<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
F O R M 10 - Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 25, 1997
Commission file no. 1-10299
WOOLWORTH CORPORATION
(Exact name of registrant as specified in its charter)
New York 13-3513936
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
233 Broadway, New York, New York 10279-0003
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (212) 553-2000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES x NO
--- ---
Number of shares of Common Stock outstanding at December 1, 1997: 134,934,574
<PAGE> 2
WOOLWORTH CORPORATION
INDEX
Page No.
--------
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements
of Operations 4
Condensed Consolidated Statements
of Retained Earnings 5
Condensed Consolidated Statements
of Cash Flows 6
Notes to Condensed Consolidated
Financial Statements 7-9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-13
Part II. Other Information
Item 1. Legal Proceedings 13
Item 6. Exhibits and Reports on Form 8-K 13
Signature 14
Index to Exhibits 15-17
-2-
<PAGE> 3
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
WOOLWORTH CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions)
<TABLE>
<CAPTION>
October 25, October 26, January 25,
1997 1996 1997
---- ---- ----
(Unaudited) (Unaudited) (Audited)
ASSETS
<S> <C> <C> <C>
Current Assets:
Cash and cash equivalents $ 49 $ 27 $ 328
Merchandise inventories 1,377 1,373 1,066
Net assets of discontinued operations -- 359 236
Other current assets 174 233 202
------ ------ ------
1,600 1,992 1,832
Property and equipment, net 954 993 983
Deferred charges and other assets 746 589 524
------ ------ ------
3,300 $3,574 $3,339
====== ====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Short-term debt $ 26 $ 115 $ --
Accounts payable 351 369 286
Accrued liabilities 424 425 427
Net liabilities of discontinued operations 49 -- --
Current portion of long-term debt and obligations
under capital leases 15 15 15
------ ------ ------
865 924 728
Long-term debt and obligations
under capital leases 571 591 575
Deferred taxes and other liabilities 710 776 702
Shareholders' Equity:
Preferred stock -- -- --
Common stock and paid-in capital 315 296 299
Retained earnings 925 960 1,050
Foreign currency translation adjustment (49) 63 22
Minimum pension liability adjustment (37) (36) (37)
------ ------ ------
Total shareholders' equity 1,154 1,283 1,334
Commitments
$3,300 $3,574 $3,339
====== ====== ======
</TABLE>
See accompanying notes to Condensed Consolidated Financial Statements.
-3-
<PAGE> 4
WOOLWORTH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in millions, except per share amounts)
<TABLE>
<CAPTION>
Thirteen weeks ended Thirty-nine weeks ended
--------------------------- ---------------------------
Oct. 25, Oct. 26, Oct. 25, Oct. 26,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales $ 1,583 $ 1,790 $ 4,622 $ 4,967
Cost and Expenses:
Cost of sales 1,090 1,199 3,201 3,413
Selling, general and administrative expenses 367 423 1,125 1,254
Depreciation and amortization 41 46 125 135
Interest expense 10 13 32 45
Other income (11) (20) (17) (27)
------- ------- ------- -------
1,497 1,661 4,466 4,820
------- ------- ------- -------
Income from continuing operations
before income taxes 86 129 156 147
Income tax expense 31 52 58 59
------- ------- ------- -------
Income from continuing operations 55 77 98 88
Loss from discontinued operations, net of income
taxes of $6, $19 and $13, respectively -- (8) (28) (19)
Loss on disposal of discontinued operations,
net of income taxes of $115 -- -- (195) --
Net income (loss) $ 55 $ 69 $ (125) $ 69
======= ======= ======= =======
Per common share:
Income from continuing operations $ 0.41 $ 0.58 $ 0.73 $ 0.66
Loss from discontinued operations -- (0.06) (1.66) (0.14)
------- ------- ------- -------
Net income (loss) $ 0.41 $ 0.52 $ (0.93) $ 0.52
======= ======= ======= =======
Weighted-average common shares outstanding 134.9 133.6 134.5 133.3
</TABLE>
See accompanying notes to Condensed Consolidated Financial Statements.
-4-
<PAGE> 5
WOOLWORTH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
(Unaudited)
(in millions)
<TABLE>
<CAPTION>
Thirty-nine weeks ended
Oct. 25, Oct. 26,
1997 1996
---- ----
<S> <C> <C>
Retained earnings at beginning of year $ 1,050 $ 891
Net income (loss) (125) 69
Cash dividends declared:
Preferred stock (1996 - $1.10 per share) -- --
------- -------
Retained earnings at end of interim period $ 925 $ 960
======= =======
</TABLE>
See accompanying notes to Condensed Consolidated Financial Statements.
-5-
<PAGE> 6
WOOLWORTH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in millions)
<TABLE>
<CAPTION>
Thirty-nine weeks ended
-------------------------
Oct. 25, Oct. 26,
1997 1996
---- ----
<S> <C> <C>
From Operating Activities:
Net income (loss) $(125) $ 69
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Non-cash charge for discontinued operations, net of tax 91 --
Depreciation and amortization 125 135
Net gain on sales of real estate (11) (31)
Deferred income taxes (19) (6)
Change in assets and liabilities, net of acquisition:
Merchandise inventories (306) (200)
Accounts payable and accrued expenses (69) 189
Net assets of discontinued operations 288 (155)
Other, net (24) (9)
----- -----
Net cash used in operating activities (50) (8)
----- -----
From Investing Activities:
Proceeds from sales of real estate 22 22
Capital expenditures (127) (63)
Payments for businesses acquired, net of cash acquired (148) --
Proceeds from sales of assets and investments -- 25
----- -----
Net cash used in investing activities (253) (16)
----- -----
From Financing Activities:
Increase in short-term debt 26 46
Reduction in long-term debt and capital lease obligations (3) (10)
Issuance of common stock 16 6
Redemption of preferred stock -- (1)
Dividends paid -- --
----- -----
Net cash provided by financing activities 39 41
----- -----
Effect of exchange rate fluctuations
on Cash and Cash Equivalents (15) (4)
----- -----
Net change in Cash and Cash Equivalents (279) 13
Cash and Cash Equivalents at beginning of year 328 14
----- -----
Cash and Cash Equivalents at end of interim period $ 49 $ 27
===== =====
Cash paid during the period:
Interest $ 24 $ 35
Income taxes $ 58 $ 14
</TABLE>
See accompanying notes to Condensed Consolidated Financial Statements.
