. . . . . - - (15)
Effective income
tax rate. . . . . . . . . .37% 33% 23%
The Company has filed a protest relating to a Federal income tax
assessment by the Internal Revenue Service for the short tax year
ended December 31, 1988. The Company believes that its ultimate
tax liability will be significantly less than the amounts assessed
or which may be assessed in future years relating to the disputed
issues. Accordingly, management believes that the disposition of
the disputed Federal issues will have no material impact on future
earnings.
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions)
9. Income Taxes (continued)
Montgomery Ward and the State of California have settled income
tax assessments for the taxable years 1978 through 1988. As
Montgomery Ward previously provided for these assessments, there
will be no further impact on future earnings or financial position.
10. Deferred Service Contract Revenue
The Company accounts for sales of product service contracts in
accordance with FASB Technical Bulletin 90-1, "Accounting for
Separately Priced Extended Warranty and Product Maintenance Contracts",
and recognizes the revenue related to those sales in proportion to
the costs expected to be incurred in performing services under the
contracts. Deferred service contract revenue of $239 and $210 at
January 1, 1994 and January 2, 1993, respectively, is included in
Accrued liabilities and other obligations.
11. Insurance Policy Claim Reserves
The Company's insurance subsidiaries are involved in both the
cession and assumption of reinsurance with other companies. Risks
are reinsured with other companies to permit the recovery of a
portion of the direct losses. These reinsured risks are treated as
though, to the extent of the reinsurance, they are risks for which
the Company is not liable. Policy related liabilities and
accruals, including incurred but not reported claims, are included
in the financial statements as Insurance policy claim reserves. As
discussed below, these amounts were previously reflected as net of
reinsurance ceded. The Company remains liable to the extent the
reinsuring companies cannot meet their obligations under these
reinsurance treaties.
In 1992, the Financial Accounting Standards Board (FASB) issued
Statement No. 113, "Accounting and Reporting for Reinsurance of Short-
Duration and Long-Duration Contracts" (FAS No. 113), which applies to
financial statements for fiscal years beginning after December 15,
1992. This statement precludes the reporting of
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions)
11. Insurance Policy Claim Reserves (continued)
assets and liabilities relating to reinsured contracts net of the
effects of reinsurance. The Company adopted FAS No. 113 during
fiscal 1993 which had no impact on the results of operations of
the Company. The prior year's financial statements were restated
to reflect the reclassification of credits for reinsurance of $52
from Insurance policy claims reserves to Other Assets.
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions)
11. Insurance Policy Claim Reserves (continued)
Premium revenues, which are included in Direct response marketing
revenues, are as follows:
Percentage
Ceded To Assumed of Amount
Gross Other from Other Net Assumed
Amount Companies Companies Amount To Net
52-Week Period
Ended Decem-
ber 28, 1991:
Life insurance
in force . .$5,444 $130 $ - $5,314 0.0%
Premiums
Life
insurance .$ 46 $ 1 $ 3 $ 48 6.3%
Accident and
health
insurance . . 65 - 21 86 24.4%
Property and
liability
insurance . 50 12 - 38 0.0%
Total. . .$ 161 $ 13 $ 24 $ 172 14.0%
53-Week Period
Ended Janu-
ary 2, 1993:
Life
insurance
in force . .$5,325 $114 $ - $5,211 0.0%
Premiums
Life
insurance .$ 45 $ 1 $ 3 $ 47 6.4%
Accident and
health
insurance . . 66 - 16 82 19.5%
Property and
liability
insurance . 49 8 - 41 0.0%
Total. . .$ 160 $ 9 $19 $ 170 11.2%
52-Week Period
Ended Janu-
ary 1, 1994:
Life insurance
in force . .$5,438 $102 $ - $5,336 0.0%
Premiums
Life
insurance .$ 45 $ 1 $ 3 $ 47 6.4%
Accident and
health
insurance . . 67 - 13 80 16.3%
Property and
liability
insurance . 51 8 - 43 0.0%
Total. . .$ 163 $ 9 $16 $ 170 9.4%
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions)
12. Long-Term Debt
The long-term debt of Montgomery Ward and its subsidiaries is as
follows:
January 1, January 2,
1994 1993
Montgomery Ward & Co., Incorporated
Economic Development Revenue Bonds,
due in 1994 at 9.5% interest rate. . . . .$ 5 $ 5
Commercial Development Revenue Bonds,
due in 2013 at 4.15% interest rate,
adjusted at three-year intervals . . . . . 5 5
Note Purchase Agreements; Senior Notes
Series A to Series G due in 1998
to 2005 at 7.07% to 8.18% interest
rate . . . . . . . . . . . . . . . . . . . 100 -
Other . . . . . . . . . . . . . . . . . . . 2 2
Montgomery Ward Real Estate Subsidiaries
4 3/4% Secured Notes, due serially
to January 15, 1995. . . . . . . . . . . . . 2 4
11 1/2% Secured Note, due serially
to September 1, 2001 . . . . . . . . . . . 17 18
7 1/2% Secured Note, due serially
to November 30, 2002 . . . . . . . . . . . . 7 8
9.45% Secured Notes, due serially
to November 30, 2003 . . . . . . . . . . . 19 20
7 3/4% Secured Notes, due serially
to August 31, 2004 . . . . . . . . . . . . 22 23
7 7/8% Secured Notes, due serially
to December 15, 2005 . . . . . . . . . . . 10 11
9% Secured Notes, due serially to
January 1, 2006. . . . . . . . . . . . . . 14 17
Other . . . . . . . . . . . . . . . . . . 10 12
Total long-term debt. . . . . . . . . . . .$213 $125
The amounts of long-term debt that become due during the fiscal
years 1994 through 1998 are as follows: 1994--$13, 1995--$8,
1996--$8, 1997--$9 and 1998--$20.
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions)
12. Long-Term Debt (continued)
Montgomery Ward has entered into an Amended and Restated Credit
Agreement dated as of September 22, 1992, as amended (Restated
Credit Agreement) with various lenders. The Restated Credit
Agreement, which now expires September 23, 1996, provides for a
revolving facility in the principal amount of $350 and imposes
various restrictions on Montgomery Ward, including the satisfaction
of certain financial tests. Montgomery Ward may select among
several interest rate options, including a rate negotiated with one
or more of the various lenders. A commitment fee is payable based
upon the unused amount of the facility, although in the case of any
negotiated rate loan, an additional fee may be payable to the
lenders not participating in the negotiated rate loan. As of
January 1, 1994, no borrowings were outstanding under the Restated
Credit Agreement.
Montgomery Ward has also entered into a Short Term Credit
Agreement dated as of September 22, 1992, as amended (Short Term
Agreement) with various lenders. The Short Term Agreement, which
now expires September 22, 1994, provides for a revolving facility
in the principal amount of $200 and imposes various restrictions on
Montgomery Ward, including the satisfaction of certain financial
tests. Montgomery Ward may select among several interest rate
options, including a rate negotiated with one or more of the
various lenders. A commitment fee is payable based upon the unused
amount of this facility, although in the case of any negotiated
rate loan, an additional fee may be payable to the lenders not
participating in the negotiated rate loan. As of January 1, 1994,
no borrowings were outstanding under the Short Term Agreement.
On March 1, 1993, Montgomery Ward entered into Note Purchase
Agreements involving the private placement of $100 of Senior Notes
which have maturities of from five to twelve years at fixed
interest rates varying from 7.07% to 8.18%.
During 1993, Montgomery Ward has also entered into a Term Loan
Agreement dated as of November 24, 1993 with various banks (Term
Loan Agreement). The Term Loan Agreement provides for a total
borrowing capacity of $165 million over a one-year period and is to
be repaid upon the fifth anniversary of the Term Loan Agreement.
The purpose of this loan is to partially finance the Lechmere
acquisition. As of January 1, 1994, no borrowings were outstanding
under this agreement.
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions)
12. Long-Term Debt (continued)
The Restated Credit Agreement, the Short Term Agreement, the Term
Loan Agreement and the Note Purchase Agreements (collectively, the
Agreements) impose various restrictions on Montgomery Ward,
including the satisfaction of certain financial tests which include
restrictions on payments of dividends. Under the terms of the
Restated Credit Agreement, the Short Term Agreement and the Term
Loan Agreement which are currently the most restrictive of the
financing agreements as to dividends, distributions and
redemptions, Montgomery Ward may not pay dividends or make any
other distributions to the Company or redeem any Common Stock in
excess of (1) $50 on a cumulative basis, plus (2) 50% of
Consolidated Net Income of Montgomery Ward (as defined in the
Agreements) after December 28, 1991, plus (3) the amount of any
distribution made by Montgomery Ward for the purpose of redeeming
the Senior Preferred Stock and the Junior Preferred Stock of the
Company (which were redeemed on September 30, 1992), plus (4)
capital contributions received by Montgomery Ward after December
28, 1991, plus (5) net proceeds received by Montgomery Ward from
(a) the issuance of capital stock including treasury stock but
excluding Debt-Like Preferred Stock (as defined in the Agreements),
or (b) any indebtedness which is converted into shares of capital
stock other than Debt-Like Preferred Stock of Montgomery Ward or
the Company, after December 28, 1991, plus (6) an adjustment of $45
for 1993 through 1996, $30 in 1997 and $15 in 1998. To date,
Montgomery Ward has been in compliance with all such financial
tests. Under these agreements, Montgomery Ward expects to be able
to advance the Company sufficient funds to allow the Company to
make the required installment payments in 1994 for notes issued to
repurchase shares held by former officers and their permitted
transferees.
Borrowings to date under the Restated Credit Agreement, the Short
Term Agreement and the Note Purchase Agreements have been used for
working capital purposes, to retire certain indebtedness of
Montgomery Ward and to redeem outstanding Preferred Stock of the
Company (See Note 14).
Effective September 22, 1992, Montgomery Ward prepaid the amount
outstanding, $128, under the Subordinated Loan agreement dated as
of June 23, 1988 between Montgomery Ward and GE Capital, as amended
(Subordinated Loan). Concurrently therewith, Montgomery Ward
repaid the amount outstanding, $195, under the Credit Agreement
dated as of June 22, 1988 among Montgomery Ward and various banks,
as amended (Term Loan). The source of funds for these transactions
was sales of short-term investments and borrowings under the
Restated Credit Agreement and the Short Term Agreement.
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions)
12. Long-Term Debt (continued)
Montgomery Ward is exposed to market risk under both the Restated
Credit Agreement and Short Term Agreement in the event of an
increase in interest rates. To offset this risk, Montgomery Ward
has entered into interest rate exchange agreements. The aggregate
notional principal amount under the agreements is $50 in 1993.
Under the terms of the interest rate exchange agreements,
Montgomery Ward pays the banks a weighted average fixed rate of
less than 8.5% in 1993 and receives the three-month London
interbank offered (LIBO) rate in each case multiplied by the
notional principal amount. In 1993, the agreement increased the
effective interest rate under the Restated Credit Agreement and the
Short Term Agreement by .88%. The agreement increased the
effective interest rate of the Term Loan for 1992 by .89% and
increased the effective interest rate under the Restated Credit
Agreement and Short-Term Agreement by .80%. The effective interest
rate of the Subordinated Loan was unaffected by these agreements in
1992. For 1991, the agreements increased the effective interest
rate of the Term Loan by .69% and increased the Subordinated Loan
effective interest rate by 1.13%.
Montgomery Ward has Commercial Letter of Credit Facilities with
various lenders for the purpose of providing documentary letters of
credit primarily in connection with the purchase of imported
merchandise for an aggregate amount of $405. The facilities expire
at various dates through June 1995.
Montgomery Ward has outstanding Commercial Development Revenue
Bonds, which are adjusted to the market rate of interest at
three-year intervals. The rate was adjusted to 4.15% in 1992.
The Secured Notes of the real estate subsidiaries are secured by
mortgage liens and/or assignments of rental agreements whereby the
real estate subsidiaries have assigned to trustees certain monies
payable under leases with Montgomery Ward. At January 1, 1994,
assets with a net book value of approximately $220 represented
collateral for certain of these secured notes.
The market value of the Company's long-term debt of $165 is
estimated using discounted cash flow analyses, based on the
Company's current incremental borrowing rates for similar types of
borrowing arrangements.
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions)
13. Leases
The Company leases real and personal property principally through
noncancelable capital and operating leases, which generally provide
for the payment of minimum rentals and, in certain instances,
executory costs and additional rentals based upon a percentage of
sales. The terms of the real estate leases typically contain
renewal options for additional periods.
At January 1, 1994, the minimum lease payments under all
noncancelable operating leases with an initial term of more than
one year, not including $13 of future sublease rentals, and under
capital leases are as follows:
Capital Operating
Leases Leases
1994 . . . . . . . . . . . . . . . . . . . .$ 15 $ 84
1995 . . . . . . . . . . . . . . . . . . . . 15 77
1996 . . . . . . . . . . . . . . . . . . . . 14 70
1997 . . . . . . . . . . . . . . . . . . . . 13 63
1998 . . . . . . . . . . . . . . . . . . . . 13 55
Later Years. . . . . . . . . . . . . . . . . 69 487
Total Minimum Lease Payments. . . . . . . .$139 $836
Less Executory Costs, principally
real estate taxes to be paid
by the lessor . . . . . . . . . . . . . . . (6)
Less Imputed Interest. . . . . . . . . . . .(44)
Present Value of Net Minimum
Capital Lease Payments
Including Portion due within
one year of $7 . . . . . . . . . . . . . .$ 89
Net rent expense charged to earnings was $104 for 1993, $101 for
1992 and $95 for 1991 after deducting rentals from subleases of
$9 in 1993, $10 in 1992 and $11 in 1991. Rent expense includes
contingent lease rentals for capital and operating leases of $11
for 1993, $11 for 1992 and $12 for 1991. These contingent lease
rentals are generally based on sales revenues.
Some rental agreements contain escalation provisions that may
require higher future rent payments. Rent expense incurred under
rental agreements which contain escalation clauses is recognized on
a straight-line basis over the life of the lease.
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions, except per share amounts)
14. Redeemable Preferred Stock
On June 22, 1988, the Company issued 500 shares of its Senior
Preferred Stock and 400 shares of its Junior Preferred Stock to GE
Capital for an aggregate purchase price of $50 and $40,
respectively. Beginning in the first quarter of 1992, dividends
were paid quarterly at an annual rate of $11,500 per share and
$12,000 per share for the Senior Preferred Stock and Junior
Preferred Stock, respectively.
Effective September 30, 1992, Montgomery Ward declared a dividend
payable to the Company and the Company redeemed all of its
outstanding shares of Preferred Stock, including 500 shares of
Senior Preferred Stock, par value $1.00 per share, and 400 shares
of Junior Preferred Stock, par value $1.00 per share, all of which
were held by GE Capital. The aggregate redemption prices for the
Senior Preferred Stock and the Junior Preferred Stock were $50 and
$40, respectively, and accrued dividends thereon were $3.
15. Common Stock
The Company has the following authorized classes of common stock:
Class A Common Stock, Series 1; $.01 par value; 25,000,000
shares authorized; 19,481,096 shares issued and outstanding,
net of 5,518,904 shares held in treasury.
Class A Common Stock, Series 2; $.01 par value; 5,412,000
shares authorized; 128,897 shares issued and outstanding, net
of 459,034 shares held in treasury.
Class B Common Stock; $.01 par value; 25,000,000 shares
authorized, issued and outstanding; all owned by GE Capital.
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions)
15. Common Stock (continued)
The Company has repurchased 3,905,550 shares held by certain
former officers of the Company, Montgomery Ward and Signature and
their permitted transferees by making cash payments and issuing
installment notes in the aggregate of approximately $54. As of
January 1, 1994, the outstanding balance of these notes was $32.
These installment notes bear interest at varying rates, are payable
over a multi-year period (generally three to five years) and are
secured by shares of Common Stock, the fair market value of which
is equal to the outstanding principal amount under each note. The
notes are classified as Accrued liabilities and other obligations.
Under all of the Agreements, Montgomery Ward will be able to
advance the Company sufficient funds to allow the Company to make
the required installment payments in 1994.
Each share of Class B Common Stock entitles the holder thereof
to one vote. All shares of Class A Common Stock entitle the
holders to a total of 25,000,000 votes, or one vote per share if
the total number of Class A shares issued and outstanding is less
than 25,000,000.
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions, except per share amounts)
15. Common Stock (continued)
Net income per common share is computed as follows:
52-Week Period Ended
January 1, 1994
Class A Class B
Earnings available for Common
Shareholders . . . . . . . . . . . . . $50 $51
Weighted average number of common
and common equivalent shares
(stock options) outstanding. . . . . .21,805,203 25,000,000
Earnings per share . . . . . . . . . . . $2.29 $2.04
53-Week Period Ended
January 2, 1993
Class A Class B
Earnings available for Common Share-
holders, after deducting preferred
stock dividend requirements and
cumulative effect of changes in
accounting principles. . . . . . . . $26 $26
Weighted average number of common
and common equivalent shares
(stock options) outstanding. . . . . .22,537,539 25,000,000
Earnings per share . . . . . . . . . . $1.13 $1.05
52-Week Period Ended
December 28, 1991
Class A Class B
Earnings available for Common Share-
holders, after deducting preferred
stock dividend requirements. . . . . . $60 $62
Weighted average number of common
and common equivalent shares
(stock options) outstanding. . . . . .24,954,495 25,000,000
Earnings per share . . . . . . . . . . . $2.40 $2.48
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions, except per share amounts)
16. Stock Ownership Plan
The Montgomery Ward & Co., Incorporated Stock Ownership Plan was
adopted effective July 19, 1988. A total of 1,000,000 Class A
Common Stock, Series 1, and 5,412,000 shares of Class A Common
Stock, Series 2, have been reserved for issuance under the plan.