-6-
<PAGE> 7
WOOLWORTH CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
should be read in conjunction with the Notes to Consolidated Financial
Statements contained in the 1996 Annual Report to Shareholders of Woolworth
Corporation (the "Registrant"), portions of which Annual Report are incorporated
by reference in the Registrant's Annual Report on Form 10-K for the year ended
January 25, 1997, as filed with the Securities and Exchange Commission (the
"SEC"). Certain items included in these statements are based on management's
estimates. In the opinion of management, all material adjustments, which are of
a normal recurring nature, necessary for a fair presentation of the results for
the interim period have been included. The results for the thirty-nine weeks
ended October 25, 1997 are not necessarily indicative of the results expected
for the year.
Discontinued Operations
On July 17, 1997, the Registrant announced that it was exiting its 400
store domestic Woolworth general merchandise business. The Registrant expects to
convert approximately 130 of the prime locations to Foot Locker, Champs Sports,
and other athletic or specialty formats. The Registrant expects to convert
approximately 40 of the stores to Athletic Group formats by January 1998. The
remaining domestic Woolworth general merchandise stores as well as the
division's distribution center in Denver, Pennsylvania were closed in November
1997.
The results of operations for all periods presented for the domestic
Woolworth general merchandise business have been classified as discontinued
operations in the Condensed Consolidated Statements of Operations. Sales from
discontinued operations for the period ended July 17, 1997 (date of close) were
$427 million. Sales for the thirty-nine week period ended October 26, 1996 were
$757 million.
The Condensed Consolidated Balance Sheets and Condensed Consolidated
Statements of Cash Flows have been restated for discontinued operations. The
following is a summary of the net assets of discontinued operations:
<TABLE>
<CAPTION>
Oct. 25, Oct. 26, Jan. 25,
1997 1996 1997
---- ---- ----
<S> <C> <C> <C>
Assets $ 100 $ 496 $ 373
Liabilities 149 137 137
----- ----- -----
Net assets (liabilities) of discontinued operations $ (49) $ 359 $ 236
===== ===== =====
</TABLE>
The assets consist primarily of inventory and fixed assets. Liabilities
consist primarily of amounts due to vendors. During the period from July 17,
1997 through October 25, 1997, proceeds from disposals related to the
discontinued operations were $257 million which were primarily from the sale of
merchandise inventories.
In July, 1997, the Registrant recorded a charge to earnings of $310
million before-tax or $195 million after-tax, for the loss on disposal of
discontinued operations. Disposition activity related to the discontinued
operations reserve for the period ended October 25, 1997 was a reduction of
approximately $104 million and the remaining reserve balance at October 25, 1997
was $206 million.
On December 8, 1997, the Registrant announced the sale of its general
merchandise business in Mexico. The impact of this sale is not significant and
is included in the reserve for discontinued operations.
-7-
<PAGE> 8
Reclassifications
Certain balances in prior periods have been reclassified to conform
with the presentation adopted in the current
period.
Legal Proceedings
Between March 30, 1994 and April 18, 1994, the Registrant and certain
of its present and former directors and officers were named as defendants in
lawsuits brought by certain shareholders claiming to represent classes of
shareholders that purchased shares of the Registrant's common stock during
different periods between January 1992 and
March 1994.
These class action complaints purport to present claims under the
federal securities and other laws and seek unspecified damages based on alleged
misleading disclosures during the class periods.
On April 29, 1994, United States Senior District Judge Richard Owen
entered an order consolidating 25 actions, purportedly brought as class actions,
commenced against the Registrant and certain officers and directors of the
Registrant in the United States District Court for the Southern District of New
York, under the caption In re Woolworth Corporation Securities Class Action
Litigation. Plaintiffs served an Amended and Consolidated Class Action
Complaint, to which the defendants responded. On February 17, 1995, Judge Owen
entered an order for certification of the action as a class action on behalf of
all persons who purchased the Registrant's common stock or options on the
Registrant's common stock from May 12, 1993 to March 29, 1994 inclusive,
pursuant to a stipulation among the parties. On March 13, 1997, the parties'
representatives engaged in a mediation proceeding with a view toward settling
the issues in dispute. On June 23, 1997, a proposed settlement of the class
action was reached by the parties that provides for the payment to the class of
$20 million. On October 6, 1997, the court entered final judgment approving the
settlement of the class action and dismissing the class action with prejudice.
The amount of the settlement, net of amounts to be paid by insurance carriers
under relevant insurance policies, had been reserved by the Registrant. In the
opinion of management, the settlement will not have a material adverse effect on
the financial position or results of operations of the Registrant.
There is one federal derivative action pending in the United States
District Court for the Southern District of New York under the caption Rosenbaum
v. Sells et al. On December 2, 1997, the parties submitted to the court a
proposed Stipulation and Order of Dismissal which, if approved by the court
will dismiss the action with
prejudice.