Key associates of Montgomery Ward and its subsidiaries are eligible
to participate and may receive awards, purchase rights and options.
Awards are grants of shares for no consideration. Options for
1,484,302 and 1,133,265 of Class A Common Stock, Series 2 shares
were exercisable at January 1, 1994 and January 2, 1993,
respectively.
Following is a summary of activity under the plan.
Option Price
Options Range
Outstanding December 29, 1990 . . . . 2,661,825 $0.20-$10.20
Granted, 1991 . . . . . . . . . . . . 818,002 $11.10-$14.79
Exercised, 1991 . . . . . . . . . . . (73,450) $0.20-$14.79
Cancellations, 1991 . . . . . . . . . (461,410) $0.20-$14.79
Outstanding December 28, 1991 . . . . 2,944,967 $0.20-$14.79
Granted, 1992 . . . . . . . . . . . . 1,377,478 $15.11-$18.75
Exercised, 1992 . . . . . . . . . . . (256,367) $0.20-$15.11
Cancellations, 1992 . . . . . . . . . (469,170) $0.20-$18.75
Outstanding January 2, 1993 . . . . . 3,596,908 $0.20-$18.75
Granted, 1993 . . . . . . . . . . . . 1,979,105 $18.75-$22.50
Exercised, 1993 . . . . . . . . . . . (192,864) $0.20-$18.75
Cancellations, 1993 . . . . . . . . . (520,083) $0.20-$22.50
Outstanding January 1, 1994 . . . . . 4,863,066 $0.20-$22.50
During 1991, the Board of Directors approved the Directors Plan.
The Directors Plan was established to, among other things, allow
two of the current outside directors to receive all or any portion
of the fees for their services as directors of the Company and
Montgomery Ward via conversion rights in Series 1 or Series 2
shares. In 1993, 1992 and 1991, 3,466, 3,332 and 3,450 Series 1
shares were issued from treasury as payment for directors fees,
respectively.
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions)
17. Investments in Subsidiaries Formerly Unconsolidated
During 1991, Montgomery Ward Life Insurance Company (MWLIC),
formerly a subsidiary of Montgomery Ward Insurance Company (MWIC),
became a sister company of MWIC. Under the laws and regulations
applicable to insurance companies, MWIC and MWLIC are limited in
the amount of dividends they may pay without the approval of the
Illinois Insurance Department and are prohibited from making any
loans and advances to Montgomery Ward and its affiliates. Under
these laws, MWIC and MWLIC, which had an accumulated deficit of $9
and retained earnings of $139, respectively, and total
shareholder's equity of $12 and $159, respectively, could pay
dividends of $2 and $41, respectively, during 1994 subject to the
availability of earned surplus as determined on a statutory basis.
Dividends received from insurance subsidiaries were $35, $27 and
$33 for 1993, 1992 and 1991, respectively. In 1991, dividends were
paid which exceeded the limitation as determined on a statutory
basis. MWIC obtained approval from the Illinois Insurance
Department with respect to these excess dividend payments.
Summary financial information for all subsidiaries previously
accounted for on the equity method is as follows:
1993 1992
Cash and Investments . . . . . . . . . . . $293 $274
Receivables. . . . . . . . . . . . . . . . 156 159
Other Assets . . . . . . . . . . . . . . 201 200
Other Liabilities. . . . . . . . . . . . (403) (401)
Net assets . . . . . . . . . . . . . . . . $247 $232
1993 1992 1991
Gross revenues . . . . . . . . . . . . . $239 $240 $214
Income before taxes. . . . . . . . . . . . 79 58 70
Net income . . . . . . . . . . . . . . . . 50 40 45
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions)
18. Interest Expense, Net of Investment Income
Net interest expense is as follows:
52-Week 53-Week 52-Week
Period Ended Period Ended Period Ended
Jan. 1, Jan. 2, Dec. 28,
1994 1993 1991
Interest on short-term
borrowings. . . . . . . . $ 12 $ 4 $ -
Interest on long-term
debt and obligations
under capital leases. . . 24 41 70
Miscellaneous interest,
net . . . . . . . . . . . 8 6 5
Investment income. . . . . (1) (6) (19)
Total interest expense,
net of investment
income. . . . . . . . . . .$43 $45 $56
Realized capital gains before income tax and changes in
unrealized gains (losses) after income tax on fixed maturities,
mortgage loans and equity securities are as follows:
Fixed
Maturities
and Mortgage Equity
Loans Securities
52-Week Period Ended January 1, 1994
Realized. . . . . . . . . . . . . . . . . .$ 1 $ -
Unrealized. . . . . . . . . . . . . . . . .$ - $ 3
53-Week Period Ended January 2, 1993
Realized. . . . . . . . . . . . . . . . . .$ 1 $ -
Unrealized. . . . . . . . . . . . . . . . .$ - $ 3
52-Week Period Ended December 28, 1991
Realized. . . . . . . . . . . . . . . . . .$ - $ -
Unrealized. . . . . . . . . . . . . . . . $(1) $ 3
19. Advertising Costs
Advertising costs charged to income were $434 for 1993, $443 for
1992 and $395 for 1991.
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions)
20. Litigation and Other Proceedings
MW Holding, Montgomery Ward and its subsidiaries are engaged in
various litigation and have a number of unresolved claims. While
the amounts claimed are substantial and the ultimate liability with
respect to such litigation and claims cannot be determined at this
time, management is of the opinion that such liability, to the
extent not provided for through insurance or otherwise, is not
likely to have a material impact on the financial condition and the
results of operations of the Company.
21. Related Party Transactions
Substantially all shares of Class A Common Stock, except those
held by the Chairman and Chief Executive Officer of the Company and
a trust established for the benefit of his children, are held by a
Voting Trust. A Voting Trustee (currently the Chairman and Chief
Executive Officer of the Company) has sole voting power and control
of all shares held by the Voting Trust. The Voting Trust will
expire June 21, 1998 or upon the occurrence of certain specified
events in accordance with the Voting Trust Agreement.
The Company engages in various transactions with GE Capital as
described in Notes 3 and 14.
In December 1992, Montgomery Ward, through formation of a new
subsidiary, became a 33.33% partner in Bernel Partners. The
purpose of this partnership is to acquire direct or indirect
interests in companies which could, consistent with the Company's
retail strategy, supply the Company with merchandise for resale.
Montgomery Ward made a capital contribution of $10 on January 13,
1993. Per the terms of the partnership agreement, additional
funding is not required, but is permitted at the Company's
discretion.
In October 1991, the Company entered into a joint venture, MW
Direct L.P. (MW Direct), formed through a partnership between
subsidiaries of Montgomery Ward and subsidiaries of Fingerhut
Companies, Inc., a Minneapolis-based specialty catalog marketer.
Montgomery Ward made a $5 initial capital contribution in 1992 and
additional funding may be required within limitations as set forth
in the Partnership Agreement. The cumulative maximum capital
contribution is limited to $30 in 1994.
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions)
21. Related Party Transactions (continued)
Montgomery Ward paid on behalf of those associates and past
associates of Montgomery Ward and certain of its subsidiaries who
purchased stock in the Company in 1988 (the Management
Shareholders), the legal fees and related costs and expenses in
connection with the deficiencies in tax assessed by the Internal
Revenue Service, and the Tax Court cases which have been filed.
Montgomery Ward paid approximately $2 in 1993 and $1 in 1992 for
services rendered in connection with the aforementioned matters.
In 1992, $1 was paid for such services to a law firm in which a
director and a Management Shareholder of the Company is a senior
partner.
In November 1991, the Board of Directors approved a line of
credit program for certain associates, including directors who are
associates and executive officers of the Company (Line of Credit
Program). Under the Line of Credit Program, the Company arranged
with banks (Program Banks) for lines of credit of up to $10 in the
aggregate for all participants in the Line of Credit Program. As
of January 1, 1994, an aggregate of $4 was available under the Line
of Credit Program. Any associate who borrows money from the
Program Banks under the Line of Credit Program is required to
pledge to such Program Banks as collateral a number of shares owned
by such associate, the fair market value of which is equal to twice
the amount the associate borrows. In the event any associate
should default upon his or her repayment obligations, the Company
anticipates that it will repurchase that individual's note from the
Program Banks, together with the Banks' security interest in the
pledged stock, at the face amount of the note plus up to one year's
interest. At January 1, 1994, borrowings of approximately $1 were
outstanding under the Line of Credit Program.
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions)
22. Business Segments
Montgomery Ward and its subsidiaries are engaged in retail
merchandising and direct response marketing, including insurance,
in the United States. Following is information regarding revenues,
earnings and assets of the Company by segment.