During 1994, the staff of the SEC initiated an inquiry relating to the
matters that were reviewed by the Special Committee of the Board of Directors as
well as in connection with trading in the Registrant's securities by certain
directors and officers of the Registrant. The SEC staff has advised that its
inquiry should not be construed as an indication by the SEC or its staff that
any violations of law have occurred. In the opinion of management, the result of
the inquiry will not have a material adverse effect on the financial position or
results of operations of the Registrant.
The information in this section on Legal Proceedings is current as of
December 8, 1997.
-8-
<PAGE> 9
Recent Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standard ("SFAS") No. 128, "Earnings
per Share", which is effective for financial statements issued for periods
ending after December 15, 1997 and therefore, effective for the Registrant for
the fiscal year ending January 31, 1998. SFAS No. 128 simplifies the standards
for computing earnings per share previously found in Accounting Principles Board
Opinion No. 15 and establishes new standards for computing and presenting
earnings per share. Application of SFAS No. 128 is not expected to have a
significant impact on the Registrant's earnings per share.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income", which is effective for financial statements issued for fiscal years
beginning after December 15, 1997 and therefore, effective for the Registrant
for the fiscal year beginning February 1, 1998. SFAS No. 130 establishes
standards for reporting and display of comprehensive income and its components
in the financial statements. A revised presentation of information on the income
statement is required for comparative purposes.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information", which is effective for financial
statements issued for fiscal years beginning after December 15, 1997 and
therefore, effective for the Registrant for the fiscal year beginning February
1, 1998. SFAS No. 131 supersedes previously established standards for reporting
operating segments in the financial statements and requires disclosures
regarding selected information about operating segments in interim financial
reports.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
As discussed in the Notes to Condensed Consolidated Financial
Statements, the Registrant announced that it was exiting its domestic Woolworth
general merchandise business. Accordingly, the results of operations for all
periods presented for this business have been classified as discontinued
operations and all financial statements have been restated.
Total sales for the 1997 third quarter decreased 11.6 percent to $1,583
million as compared with $1,790 million for the 1996 third quarter reflecting,
in part, 270 fewer stores. Excluding the effect of foreign currency fluctuations
and sales from disposed operations, sales decreased 5.5 percent for the quarter.
Comparable-store sales decreased 7.6 percent. Total Specialty segment sales
decreased 4.1 percent in the third quarter and comparable-store sales decreased
7.8 percent. International General Merchandise segment sales decreased 23.3
percent for the third quarter of 1997 as compared with the third quarter of
1996. Comparable-store sales in the International General Merchandise segment
decreased 7.1 percent during the period. Excluding the impact of foreign
currency fluctuations, International General Merchandise sales decreased by 12.0
percent, as compared with the third quarter of 1996.
Year-to-date 1997 sales decreased 6.9 percent to $4,622 million as
compared with $4,967 million for 1996. Excluding the effect of foreign currency
fluctuations and sales from disposed operations, sales remained level in
comparison with the prior year period. Comparable-store sales decreased 3.6
percent as compared with the corresponding
year-earlier period.
Third quarter operating profit from continuing operations (before
corporate expense, interest expense and income taxes) declined to $104 million
as compared with $152 million in the third quarter of 1996. This decline is
primarily a result of lower sales and an increase in markdowns, partially offset
by a decrease in selling, general and administrative expenses ("SG&A"). SG&A
expenses decreased $56 million and $129 million for the thirteen and thirty-nine
weeks ended October 25, 1997, respectively, as compared with the corresponding
prior year periods. This improvement reflects management's continuing effort to
implement cost reduction initiatives. Prior year SG&A expenses included a charge
for early retirement and severance programs in Germany of $21 million and $31
million for the thirteen and thirty-nine weeks ended October 26, 1996,
respectively.
-9-
<PAGE> 10
The net gain on the divestiture of non-strategic real estate in the
third quarter periods ended October 25, 1997 and October 26, 1996 totaled $7
million and $18 million, respectively. These gains primarily related to the sale
of real estate located in Germany.
The Registrant reported income from continuing operations for the
thirteen weeks ended October 25, 1997 of $55 million, or $0.41 per share,
compared with $77 million, or $0.58 per share, in the restated year-earlier
period. For the thirty-nine weeks ended October 25, 1997 income from continuing
operations was $98 million, an increase of $10 million from the restated prior
year period. For the year-to-date period ended October 25, 1997 the Registrant
reported a net loss of $125 million, or $0.93 per share, which includes an
after-tax charge of $223 million, or $1.66 per share for discontinued
operations. This compares with net income of $69 million, or $0.52 per share for
the corresponding prior year period.
As of October 25, 1997, the Registrant operated a total of 7,169 stores
consisting of 6,611 Specialty stores and 558 International General Merchandise
stores. This compares with 7,439 stores, excluding discontinued operations,
consisting of 6,863 Specialty stores and 576 International General Merchandise
stores operated at October 26, 1996.