52-Week 53-Week 52-Week
Period Ended Period Ended Period Ended
Jan. 1, Jan. 2, Dec. 28,
1994 1993 1991
Total Revenues
Retail Merchandising. . $5,602 $5,402 $5,294
Direct Response
Marketing. . . . . . . 400 379 360
Total . . . . . . . . $6,002 $5,781 $5,654
Operating Earnings
Retail Merchandising. . $ 171 $ 198 $ 225
Direct Response
Marketing. . . . . . . . 54 52 41
Corporate and Other . . (65) (100) (91)
Total. . . . . . . . . $ 160 $ 150 $ 175
Identifiable Assets
Retail Merchandising. .$ 2,627 $2,391 $2,327
Direct Response
Marketing. . . . . . . . 753 702 733
Corporate and Other. . 455 392 888
Total . . . . . . . . $3,835 $3,485 $3,948
Depreciation and
Amortization
Retail Merchandising. . $ 95 $ 94 $ 93
Direct Response
Marketing. . . . . . . 3 3 2
Total . . . . . . . . $ 98 $ 97 $ 95
Capital Expenditures
Retail Merchandising. . $ 139 $ 141 $ 126
Direct Response
Marketing. . . . . . . 3 5 2
Total . . . . . . . . $ 142 $ 146 $ 128
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions)
23. Parent Company Financial Information
Following is the MW Holding balance sheet as of January 1, 1994
and January 2, 1993 and the statements of income and cash flows for
the 53-week period ended January 2, 1993 and for the 52-week
periods ended January 1, 1994 and December 28, 1991.
MONTGOMERY WARD HOLDING CORP.
BALANCE SHEET
ASSETS
January 1, January 2,
1994 1993
Federal Income Taxes Receivable . . . . . .$ 4 $ 4
Investment in Montgomery Ward . . . . . . . 671 592
Other Assets. . . . . . . . . . . . . . . - 1
Total Assets . . . . . . . . . . . . . . .$675 $597
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts Payable to Montgomery Ward . . . .$ 35 $ 23
Accrued Liabilities . . . . . . . . . . . 33 21
Total Liabilities. . . . . . . . . . . . . 68 44
Common Stock. . . . . . . . . . . . . . . . - -
Capital in excess of par value. . . . . . . 19 16
Retained Earnings . . . . . . . . . . . . . 658 580
Unrealized gain on marketable equity
securities . . . . . . . . . . . . . . . . 3 3
Less: Treasury stock, at cost. . . . . . .(73) (46)
Total Shareholders' Equity . . . . . . . . 607 553
Total Liabilities and
Shareholders' Equity . . . . . . . . . . .$675 $597
STATEMENT OF INCOME
52-Week 53-Week 52-Week
Period Ended Period Ended Period Ended
Jan. 1, Jan. 2, Dec. 28,
1994 1993 1991
Miscellaneous Costs . . . .$(1) $(2) $ -
Total Costs and
Expenses. . . . . . . . (1) (2) -
Tax Benefits. . . . . . . . - - -
Net Loss Before
Earnings of
Montgomery Ward. . . . . . (1) (2) -
Equity in Net Income
of Montgomery Ward,
net of cumulative
effect of
accounting changes . . . . 102 62 135
Net Income. . . . . . . . . 101 60 135
Preferred Stock Dividend
Requirements . . . . . . . - (8) (13)
Net Income Available
for Common
Shareholders . . . . . . .$101 $ 52 $122
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions)
23. Parent Company Financial Information (continued)
STATEMENT OF CASH FLOWS
January 1, January 2, December 28,
1994 1993 1991
Net Income. . . . . . . . . $101 $ 60 $ 135
Adjustments to reconcile
net income to net cash
provided:
Change in undis-
tributed earnings
of subsidiary . . . . . (79) 48 (122)
Decrease (increase) in:
Federal income taxes
receivable . . . . . . - (1) (2)
Other assets. . . . . . 1 - -
Increase (decrease) in:
Accounts payable to
Montgomery Ward. . . . . 12 10 7
Accrued liabilities . . (4) (4) (1)
Net cash provided before
financing activities . . . 31 113 17
Cash flows from financing
activities:
Proceeds from issuance
of common stock . . . . 1 1 -
Dividends declared. . . . (23) (19) (13)
Payments to redeem
preferred stock . . . . - (90) -
Purchase of treasury
stock, at cost. . . . . (11) (7) (7)
Tax benefit of stock
options exercise
and other stock
exchanges . . . . . . . 2 2 3
Net cash used for
financing
activities . . . . . . . . (31) (113) (17)
Cash at end of period . . . $ - $ - $ -
Non-cash investing
activities:
Change in unrealized
gain on investments . . . $ - $ 1 $ 2
Non-cash financing
activities:
Notes issued for
purchase of
treasury stock. . . . . . $ 16 $ 5 $ 21
<PAGE>
MONTGOMERY WARD HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollar amounts in millions, except per share amounts)
24. Quarterly Financial Data (unaudited)
The quarterly operations of MW Holding (See Notes 6 and 9) are
summarized as follows:
Quarter
First Second Third Fourth Year
52-Week Period Ended
January 1, 1994
Net sales. . . . . . .$1,151 $1,279 $1,321 $1,851 $5,602
Cost of goods sold . 867 958 1,002 1,398 4,225
Net Income . . . . . 10 27 14 50 101
Net Income per Class A
Common Share. . . . .21 .61 .33 1.16 2.29
Net Income per Class B
Common Share. . . . .19 .56 .29 1.01 2.04
53-Week Period Ended
January 2, 1993
Net sales. . . . . . .$1,086 $1,202 $1,238 $1,876 $5,402
Cost of goods sold . . 809 886 928 1,395 4,018
Net Income before
cumulative effect
of changes in
accounting
principles. . . . . . 8 27 15 50 100
Cumulative effect
of changes in
accounting
principles. . . . . . (40) - - - (40)
Net Income . . . . . . (32) 27 15 50 60
Net Income per Class A
Common Share before
cumulative effect
of changes in
accounting
principles. . . . . . .12 .53 .26 1.11 2.01
Cumulative effect of
changes in accounting
principles. . . . . . (.86) - - - (.88)
Net Income per Class A
Common Share. . . . . (.74) .53 .26 1.11 1.13
Net Income per Class B
Common Share before
cumulative effect
of changes in
accounting
principles. . . . . . .11 .50 .24 1.01 1.87
Cumulative effect of
changes in
accounting
principles. . . . . . (.82) - - - (.82)
Net Income per Class B
Common Share. . . . . (.71) .50 .24 1.01 1.05
<PAGE>
Item 9. Disagreements on Accounting and Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers of the Company
Information as to executive officers required by this item is
included under the caption "Executive Officers of the Registrant"
beginning on page 13. Information as to directors required by this
item is incorporated herein by reference, pursuant to General
Instruction G(3) to Form 10-K, from the Registrant's definitive
proxy statement, for the annual meeting of shareholders to be held
on May 20, 1994, to be filed within 120 days of the end of the
Registrant's fiscal year.
Item 11. Executive Compensation
Incorporated herein by reference, pursuant to General Instruction
G(3) to Form 10-K, from the Registrant's definitive proxy
statement, for the annual meeting of shareholders to be held on May
20, 1994, to be filed within 120 days of the end of the
Registrant's fiscal year.
Item 12. Security Ownership of Certain Beneficial Owners and
Management.
Incorporated herein by reference, pursuant to General Instruction
G(3) to Form 10-K, from the Registrant's definitive proxy
statement, for the annual meeting of shareholders to be held on May
20, 1994, to be filed within 120 days of the end of the
Registrant's fiscal year.
Item 13. Certain Relationships and Related Transactions
Incorporated herein by reference, pursuant to General Instruction
G(3) to Form 10-K, from the Registrant's definitive proxy
statement, for the annual meeting of shareholders to be held on May
20, 1994, to be filed within 120 days of the end of the
Registrant's fiscal year.
<PAGE>
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K.
(a) 1. Financial Statements.
Page
Report of Independent Public Accountants. . . . . . . . .26
Consolidated Balance Sheet at January 1, 1994
and January 2, 1993 . . . . . . . . . . . . . . . . . .29
For the 52-Week Periods Ended January 1, 1994
and December 28, 1991 and the 53-Week Period
Ended January 2, 1993
Consolidated Statement of Income. . . . . . . . . . . .27
Consolidated Statement of Shareholders' Equity. . . .30
Consolidated Statement of Cash Flows. . . . . . . . .33
Notes to Consolidated Financial Statements. . . . . . . .35
2. Financial Statement Schedules.
II. Amounts Receivable from Related Parties and
Underwriters, Promoters, and Employees Other than
Related Parties, incorporated by reference to Exhibit
27.
IX. Short-Term Borrowings, incorporated by reference to
Exhibit 27.
Schedules not included have been omitted because they are
not applicable, not required, not material, or the required
information is given in the financial statements or notes
thereto or combined with the information presented in other
schedules or exhibits.