SALES
The following table summarizes sales for continuing operations by segment and
geographic area:
<TABLE>
<CAPTION>
Thirteen weeks ended Thirty-nine weeks ended
-------------------------- --------------------------
(in millions) Oct. 25, Oct. 26, Oct. 25, Oct. 26,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
By segment:
Specialty:
Athletic Group $ 907 $ 951 $2,670 $2,624
Northern Group 110 110 270 255
Specialty Footwear 139 149 389 403
Other Specialty 87 86 248 254
------ ------ ------ ------
Specialty total 1,243 1,296 3,577 3,536
------ ------ ------ ------
International General Merchandise:
Germany 301 399 932 1,138
Other 39 44 108 125
------ ------ ------ ------
International General Merchandise total 340 443 1,040 1,263
------ ------ ------ ------
Disposed operations -- 51 5 168
------ ------ ------ ------
$1,583 $1,790 $4,622 $4,967
====== ====== ====== ======
By geographic area:
Domestic $1,002 $1,039 $2,930 $2,874
International 581 700 1,687 1,925
Disposed operations -- 51 5 168
------ ------ ------ ------
$1,583 $1,790 $4,622 $4,967
====== ====== ====== ======
</TABLE>
-10-
<PAGE> 11
Specialty
Athletic Group third quarter sales decreased 4.6 percent as compared
with the third quarter of 1996, while decreasing 9.9 percent on a
comparable-store basis. Year-to-date Athletic Group sales increased by 1.8
percent, primarily due to sales from new stores, and decreased 3.9 percent on a
comparable-store basis, as compared with the corresponding prior year period.
The reduction in the 1997 third quarter Athletic Group sales was due to soft
athletic shoe sales, particularly in the cross-training and basketball
categories, as compared with the corresponding prior year period which had
strong cross-training and basketball shoe sales and licensed product sales
associated with the Olympics. Northern Group sales remained level for the third
quarter and increased 5.9 percent for the year-to-date period. Comparable-store
sales decreased by 2.7 percent for the third quarter and increased by 1.8
percent for the year-to-date period. Sales from new store openings in the
Northern Group contributed to the sales increase.
Specialty Footwear's third quarter sales decreased 6.7 percent, and by
2.3 percent on a comparable-store basis, as compared with the corresponding
prior year period. The decrease is primarily due to a sales decline from Kinney
shoes, particularly in Canada. Specialty Footwear's 3.5 percent decline for the
year-to-date period resulted from 305 fewer stores, while comparable-store sales
for the same period remained relatively level with the corresponding prior year
period. Other Specialty third quarter sales and comparable-store sales, adjusted
for 1996 dispositions, remained level as compared to the corresponding prior
year period. Year-to-date sales declined 2.4 percent, 0.9 percent on a
comparable-store basis, as compared to the prior period. The year-to-date
decline in Other Specialty sales was mainly due to the closure of 98
under-performing stores related to ongoing formats.
International General Merchandise
German general merchandise sales decreased 24.6 percent and 18.1
percent for the third quarter and year-to-date periods, respectively. Excluding
the impact of foreign currency fluctuations, sales decreased 12.2 percent and
4.7 percent for the third quarter and year-to-date periods, respectively.
Comparable-store sales decreased 7.3 percent and 5.5 percent for the third
quarter and year-to-date periods, respectively.
OPERATING RESULTS
Operating results from continuing operations (before corporate expense,
interest expense, and income taxes) are as follows:
<TABLE>
<CAPTION>
Thirteen weeks ended Thirty-nine weeks ended
-------------------------- --------------------------
(in millions) Oct. 25, Oct. 26, Oct. 25, Oct. 26,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
By Segment:
Specialty $ 93 $ 153 $ 234 $ 289
International General Merchandise 5 (15) (7) (45)
Net gain on sales of real estate 7 18 11 23
Disposed operations (1) (4) (3) (35)
------ ------ ------ ------
$ 104 $ 152 $ 235 $ 232
====== ====== ====== ======
By geographic area:
Domestic $ 76 $ 129 $ 217 $ 261
International 22 9 10 (17)
Net gain on sales of real estate 7 18 11 23
Disposed operations (1) (4) (3) (35)
------ ------ ------ ------
$ 104 $ 152 $ 235 $ 232
====== ====== ====== ======
</TABLE>
-11-
<PAGE> 12
Specialty
The Specialty segment's operating profit decreased by $60 million, or
39.2 percent as compared with the 1996 third quarter. The decrease was primarily
a result of lower sales and gross margins due to increased markdowns within the
Athletic Group. A shift in consumer preferences has contributed to the decisions
to take those markdowns and to reposition the Registrant's merchandise
assortment for the fourth quarter. Year-to-date operating profits decreased $55
million or 19.0 percent as compared with the corresponding period of 1996, which
is primarily due to the decline in sales and gross margins.
The Specialty Footwear segment improved operating results through
continuing expense reduction initiatives. The Northern Group operating results
remained level for the year-to-date period.
International General Merchandise
Operating results in the International General Merchandise segment
improved by $20 million and $38 million for the quarter and year-to-date periods
as compared with the third quarter and year-to-date periods of 1996,
respectively. The improvement in the International General Merchandise operating
profit compared with the prior year is attributable to expense reductions and a
$21 million charge for early retirement and severance programs recorded in the
corresponding prior year period.
Income Taxes
The estimated annual effective income tax rate applied in fiscal year
1997 is expected to be 37%, compared with the 40% rate for the prior year
period. This improvement primarily reflects a reduction of state and local
income tax valuation allowances.
SEASONALITY
The Registrant's businesses are highly seasonal in nature.
Historically, the greatest proportion of sales and net income is generated in
the fourth quarter and the lowest proportion of sales and net income is
generated in the first quarter, reflecting seasonal buying patterns.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities was $50 million for the
thirty-nine weeks ended October 25, 1997, as compared with $8 million in the
comparable prior-year period. The increase was primarily to fund inventory
purchases related to the development of new larger-size athletic formats, the
recent acquisition of 25 Koenig Sporting Goods stores and anticipated new store
openings. Inventories remained flat at $1,377 million as of October 25, 1997,
compared with a restated $1,373 million as of October 26, 1996. Common to the
retail industry are cyclical build-ups of inventory immediately prior to peak
selling periods, such as the upcoming holiday selling season. As such, in line
with this cyclical build-up, inventories increased $311 million at October 25,
1997 as compared with January 25, 1997.
-12-
<PAGE> 13
Net cash used in investing activities increased $237 million to $253
million for the thirty-nine weeks ended October 25, 1997, as compared with $16
million used during the corresponding period in 1996. The increase in cash used
for investing was primarily due to the acquisitions of Eastbay and 25 Koenig
Sporting Goods stores, which totaled approximately $148 million in the
aggregate. Capital expenditures increased by $64 million as compared with the
prior year as a result of new store development spending for existing formats.
Approximately $300 million of capital expenditures are planned for the 1997
fiscal year as compared with $134 million in 1996.
Accounts payable at October 25, 1997 decreased by $18 million as
compared with October 26, 1996 and increased by $65 million to $351 million as
compared with the year-end level. The increase from January 25, 1997 is
the direct result of the seasonal increase in inventory.
Short-term debt at October 25, 1997 decreased $89 million as compared
with October 26, 1996 due to repayment of debt using cash generated from
operations. Short-term debt increased by $26 million from the year-end level
attributable to the financing of seasonal working capital needs.
Interest expense for the thirteen weeks ended October 25, 1997,
decreased $3 million over the comparable 1996 period. Interest expense for the
year-to-date period decreased $13 million. These declines were attributable to
the reduction in total debt levels of $109 million as well as lower financing
costs resulting from renegotiation of the Registrant's credit agreement.
Shareholders' equity at October 25, 1997 decreased $180 million from
the level at January 25, 1997. This decrease was primarily attributable to the
after-tax charge for discontinued operations of $223 million and changes
in foreign currency exchange rates.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
This information is incorporated by reference to the Legal Proceedings
section of the Notes to Condensed Consolidated Financial Statements on page 8 of
Part I, Item 1.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
An index of the exhibits that are required by this item, and which are
furnished in accordance with Item 601 of Regulation S-K, appears on pages 15
through 17. The exhibits which are in this report immediately follow the index.
(b) Reports on Form 8-K
The Registrant filed a report on Form 8-K dated August 13, 1997 (date
of earliest event reported) reporting the election of Reid Johnson as Senior
Vice President and Chief Financial Officer effective
September 8, 1997.
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<PAGE> 14
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WOOLWORTH CORPORATION
---------------------
(Registrant)
Date: December 8, 1997 /s/ Reid Johnson
---------------------
REID JOHNSON
Senior Vice President
and Chief Financial Officer
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<PAGE> 15
WOOLWORTH CORPORATION
INDEX OF EXHIBITS REQUIRED BY ITEM 6(a) OF FORM 10-Q
AND FURNISHED IN ACCORDANCE WITH ITEM 601 OF REGULATION S-K
Exhibit No. in Item 601
of Regulation S-K Description
----------------- -----------
1 *
2 *
3(i)(a) Certificate of Incorporation of the
Registrant, as filed by the Department of
State of the State of New York on April 7,
1989 (incorporated herein by reference to
Exhibit 3(i)(a) to the Quarterly Report on
Form 10-Q for the quarterly period ended July
26, 1997, filed by the Registrant with the
SEC on September 4, 1997 (the "July 26, 1997
Form 10-Q").
3(i)(b) Certificates of Amendment of the Certificate
of Incorporation of the Registrant, as filed
by the Department of State of the State of
New York on (a) July 20, 1989 (b) July 24,
1990 and (c) July 9, 1997 (incorporated
herein by reference to Exhibit 3(i)(b) of the
July 26, 1997 Form 10-Q).
3(ii) By-laws of the Registrant, as amended
(incorporated herein by reference to Exhibit
3(ii) of the July 26, 1997 Form 10-Q).
4(a) The rights of holders of the Registrant's
equity securities are defined in the
Registrant's Certificate of Incorporation, as
amended (incorporated herein by reference to:
(a) Exhibits 3(i)(a) and 3(i)(b) to the July
26, 1997 Form 10-Q).
4(b) Rights Agreement dated as of April 4, 1988,
as amended January 11, 1989, between F.W.
Woolworth Co. ("FWW") and Morgan Shareholder
Services Trust Company (now, First Chicago
Trust Company of New York), as Rights Agent
(incorporated herein by reference to (a)
Exhibit 1 to the Registration Statement on
Form 8-A filed by FWW with the Securities and
Exchange Commission ("SEC") on April 12, 1988
(Registration No. 1-238) and (b) the Form 8
Amendment to such Form 8-A filed by FWW with
the SEC on January 13, 1989). The rights and
obligations of FWW under said Rights
Agreement were assumed by the Registrant
pursuant to an Agreement and Plan of Share
Exchange dated as of May 4, 1989, by and
between FWW and the Registrant (incorporated
herein by reference to Exhibit 2 to the
Registration Statement on Form S-4 filed by
the Registrant with the SEC on May 9, 1989
(Registration No. 33-28469)).
-15-
<PAGE> 16
4(c) Indenture dated as of October 10, 1991
(incorporated herein by reference to Exhibit
4.1 to the Registration Statement on Form S-3
(Registration No. 33-43334) previously filed
with the SEC).
4(d) Forms of Medium-Term Notes (Fixed Rate and
Floating Rate). (incorporated herein by
reference to Exhibits 4.4 and 4.5 to the
Registration Statement on Form S-3
(Registration No. 33-43334) previously filed
with the SEC).
4(e) Form of 8-1/2% Debentures due 2022
(incorporated herein by reference to Exhibit
4 to Registrant's Form 8-K dated January 16,
1992).