<PAGE>
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K. (Continued)
3. Exhibits
2.(i)(A) Agreement and Plan of Merger dated March 17, 1994
by and among Montgomery Ward & Co., Incorporated,
MW Merger Corp., LMR Acquisition Corporation,
Lechmere, Inc. and stockholders of LMR Acquisition
Corporation executing counterparts of this
agreement.
2.(ii) Agreement of Purchase and Sale of Stock dated
February 24, 1994 among Signature Financial/
Marketing, Inc., Greater California Dental Services
Plan, Inc. and National Dental Services, Inc.
3.1 Restated Certificate of Incorporation of
Registrant, dated June 24, 1988, as amended,
incorporated by reference to Exhibit 3(a) of the
Company's Registration Statement on Form S-1
(Registration No. 33-23403).
3.2 Certificate of Amendment to Certificate of
Incorporation, incorporated by reference to Exhibit
3.2 of the Company's Registration Statement on Form
S-1 (Registration No. 33-33252).
3.2(i) Certificate of Amendment to Certificate of
Incorporation, incorporated by reference to Exhibit
3.2(i) of the Company's Annual Report on Form 10-K
for the fiscal year ended December 28, 1991.
3.3 Restated by-laws of Registrant, as amended through
January 21, 1991, incorporated by reference to
Exhibit 3.3 of the Company's Annual Report on Form
10-K for the fiscal year ended December 29, 1990.
9. Voting Trust Agreement dated as of June 21, 1988
incorporated by reference to Exhibit 3(a) of the
Company's Registration Statement on Form S-1
(Registration No. 33-23403).
10.(i)(A)(1) BFB Acquisition Corp. Stockholders Agreement dated
June 17, 1988, as amended and restated,
incorporated by reference to Annex 1 of the
Prospectus contained in the Company's Registration
Statement on Form S-1 (Registration No. 33-33252).
10.(i)(A)(3) Montgomery Ward & Co., Incorporated Stock Ownership
Plan Terms and Conditions, as amended and restated,
incorporated by reference to Annex 3 of the
Prospectus contained in the Company's Registration
Statement on Form S-1 (Registration No. 33-41161).
<PAGE>
Item 14. Exhibits, Financial Statement Schedules, and
Form 8-K. (Continued)
3. Exhibits (continued)
10.(i)(A)(4) Amendment No. 7 to the Montgomery Ward & Co.,
Incorporated Stock Ownership Plan Terms and
Conditions adopted October 25, 1991, incorporated
by reference to Exhibit 10.(i)(A)(10) of the
Company's Quarterly Report on Form 10-Q for the
fiscal quarterly period ended September 28, 1991.
10.(i)(B) Stock Purchase Agreement dated March 6, 1988
between Mobil Corporation, Marcor Inc. and BFB
Acquisition Corp. incorporated by reference to
Exhibit 10.(i)(B) of the Company's Registration
Statement on Form S-1 (Registration No. 33-23403).
10.(i)(C) Amended and Restated Credit Agreement dated as of
September 22, 1992 among Montgomery Ward & Co.,
Incorporated, various banks, Continental Bank N.A.
as Documentary Agent, The Bank of Nova Scotia as
Administrative Agent, and the Bank of New York as
Negotiated Loan Agent, incorporated by reference to
Exhibit 10.(i)(C) of the Company's Form 8-K on
September 22, 1992.
10.(i)(C)(1) First Amendment dated as of September 22, 1993 to
the Amended and Restated Credit Agreement dated as
of September 22, 1992 among Montgomery Ward & Co.,
Incorporated, various banks, Continental Bank N.A.
as Documentary Agent, The Bank of Nova Scotia as
Administrative Agent, and the Bank of New York as
Negotiated Loan Agent, incorporated by reference to
Exhibit 10.(i)(C)(1) of the Company's Quarterly
Report on Form 10-Q for the fiscal quarterly period
ended October 2, 1993.
10.(i)(E) Short Term Credit Agreement dated as of September
22, 1992 among Montgomery Ward & Co., Incorporated,
various banks, Continental Bank N.A. as Documentary
Agent, The Bank of Nova Scotia as Administrative
Agent, and the Bank of New York as Negotiated Loan
Agent, incorporated by reference to Exhibit
10.(i)(E) of the Company's Form 8-K on September
22, 1992.
10.(i)(E)(1) First Amendment dated as of September 22, 1993 to
the Short Term Credit Agreement dated as of
September 22, 1992 among Montgomery Ward & Co.,
Incorporated, various banks, Continental Bank N.A.
as Documentary Agent, The Bank of Nova Scotia as
Administrative Agent, and the Bank of New York as
negotiated Loan Agent, incorporated by reference to
Exhibit 10.(i)(E)(1) of the Company's Quarterly
Report on Form 10-Q for the fiscal quarterly period
ended October 2, 1993.
<PAGE>
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K. (continued)
3. Exhibits (continued)
10.(i)(E)(2) Extension request letter dated September 22, 1993
from Montgomery Ward & Co., Incorporated addressed
to all banks who are parties to the Short Term
Agreement, and the replies of all such banks to
such requests.
10.(i)(F) Note Purchase Agreements dated March 1, 1993
between Montgomery Ward & Co., Incorporated and
various lenders, incorporated by reference to
Exhibit 10.(i)(F) of the Company's Annual Report on
Form 10-K for the fiscal year ended January 2,
1993.
10.(i)(G) Term Loan Agreement dated as of November 24, 1993
among Montgomery Ward & Co., Incorporated, various
banks, The First National Bank of Chicago, as
Documentary Agent, The Bank of Nova Scotia, as
Administrative Agent, and The Bank of New York as
Negotiated Loan Agent.
10.(ii)(A) Stock Purchase Agreement dated June 22, 1988
between General Electric Capital Corporation and
Montgomery Ward & Co., Incorporated incorporated by
reference to Exhibit 10.(ii)(A) of the Company's
Registration Statement on Form S-1 (Registration
No. 33-23403).
10.(ii)(B) Account Purchase Agreement dated June 24, 1988 by
and between Montgomery Ward Credit Corporation and
Montgomery Ward & Co., Incorporated incorporated by
reference to Exhibit 10.(ii)(B) of the Company's
Registration Statement on Form S-1 (Registration
No. 33-23403).
10.(ii)(B)(1) Letter Agreement dated April 21, 1989, by and
between Montgomery Ward Credit Corporation and
Montgomery Ward & Co., Incorporated (amending the
Account Purchase Agreement which is Exhibit
10.(ii)(B) hereto), incorporated by reference to
Exhibit 10.(ii)(B)(1) of the Company's Registration
Statement on Form S-1 (Registration No. 33-33252).
10.(ii)(B)(2) Amendment to Account Purchase Agreement dated
December 26, 1989 by and between Montgomery Ward
Credit Corporation and Montgomery Ward & Co.,
Incorporated.
10.(ii)(B)(3) Letter Agreement dated April 24, 1990, by and
between Montgomery Ward Credit Corporation and
Montgomery Ward & Co., Incorporated.
<PAGE>
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K. (continued)
3. Exhibits (continued)
10.(ii)(C) Letter Agreement dated June 24, 1988 among
Signature Financial/Marketing, Inc., Montgomery
Ward Credit Corporation and Montgomery Ward & Co.,
Incorporated incorporated by reference to Exhibit
10.(ii)(C) of the Company's Registration Statement
on Form S-1 (Registration No. 33-23403).
10.(ii)(D) Letter Agreement dated December 26, 1990, by and
between Montgomery Ward Credit Corporation and
Montgomery Ward & Co., Incorporated, incorporated
by reference to 10.(ii)(D) of the Company's Annual
Report on Form 10-K for the fiscal year ended
December 29, 1990.
10.(ii)(E) Fifth Amendment to Account Purchase Agreement dated
May 23, 1992 by and between Montgomery Ward & Co.,
Incorporated and Montgomery Ward Credit
Corporation, incorporated by reference to Exhibit
10.(ii)(E) of the Company's Quarterly Report on
Form 10-Q for the fiscal quarterly period ended
June 27, 1992.
10.(ii)(F) Amendment dated May 23, 1992 to Letter Agreement
dated June 24, 1988 (Signature Credit Agreement) by
and among Signature Financial/Marketing, Inc.,
Montgomery Ward & Co., Incorporated and Montgomery
Ward Credit Corporation, incorporated by reference
to Exhibit 10.(ii)(F) of the Company's Quarterly
Report on Form 10-Q for the fiscal quarterly period
ended June 27, 1992.
10.(ii)(G) Letter Agreement dated December 29, 1992 by and
between Montgomery Ward & Co., Incorporated and
Montgomery Ward Credit Corporation, incorporated by
reference to Exhibit 10.(i)(F) of the Company's
Annual Report on Form 10-K for the fiscal year
ended January 2, 1993.
10.(ii)(G)(1) Letter Agreement dated April 29, 1993, by and
between Montgomery Ward Credit Corporation and
Montgomery Ward & Co., Incorporated.
10.(ii)(G)(2) Letter Agreement dated September 15, 1993, by and
between Montgomery Ward Credit Corporation and
Montgomery Ward & Co., Incorporated.
10.(ii)(H) Ninth Amendment to Account Purchase Agreement dated
February 16, 1994 by and between Montgomery Ward &
Co., Incorporated and Montgomery Ward Credit
Corporation.
10.(iv)(A) Montgomery Ward & Co., Incorporated Stock Ownership
Plan amended and restated as of September 9, 1993,
subject to shareholder approval, incorporated by
reference to Exhibit 10.(iv)(A) of the Company's
Quarterly Report on Form 10-Q for the fiscal
quarterly period ended October 2, 1993.
<PAGE>
Item 14. Exhibits, Financial Statement Schedules, and Report
Form 8-K. (continued)
3. Exhibits (continued)
10.(iv)(B) Montgomery Ward & Co., Incorporated Long Term
Incentive Plan incorporated by reference to Exhibit
10.(iv)(B) of the Company's Registration Statement
on Form S-1 (Registration No. 33-23403).
10.(iv)(C) Montgomery Ward & Co., Incorporated Performance
Management Program incorporated by reference to
Exhibit 10.(iv)(C) of the Company's Registration
Statement on Form S-1 (Registration No. 33-23403).
10.(iv)(D) Montgomery Ward & Co., Incorporated Retirement
Security Plan (as amended and restated effective as
of January 1, 1989) incorporated by reference to
Exhibit 10.(iv)(D) of the Post-Effective Amendment
No. 3 to the Company's Registration Statement on
Form S-1 (Registration No. 33-23403).
10.(iv)(E) Montgomery Ward & Co., Incorporated Supplemental
Retirement Plan incorporated by reference to
Exhibit 10.(iv)(E) of the Company's Registration
Statement on Form S-1 (Registration No. 33-23403).
10.(iv)(F) Montgomery Ward Holding Corp. Directors Fee and
Stock Ownership Plan, incorporated by reference to
Exhibit 10.(iv)(F) of the Company's Registration
Statement on Form S-1 (Registration No. 33-41161).
10.(iv)(G) Montgomery Ward Holding Corp. Senior Officer
Severance Plan, incorporated by reference to
Exhibit 10.(iv)(G) of the Company's Annual Report
on Form 10-K for the fiscal year ended January 2,
1993.
10.(v) Letter Agreement dated May 3, 1985 between
Montgomery Ward & Co., Incorporated and Bernard F.
Brennan incorporated by reference to Exhibit 10.(v)
of the Company's Registration Statement on Form S-1
(Registration No. 33-23403).
10.(vi) Employment Agreement effective January 14, 1994
between Montgomery Ward & Co., Incorporated and
Bernard W. Andrews.
10.(vii) Agreement effective October 21, 1991 between
Montgomery Ward & Co., Incorporated and Fingerhut
Companies, Inc., incorporated by reference to
Exhibit 10.(vii) of the Company's Annual Report on
Form 10-K for the fiscal year ended December 28,
1991.
10.(viii) Line of Credit Agreement effective November 19,
1991 between Montgomery Ward & Co., Incorporated
and The Northern Trust Company and The First
National Bank of Chicago, incorporated by reference
to Exhibit 10.(viii) of the Company's Annual Report
on Form 10-K for the fiscal year ended December 28,
1991.
10.(ix) Employment Agreement effective December 31, 1993
between Montgomery Ward & Co., Incorporated and
Robert F. Connolly.
<PAGE>
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K. (continued)
3. Exhibits (continued)
10.(xi) Employment Agreement effective November 1, 1991
between Montgomery Ward & Co., Incorporated and
Richard Bergel, incorporated by reference to
Exhibit 10.(xi) of the Company's Annual Report on
Form 10-K for the fiscal year ended January 2,
1993.
11. Statement regarding computation of per share
earnings.
12. Not applicable.
13. Not applicable.
16. Not applicable.
18. Not applicable.
19. Not applicable.
21. Subsidiaries of the Registrant, incorporated by
reference to Exhibit 21 of the Company's
Registration Statement on Form S-1 (Registration
No. 33-33252).
22. Not applicable.
23. Consent of independent public accountants.
24. Powers of attorney executed by directors and
officers authorizing execution of Annual Report on
Form 10-K.
27. Financial Statement Schedules.
28. Not applicable.
(b) Reports on Form 8-K.
On February 7, 1994, the registrant filed a Form 8-K to
communicate its intention to acquire Lechmere, Inc. The press
release issued by the registrant on February 1, 1994 was included
as an exhibit thereto.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant, Montgomery Ward
Holding Corp., has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
REGISTRANT MONTGOMERY WARD HOLDING CORP.
BY JOHN L. WORKMAN
NAME AND TITLE John L. Workman, Executive Vice President,
Chief Financial Officer and Assistant Secretary
DATE March 25, 1994
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the date
indicated.
BY SPENCER H. HEINE
NAME AND TITLE Bernard F. Brennan*, Director, Chairman of the
Board and Principal Executive Officer
DATE March 24, 1994
BY SPENCER H. HEINE
NAME AND TITLE Richard Bergel*, Vice Chairman and Director
DATE March 24, 1994
BY SPENCER H. HEINE
NAME AND TITLE Bernard W. Andrews*, President and Director
DATE March 24, 1994
BY SPENCER H. HEINE
NAME AND TITLE Spencer H. Heine, Executive Vice President,
Secretary, General Counsel and Director
DATE March 24, 1994
<PAGE>
SIGNATURES
BY JOHN L. WORKMAN
NAME AND TITLE John L. Workman, Executive Vice President,
Chief Financial Officer and Assistant Secretary
DATE March 25, 1994
BY SPENCER H. HEINE
NAME AND TITLE Myron Lieberman*, Director
DATE March 24, 1994
BY SPENCER H. HEINE
NAME AND TITLE Silas S. Cathcart*, Director
DATE March 24, 1994
BY SPENCER H. HEINE
NAME AND TITLE David D. Ekedahl*, Director
DATE March 24, 1994
BY SPENCER H. HEINE
NAME AND TITLE Denis J. Nayden*, Director
DATE March 24, 1994
BY SPENCER H. HEINE
NAME AND TITLE James A. Parke*, Director
DATE March 24, 1994
* by power of attorney
EXHIBIT INDEX
EXHIBIT SUBMISSION MEDIA
- ------- ----------------------
2.(i)(A) Agreement and Plan Incorporated by
of Merger dated March reference to
17, 1994 by and among Exhibit 2.(i)(A) on Form SE
Montgomery Ward filed March 24, 1994.
& Co., Incorporated,
MW Merger Corp., LMR
Acquisition Corporation,
Lechmere, Inc. and The
Stockholders of LMR
Acquisition Corporation
executing counterparts
of this agreement.
2.(ii) Agreement of Purchase Incorporated by
and Sale of Stock reference to
dated February 24, 1994 Exhibit 2.(ii) on Form SE
by and among Signature filed March 24, 1994.
Financial/Marketing,
Inc., Greater California
Dental Services Plan,
Inc. and National
Dental Services, Inc.
3.1 Restated Certificate Incorporated by
of Incorporation of reference to
Registrant, dated Exhibit 3(a) of the
June 24, 1988, Company's Registration
as amended. Statement on Form S-1
(Registration No.
33-23403).
3.2 Certificate of Incorporated by
Amendment to reference to
Certificate of Exhibit 3.2 of the
Incorporation. Company's Registration
Statement on Form S-1
(Registration No.
33-33252).
<PAGE>
EXHIBIT INDEX
EXHIBIT SUBMISSION MEDIA
- ------------- ----------------------
3.2(i) Certificate of Incorporated by
Amendment to reference to
Certificate of Exhibit 3.2(i) of the
Incorporation. Company's Annual
Report on Form 10-K
for the fiscal year
ended December 28,
1991.
3.3 Restated by-laws Incorporated by
of Registrant, as reference to
amended through Exhibit 3.3 of the
January 21, 1991. Company's Annual
Report on Form 10-K
for the fiscal year
ended December 29,
1990.
9. Voting Trust Incorporated by
Agreement dated as reference to
of June 21, 1988. Exhibit 3(a) of the
Company's Registration
Statement on Form S-1
(Registration No.
33-23403).
10.(i)(A)(1) BFB Acquisition Incorporated by
Corp. Stockholders reference to Annex 1
Agreement dated of the Prospectus
June 17, 1988, as contained in the
amended and Company's Registration
restated. Statement on Form S-1
(Registration No.
33-33252).
10.(i)(A)(3) Montgomery Ward Incorporated by
& Co., Incorporated reference to Annex 3
Stock Ownership of the Prospectus
Plan Terms and contained in the
Conditions, as Company's Registration
amended and Statement on Form S-1
restated. (Registration No.
33-41161).
<PAGE>
EXHIBIT INDEX
EXHIBIT SUBMISSION MEDIA
- ------------- -----------------------
10.(i)(A)(4) Amendment No. 7 to Incorporated by
the Montgomery Ward reference to Exhibit
& Co., Incorporated 10.(i)(A)(10) of the
Stock Ownership Company's Quarterly
Plan Terms and Report on Form 10-Q
Conditions adopted for the fiscal
October 25, 1991. quarterly period ended
September 28, 1991.