4(f) Purchase Agreement dated June 1, 1995 and
Form of 7% Notes due 2000 (incorporated
herein by reference to Exhibits 1 and 4,
respectively, to Registrant's Form 8-K dated
June 7, 1995).
4(g) Distribution Agreement dated July 13, 1995
and Forms of Fixed Rate and Floating Rate
Notes (incorporated herein by reference to
Exhibits 1, 4.1 and 4.2, respectively, to
Registrant's Form 8-K dated July 13, 1995).
5 *
8 *
9 *
10 Agreement with Reid Johnson dated September
8, 1997.
11 Computation of Net Income (Loss) Per Common
Share.
12 Computation of Ratio of Earnings to Fixed
Charges.
13 *
15 Letter re: Unaudited Interim Financial
Statements.
16 *
17 *
18 *
19 *
20 *
21 *
22 *
23 *
24 *
25 *
26 *
-16-
<PAGE> 17
27 Financial Data Schedule, which is submitted
electronically to the SEC for information
only and not filed.
99 Independent Accountants' Review Report.
-----------------
* Not applicable
-17-
<PAGE> 18
Exhibits filed with this Form 10-Q:
Exhibit No. Description
- ----------- -----------
10 Agreement with Reid Johnson dated September 8, 1997.
11 Computation of Net Income (Loss) Per Common Share.
12 Computation of Ratio of Earnings to Fixed Charges.
15 Letter re: Unaudited Interim Financial Statements.
27 Financial Data Schedule.
99 Independent Accountants' Review Report.
<PAGE> 1
EXHIBIT 10
AGREEMENT
THIS AGREEMENT made as of September 8, 1997, by and between WOOLWORTH
CORPORATION, a New York corporation with its principal office at 233 Broadway,
New York, New York 10279 (the "Company") and Reid Johnson, residing at 9166
Brechenridge Lane, Eden Prarie, Minnesota 55347 (the "Executive").
W I T N E S S E T H:
WHEREAS, the Company believes that the establishment and maintenance of
a sound and vital management of the Company is essential to the protection and
enhancement of the interests of the Company and its shareholders; and
WHEREAS, the Company wishes to offer a form of protection to the
Executive, as one of a select group of officers and key employees of the Company
and its Affiliates, in the event the Executive's employment with the Control
Group terminates; and
WHEREAS, the Company also recognizes that the possibility of a Change
in Control of the Company, with the attendant uncertainties and risks, might
result in the departure or distraction of the Executive to the detriment of the
Company; and
WHEREAS, the Company wishes to induce the Executive to remain with the
Control Group, and to reinforce and encourage the Executive's continued
attention and dedication, when faced with the possibility of a Change in Control
of the Company; and
WHEREAS, this Agreement amends and supersedes any employment agreement,
severance plan, policy and/or practice of the Company in effect for the
Executive.
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, the parties hereto hereby agree as follows:
1. Definitions. The following terms shall have the meanings set forth
in this section as follows:
(a) "Affiliate" shall mean the Company and any entity affiliated with
the Company within the meaning of Code Section 414(b) with respect to a
controlled group of corporations, Code Section 414(c) with respect to trades or
businesses under common control with the Company, Code Section 414(m) with
respect to affiliated service groups and any other entity required to be
aggregated with the Company under Section 414(o) of the Code. No entity shall be
treated as an Affiliate for any period during which it is not part of the
controlled group, under common control or otherwise required to be aggregated
under Code Section 414.
(b) "Beneficiary" shall mean the individual designated by the
Executive, on a form acceptable by the Committee, to receive benefits payable
under this Agreement in the event of the Executive's death. If no Beneficiary is
designated, the Executive's Beneficiary shall be his or her spouse, or if the
Executive is not survived by a spouse, the Executive's estate.
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<PAGE> 2
(c) "Board" shall mean the Board of Directors of the Company.
(d) "Bonus" shall mean an amount equal to the target bonus expected to
be earned by the Executive under the Company's Annual Incentive Compensation
Plan or such other annual bonus plan or program that may then be applicable to
the Executive in a fiscal year, if the applicable target performance goal is
satisfied.
(e) "Cause" shall mean (with regard to the Executive's termination of
employment with the Control Group): (i) the refusal or willful failure by the
Executive to substantially perform his or her duties, (ii) with regard to the
Control Group or any of their assets or businesses, the Executive's dishonesty,
willful misconduct, misappropriation, breach of fiduciary duty or fraud, or
(iii) the Executive's conviction of a felony (other than a traffic violation) or
any other crime involving, in the sole discretion of the Committee, moral
turpitude.
(f) "Change in Control" shall have the meaning set forth in Appendix A
attached hereto.
(g) "Code" shall mean the Internal Revenue Code of 1986, as amended and
as hereafter amended from time to time.
(h) "Committee" shall mean the Compensation Committee of the Board or
an administrative committee appointed by the Compensation Committee.
(i) "Competition" shall mean the (i) participating, directly or
indirectly, as an individual proprietor, stockholder, officer, employee,
director, joint venturer, investor, lender, or in any capacity whatsoever
(within the United States of America, or in any country where any of the
Executive's former employing members of the Control Group does business) in a
business in competition with any business conducted by any member of the Control
Group for which the Executive worked at any time, provided, however, that such
participation shall not include (A) the mere ownership of not more than 1
percent of the total outstanding stock of a publicly held company; (B) the
performance of services for any enterprise to the extent such services are not
performed, directly or indirectly, for a business in which any of the Employee's
employing members of the Control Group is engaged; or (C) any activity engaged
in with the prior written approval of the Board or the Committee; or (ii)
intentional recruiting, soliciting or inducing, of any employee or employees of
the Control Group to terminate their employment with, or otherwise cease their
relationship with the former employing members of the Control Group where such
employee or employees do in fact so terminate their employment.