10.(i)(B) Stock Purchase Incorporated by
Agreement dated reference to Exhibit
March 6, 1988 10.(i)(B) of the
between Mobil Company's Registration
Corporation, Statement on Form S-1
Marcor Inc. and (Registration No.
BFB Acquisition 33-23403).
Corp.
10.(i)(C) Amended and Restated Incorporated by
Credit Agreement reference to Exhibit
dated as of 10.(i)(C) of the
September 22, 1992 Company's Form 8-K
among Montgomery on September 22, 1992.
Ward & Co., Incor-
porated, various
banks, Continental
Bank N.A. as Docu-
mentary Agent, The
Bank of Nova Scotia
as Administrative
Agent and Bank of
New York as
Negotiated Loan
Agent.
<PAGE>
EXHIBIT INDEX
EXHIBIT SUBMISSION MEDIA
- ------------- -----------------------
10.(i)(C)(1) First Amendment Incorporated by
dated as of Septem- reference to
ber 22, 1993 to the Exhibit 10.(C)(1) of
Amended and Credit the Company's
Agreement dated as quarterly report
of September 22, on Form 10-Q for
1992 among the fiscal quarterly
Montgomery Ward period ended
& Co., Incorporated, October 2, 1993.
various banks,
Continental Bank
N.A. as Documen-
tary Agent, The
Bank of Nova
Scotia as Administra-
tive Agent, and the
Bank of New York as
Negotiated Loan Agent.
10.(i)(E) Short Term Credit Incorporated by
Agreement dated as reference to Exhibit
of September 22, 10.(i)(E) of the
1992 among Montgomery Company's Form 8-K
Ward & Co., Incor- on September 22,
porated, various 1992.
banks, Continental
Bank N.A. as Docu-
mentary Agent,
The Bank of Nova
Scotia as Adminis-
trative Agent, and
the Bank of New
York as Negotiated
Loan Agent.
<PAGE>
EXHIBIT INDEX
EXHIBIT SUBMISSION MEDIA
- ------------- -----------------------
10.(i)(E)(1) First Amendment Incorporated by
dated as of Septem- reference to
ber 22, 1993 to the Exhibit 10.(i)(E)(1)
Short Term Credit of the Company's
Agreement dated quarterly report on
as of September 22, Form 10-Q for the
1992 among fiscal quarterly
Montgomery Ward period ended
& Co., Incorporated, October 2, 1993.
various banks,
Continental Bank
N.A. as Documentary
Agent, The Bank of
Nova Scotia as
Administrative
Agent, and the
Bank of New York
as Negotiated
Loan Agent.
10.(i)(E)(2) Extension request Incorporated by
letters dated reference to
September 22, 1993 Exhibit 10.(i)(E)(2)
from Montgomery on Form SE, filed
Ward & Co., Incor- March 24, 1994.
ported addressed to
all banks who are
parties to the
Short Term Agree-
ment, and the replies
of all such banks
to such requests.
<PAGE>
EXHIBIT INDEX
EXHIBIT SUBMISSION MEDIA
10.(i)(F) Note Purchase Incorporated by
Agreements dated reference to Exhibit
March 1, 1993 10.(i)(F) of the
between Montgomery Company's Annual
Ward & Co., Incor- Report on Form 10-K
porated and various for the fiscal year
lenders. ended January 2, 1993.
10.(i)(G) Term Loan Agreement Incorporated by
dated as of reference to Exhibit
November 24, 1993 10.(i)(G) on Form SE,
among Montgomery filed March 24, 1994.
Ward & Co., Incor-
porated, various
banks, The First
National Bank of
Chicago, as Docu-
mentary Agent, The
Bank of Nova Scotia,
as Administrative
Agent, and the Bank
of New York as
Negotiated Loan Agent.
10.(ii)(A) Stock Purchase Incorporated by
Agreement dated reference to Exhibit
June 22, 1988 10.(ii)(A) of the
between General Company's Registration
Electric Capital Statement on Form S-1
Corporation and (Registration No.
Montgomery Ward 33-23403).
& Co., Incorporated.
10.(ii)(B) Account Purchase Incorporated by
Agreement dated reference to Exhibit
June 24, 1988 10.(ii)(B) of the
by and between Company's Registration
Montgomery Ward Statement on Form S-1
Credit Corporation (Registration No.
and Montgomery 33-23403).
Ward & Co.,
Incorporated.
<PAGE>
EXHIBIT INDEX
EXHIBIT SUBMISSION MEDIA
10.(ii)(B)(1) Letter Agreement Incorporated by
dated April 21, reference to Exhibit
1989 by and between 10.(ii)(B)(1) of the
Montgomery Ward Company's Registration
Credit Corporation Statement on Form S-1
and Montgomery (Registration No.
Ward & Co., Incor- 33-33252).
porated (amending
the Account Purchase
Agreement which is
Exhibit 10.(ii)(B)
hereto).
10.(ii)(B)(2) Amendment to Incorporated by
Account Purchase reference to Exhibit
Agreement dated 10.(ii)(B)(2) on
December 26, 1989 by Form SE filed
and between March 24, 1994.
Montgomery Ward
Credit Corporation
and Montgomery Ward &
Co., Incorporated.
10.(ii)(B)(3) Letter Agreement Incorporated by
dated April 24, reference to Exhibit
1990, by and between 10.(ii)(B)(3) on
Montgomery Ward Form SE filed
Credit Corporation March 24, 1994.
and Montgomery Ward
& Co., Incorporated.
10.(ii)(C) Letter Agreement Incorporated by
dated June 24, reference to Exhibit
1988 among Signa- 10.(ii)(C) of the
ture Financial/ Company's Registration
Marketing, Inc., Statement on Form S-1
Montgomery Ward (Registration No.
Credit Corpora- 33-23403).
tion and Montgomery
Ward & Co., Incor-
porated.
<PAGE>
EXHIBIT INDEX
EXHIBIT SUBMISSION MEDIA
10.(ii)(D) Letter Agreement Incorporated by
dated December 26, reference to Exhibit
1990, by and between 10.(ii)(D) of the
Montgomery Ward Company's Annual
Credit Corporation Report on Form 10-K
and Montgomery for the fiscal year
Ward & Co., Incor- ended December 29,
porated. 1990.
10.(ii)(E) Fifth Amendment to Incorporated by
Account Purchase reference to Exhibit
Agreement dated 10.(ii)(E) of the
May 23, 1992 by and Company's Quarterly
between Montgomery Report on Form 10-Q
Ward & Co., Incor- for the fiscal
porated and Mont- quarterly period ended
gomery Ward Credit June 27, 1992.
Corporation.
10.(ii)(F) Amendment dated Incorporated by
May 23, 1992 to reference to Exhibit
Letter Amendment 10.(ii)(F) of the
dated June 24, Company's Quarterly
1988 (Signature Report on Form 10-Q
Credit Agreement) for the fiscal
by and among Finan- quarterly period ended
cial/Marketing, Inc. June 27, 1992.
Montgomery Ward
& Co.,Incorporated
and Montgomery Ward
Credit Corporation.
10.(ii)(G) Letter Agreement Incorporated by
dated December 29, reference to Exhibit
1992 by and between 10.(ii)(G) of the
Montgomery Ward Company's Annual
& Co., Incorporated Report on Form 10-K
and Montgomery for the fiscal year
Ward Credit Corpora- ended January 2,
tion. 1993.
<PAGE>
EXHIBIT INDEX
EXHIBIT SUBMISSION MEDIA
10.(ii)(G)(1) Letter Agreement Incorporated by
dated April 29, reference to
1993, by and Exhibit 10.(ii)(G)(1)
between Montgomery on Form SE filed
Ward Credit Corpora- March 24, 1994.
tion and Montgomery
Ward & Co., Incor-
porated.
10.(ii)(G)(2) Letter Agreement Incorporated by
dated September 15, reference to
1993, by and Exhibit 10.(ii)(G)(2)
between Montgomery on Form SE filed
Ward Credit Corpora- March 24, 1994.
tion and Montgomery
Ward & Co., Incor-
porated.
10.(ii)(H) Ninth Amendment to Incorporated by
Account Purchase reference to
Agreement dated Exhibit 10.(ii)(H)
February 16, 1994 on Form SE filed
by and between March 24, 1994.
Montgomery Ward &
Co., Incorporated
and Montgomery
Ward Credit
Corporation.
10.(iv)(A) Montgomery Ward Incorporated by
& Co., Incorporated reference to Exhibit
Stock Ownership 10.(iv)(A) of the
Plan, amended and Company's quarterly
restated as of report on Form 10-Q
September 9, 1993, for the fiscal
subject to share- quarterly period
holder approval. ended October 2,
1993.
10.(iv)(B) Montgomery Ward Incorporated by
& Co., Incorporated reference to Exhibit
Long Term Incentive 10.(iv)(B) of the
Plan. Company's Registration
Statement on Form S-1
(Registration No.
33-23403).
<PAGE>
EXHIBIT INDEX
EXHIBIT SUBMISSION MEDIA
10.(iv)(C) Montgomery Ward Incorporated by
& Co., Incorporated reference to Exhibit
Performance 10.(iv)(C) of the
Management Program. Company's Registration
Statement on Form S-1
(Registration No.
33-23403).
10.(iv)(D) Montgomery Ward Incorporated by
& Co., Incorporated reference to Exhibit
Retirement Security 10.(iv)(D) of the
Plan (as amended Post-Effective Amend-
and restated ment No. 3 to the
effective as of Company's Registration
January 1, 1989). Statement on Form S-1
(Registration No.
33-23403).
10.(iv)(E) Montgomery Ward Incorporated by
& Co., Incorporated reference to Exhibit
Supplemental 10.(iv)(E) of the
Retirement Plan. Company's Registration
Statement on Form S-1
(Registration No.
33-23403).
10.(iv)(F) Montgomery Ward Incorporated by
Holding Corp. reference to Exhibit
Directors Fee 10.(iv)(F) of the
and Stock Owner- Company's Registration
ship Plan. Statement on Form S-1
(Registration No.
33-41161).
10.(iv)(G) Montgomery Ward Incorporated by
Holding Corp. reference to Exhibit
Senior Officer 10.(iv)(G) of the
Severance Plan. Company's Annual
Report on Form 10-K
for the fiscal year
ended January 2, 1993.
10.(v) Letter Agreement Incorporated by
dated May 3, 1985 reference to Exhibit
between Montgomery 10.(v) of the
Ward & Co., Incor- Company's Registration
porated and Bernard Statement S-1
F. Brennan. (Registration No.
33-23403).
<PAGE>
EXHIBIT INDEX
EXHIBIT SUBMISSION MEDIA
10.(vi) Employment Agreement Incorporated by
effective January reference to Exhibit
14, 1994 between 10.(vi) on Form SE
Montgomery Ward filed March 24, 1994.
& Co., Incorporated
and Bernard W.
Andrews.
10.(vii) Agreement effective Incorporated by
October 21, 1991 reference to Exhibit
between Montgomery 10.(vii) on the
Ward & Co., Incor- Company's Annual
porated and Finger- Report on Form 10-K
hut Companies, Inc. for the fiscal year
ended December 28,
1991.
10.(viii) Line of Credit Incorporated by
Agreement effective reference to Exhibit
November 19, 1991 10.(viii) on the
by and among Mont- Company's Annual
gomery Ward & Co., Report on Form 10-K
Incorporated, for the fiscal year
Northern Trust ended December 28,
Company and The 1991.
First National
Bank of Chicago.
10.(ix) Employment Agreement Incorporated by
effective December reference to Exhibit
31, 1993 between 10.(ix) on Form SE
Montgomery Ward & filed March 24, 1994.
Co., Incorporated
and Robert F. Connolly.
10.(xi) Employment Agreement Incorporated by
effective November reference to Exhibit
1, 1991 between 10.(xi) of the
Montgomery Ward & Company's Annual
Co., Incorporated Report on Form 10-K
and Richard Bergel. for the fiscal year
ended January 2,
1993.
<PAGE>
EXHIBIT INDEX
EXHIBIT SUBMISSION MEDIA
11. Statement regarding
computation of per
share earnings.
12. Not applicable.
13. Not applicable.
16. Not applicable.
18. Not applicable.
19. Not applicable.
21. Subsidiaries of Incorporated by
the Registrant. reference to Exhibit
21 of the Company's
Registration Statement
on Form S-1
(Registration No.
33-33252).
22. Not applicable.
23. Consent of
independent
public accountants.
24. Powers of attorney Incorporated by
executed by direc- reference to
tors and officers Exhibit 24 on Form SE,
of Registrant filed March 24, 1994.
authorizing execu-
tion of Annual
Report on Form 10-K.
27. Financial Statement
Schedules.
28. Not applicable.
<PAGE>
EXHIBIT 11
COMPUTATION OF PER SHARE EARNINGS
52-WEEK PERIOD ENDED
JANUARY 1, 1994
Class A Class B
Earnings available
for Common
Shareholders $49,982,912 $51,059,110
Weighted average
of shares
outstanding:
Shares outstanding 20,148,623 25,000,000
Shares issued
upon assumed
exercise of
stock options 4,066,804 -
Shares assumed
to be repurchased
under Treasury
Stock method
(at fair market
value of $22.50) (2,410,224) -
Total number of
options considered
as common stock
equivalents 1,656,580 -
Total weighted
average number
of shares 21,805,203 25,000,000
Earnings per share $2.29 $2.04
<PAGE>
EXHIBIT 11
COMPUTATION OF PER SHARE EARNINGS
53-WEEK PERIOD ENDED
JANUARY 2, 1993
Class A Class B
Earnings available
for Common
Shareholders $25,526,342 $26,294,923
Weighted average
of shares
outstanding:
Shares outstanding 20,892,268 25,000,000
Shares issued
upon assumed
exercise of
stock options 3,240,240 -
Shares assumed
to be repurchased
under Treasury
Stock method
(at fair market
value of $18.75) (1,594,969) -
Total number of
options considered
as common stock
equivalents 1,645,271 -
Total weighted
average number
of shares 22,537,539 25,000,000
Earnings per share $1.13 $1.05
<PAGE>
EXHIBIT 11
COMPUTATION OF PER SHARE EARNINGS
52-WEEK PERIOD ENDED
DECEMBER 28, 1991
Class A Class B
Earnings available for
Common Shareholders $59,921,254 $62,068,120
Weighted average of
shares outstanding:
Shares outstanding 23,325,628 25,000,000
Shares issued upon
assumed exercise
of stock options 2,832,174 -
Shares assumed
to be repurchased
under Treasury
Stock method
(at fair market
value of $14.85
and $15.11 for
primary and fully
diluted,
respectively) (1,203,307) -
Total number of
options considered
as common stock
equivalents 1,628,867 -
Total weighted
average number
of shares 24,954,495 25,000,000
Earnings per share $2.40 $2.48
<PAGE>
EXHIBIT 24
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our reports included (or incorporated by
reference) in this Form 10-K, into the Company's previously filed
Registration Statements on Form S-8 (File No. 33-41161).
Arthur Andersen & Co.
Chicago, Illinois
March 25, 1994
<PAGE>
EXHIBIT 27
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders
of Montgomery Ward Holding Corp.:
We have audited in accordance with generally accepted auditing
standards, the consolidated financial statements included in this
Form 10-K, and have issued our report thereon dated February 15,
1994. Our audit was made for the purpose of forming an opinion on
those statements taken as a whole. The schedules listed in the
preceding index of the consolidated financial statements are the
responsibility of the company's management and are presented for
purposes of complying with the Securities and Exchange Commission's
rules and are not part of the basic consolidated financial
statements. These schedules have been subjected to the auditing
procedures applied in the audit of the basic consolidated financial
statements and, in our opinion, fairly state in all material
respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
Arthur Andersen & Co.
Chicago, Illinois
February 15, 1994
<PAGE>
EXHIBIT 27
MONTGOMERY WARD HOLDING CORP.
Schedule II - Amounts Receivable from Related Parties and
Underwriters, Promoters, and Employees Other than Related Parties
<TABLE>
Balance Deductions Balance
Name at Amounts End
of Beginning Amounts Written Not of
Debtor of Period Additions Collected Off Current Current Period
<S>
For the
53-Week
Period
Ended
January
2, 1993
<C> <C> <C> <C> <C><C> <C>
Daniel H. Levy $500,000 $ - $ - $ - $ -$ - $500,000 (B)
Vice-Chairman
and Chief
Operating
Officer (A)
Due Date 5/7/96
Interest Rate 8.5%
Security Personal Residence
(A) Mr. Levy resigned from all of his duties effective February 28, 1993.
(B) Amount was paid in full subsequent to year-end.
</TABLE>
<PAGE>
EXHIBIT 27
MONTGOMERY WARD HOLDING CORP.
Schedule IX - Short-Term Borrowings
(Dollar amounts in millions)
Weighted
Maximum Average Average
Category of Weighted Amount Amount Interest
Aggregate Balance Average Outstanding Outstanding Rate
Short-Term at End Interest During the During the During the
Borrowings of Period Rate the Period Period (A) Period (B)
52-Week
Period
Ended
January 1,
1994
Revolving $ 0 3.41% $396 $248 3.4%
Loan
Facilities
53-Week
Period
Ended
January 2,
1993
Revolving $0 3.55% $431 $309 1.0%
Loan
Facilities
(A) The average amount outstanding during the period was calculated on
a monthly basis.
(B) The weighted average interest rate during the period was computed
by dividing the actual interest expense by the average short-term
borrowings outstanding.