(j) "Control Group" shall mean the Company and its Affiliates.
(k) "Good Reason" shall mean (with respect to an Executive's
termination of employment with the Control Group): (i) any material demotion of
the Executive or any material reduction in the Executive's authority or
responsibility, except in each case in connection with the termination of the
Executive's employment for Cause or disability or as a result of the Executive's
death, or temporarily as a result of the Executive's illness or other absence;
(ii) a 20 percent or greater reduction in a 12 month period in the Executive's
rate of base salary as payable from time to
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<PAGE> 3
time; (iii) a reduction in the Executive's annual bonus classification level
other than in connection with a redesign of the applicable bonus plan that
affects all employees at the Executive's bonus level; (iv) a failure of the
Company to continue in effect the benefits applicable to, or the Company's
reduction of the benefits applicable to, the Executive under any benefit plan or
arrangement (including without limitation, any pension, life insurance, health
or disability plan) in which the Executive participates as of the date of the
Change in Control without implementation of a substitute plan(s) providing
materially similar benefits in the aggregate to those discontinued or reduced,
except for a discontinuance of, or reduction under, any such plan or arrangement
that is legally required and/or generally applies to all executives of the
Company of a similar level, provided that in either such event the Company
provides similar benefits (or the economic effect thereof) to the Executive in
any manner determined by the Company; or (v) failure of any successor to the
Company to assume in writing the obligations hereunder.
(l) "Salary" shall mean an Executive's base monthly cash compensation
rate for services paid to the Executive by the Company or an Affiliate at the
time of his or her termination of employment from the Control Group. Salary
shall not include commissions, bonuses, overtime pay, incentive compensation,
benefits paid under any qualified plan, any group medical, dental or other
welfare benefit plan, noncash compensation or any other additional compensation
but shall include amounts reduced pursuant to an Executive's salary reduction
agreement under Sections 125 or 401(k) of the Code (if any) or a nonqualified
elective deferred compensation arrangement to the extent that in each such case
the reduction is to base salary.
(m) "Severance Benefit" shall mean (i) in the case of the Executive's
termination of employment that does not occur within the 12 month period
following a Change in Control, two weeks' Salary plus prorated Bonus multiplied
by the Executive's Years of Service, with a minimum of 26 weeks; or (ii) in the
case of an Executive's termination of employment within the 12 month period
following a Change in Control, two weeks' Salary plus prorated Bonus multiplied
by the Executive's Years of Service, with a minimum of 78 weeks. The Executive's
prorated Bonus for one week shall equal the Executive's Bonus divided by 52.
(n) "Severance Period" shall mean (i) in the case of the Executive's
termination of employment that does not occur within the 12 month period
following a Change in Control, two weeks multiplied by the Executive's Years of
Service, with a minimum of 26 weeks; or (ii) in the case of an Executive's
termination of employment within the 12 month period following a Change in
Control, two weeks multiplied by the Executive's Years of Service, with a
minimum of 78 weeks.
(o) "Year of Service" shall mean each 12 consecutive month period
commencing on the Executive's date of hire by the Company or an Affiliate and
each anniversary thereof in which the Executive is paid by the Company or an
Affiliate for the performance of full-time services as an Executive. For
purposes of this section, full-time services shall mean that the Employee is
employed for at least 30 hours per week. A Year of Service shall include any
period during which an Employee is not working due to disability, leave of
absence or layoff so long as he or she is being paid by the Employer (other than
through any employee benefit plan). A Year of Service also shall include service
in any branch of the armed forces of the United States by any person who is an
Executive on the date such service commenced, but only to the extent required by
applicable law.
3
<PAGE> 4
2. Term. The initial term of this Agreement shall end on December 31 of
the year following the year in which this Agreement is entered into. On December
31 of each year, the term shall be automatically renewed for an additional one
year so that the term shall then be for two years, unless the Committee notifies
the Executive prior to any December 31 that the term shall not be renewed.
Notwithstanding anything in this Agreement to the contrary, if the Company
becomes obligated to make any payment to the Executive pursuant to the terms
hereof at or prior to the expiration of this Agreement, then this Agreement
shall remain in effect until all of the Company's obligations hereunder are
fulfilled.
3. Benefits Upon Termination. In the event the Executive's employment
with the Control Group is terminated without Cause or the Executive terminates
employment with the Control Group within 60 days after the occurrence of a Good
Reason event with regard to the Executive, the Executive shall be entitled to a
Severance Benefit as set forth below.
(a) The Executive shall receive 50 percent of his or her Severance
Benefit in the form of a lump sum cash payment as soon as administratively
feasible following his or her termination of employment with the Control Group,
provided, however, that interest shall be payable beginning on the tenth day
following such termination of employment at the prime rate of interest as stated
in the Wall Street Journal.
(b) The Executive shall receive the remaining 50 percent of his or her
Severance Benefit in the form of a lump sum cash payment as soon as
administratively feasible following the one year anniversary of the Executive's
termination of employment with the Control Group, subject to (c) below,
provided, however, that interest shall be payable beginning on the tenth day
following such termination of employment at the prime rate of interest as stated
in the Wall Street Journal .
(c) The Executive shall only be entitled to the portion of his or her
Severance Benefit described in (b) above if the Executive does not engage in
Competition during the one year period following his or her termination of
employment with the Control Group and if the Executive has not materially
violated the provisions of Section 14 hereof. If the Executive does engage in
Competition or violates the provisions of Section 14 during such one year
period, the portion of the Executive's Severance Benefit described in (b) above
shall be forfeited. If the restriction set forth in this subsection is found by
any court of competent jurisdiction to be unenforceable because it extends for
too long a period of time or over too great a range of activities or in too
broad a geographic area, it shall be interpreted to extend over the maximum
period of time, range of activities or geographic area as to which it may be
enforceable.
(d) The Executive shall continue, to the extent permitted under legal
and underwriting requirements (if any), to participate during his or her
Severance Period in any group medical, dental or life insurance plan he or she
participated in prior to his or her termination of employment, under
substantially similar terms and conditions as an active Employee; provided
participation in such group medical, dental and life insurance benefits shall
correspondingly cease at such time as the Executive becomes eligible for a
future employer's medical, dental and/or life insurance coverage (or would
become eligible if the Executive did not waive coverage). Notwithstanding the
foregoing, the Executive may not continue to participate in such plans on a
pre-tax or tax-favored
4
<PAGE> 5
basis. Notwithstanding anything else herein, the Executive shall not be entitled
to any benefits during the Severance Period other than the benefits provided in
Section 3 herein and, without limiting the generality of the foregoing, the
Executive specifically shall not be entitled to continue to participate in any
group disability or voluntary accidental death or dismemberment insurance plan
he or she participated in prior to his or her termination of employment. Without
limiting the generality of the foregoing, the Executive shall not accrue
additional benefits under any pension plan of the Employer (whether or not
qualified under Section 401(a) of the Code) during the Severance Period,
provided, however, that payment of any Severance Benefit shall be included in
the Executive's earnings for purposes of calculating the Executive's benefit
under The Woolworth Retirement Plan, Woolworth Corporation 401(k) Plan, and
Woolworth Corporation Excess Cash Balance Plan.
(e) In the event of the Executive's death after becoming eligible for
the portion of the Severance Benefit described in (a) above and prior to payment
of such amount, such portion of the Severance Benefit shall be paid to the
Executive's Beneficiary. In addition to the foregoing, in the event of the
Executive's death prior to payment of the portion of the Severance Benefit
described in (b) above, such amount shall be paid to the Executive's
Beneficiary, but only to the extent that the Executive satisfied the provisions
set forth in (c) above for the period following the Executive's termination of
employment with the Control Group and prior to his or her death.
(f) Notwithstanding anything else herein, to the extent the Executive
would be subject to the excise tax under Section 4999 of the Code on the amounts
in (a) or (b) above and such other amounts or benefits he or she received from
the Company and its Affiliates required to be included in the calculation of
parachute payments for purposes of Sections 280G and 4999 of the Code, the
amounts provided under this Agreement shall be automatically reduced to an
amount one dollar less than that, when combined with such other amounts and
benefits required to be so included, would subject the Executive to the excise
tax under Section 4999 of the Code, if, and only if, the reduced amount received
by the Executive, would be greater than the unreduced amount to be received by
the Executive minus the excise tax payable under Section 4999 of the Code on
such amount and the other amounts and benefits received by the Executive and
required to be included in the calculation of a parachute payment for purposes
of Sections 280G and 4999 of the Code.
4. No Duty to Mitigate/Set-off. The Company agrees that if the
Executive's employment with the Company is terminated during the term of this
Agreement, the Executive shall not be required to seek other employment or to
attempt in any way to reduce any amounts payable to the Executive by the Company
pursuant to this Agreement. Further, except to the extent provided for in
Section 3(c), the amount of the Severance Benefit provided for in this Agreement
shall not be reduced by any compensation earned by the Executive or benefit
provided to the Executive as the result of employment by another employer or
otherwise. Except as otherwise provided herein, the Company's obligations to
make the payments provided for in this Agreement and otherwise to perform its
obligations hereunder shall not be affected by any circumstances, including
without limitation, any set-off, counterclaim, recoupment, defense or other
right which the Company may have against the Executive. The Executive shall
retain any and all rights under all pension plans, welfare plans, equity plans
and other plans, including other severance plans, under which the Executive
would otherwise be entitled to benefits.
5
<PAGE> 6
5. Funding. Severance Benefits shall be funded out of the general
assets of the Company as and when they are payable under this Agreement. The
Executive shall be solely a general creditor of the Company. If the Company
decides to establish any advance accrued reserve on its books against the future
expense of benefits payable hereunder, or if the Company is required to fund a
trust under this Agreement, such reserve or trust shall not under any
circumstances be deemed to be an asset of this Agreement.
6. Administration. This Agreement shall be administered by the
Committee. The Committee (or its delegate) shall have the exclusive right,
power, and authority, in its sole and absolute discretion, to administer, apply
and interpret the Agreement and to decide all matters arising in connection with
the operation or administration of the Agreement. Without limiting the
generality of the foregoing, the Committee shall have the sole and absolute
discretionary authority: (a) to take all actions and make all decisions with
respect to the eligibility for, and the amount of, benefits payable under the
Agreement; (b) to formulate, interpret and apply rules, regulations and policies
necessary to administer the Agreement in accordance with its terms; (c) to
decide questions, including legal or factual questions, relating to the
calculation and payment of benefits under the Agreement; (d) to resolve and/or
clarify any ambiguities, inconsistencies and omissions arising under the
Agreement; (e) to decide for purposes of paying benefits hereunder, whether,
based on the terms of this Agreement, a termination of employment is for Good
Reason or for Cause; and (f) except as specifically provided to the contrary
herein, to process and approve or deny benefit claims and rule on any benefit
exclusions. All determinations made by the Committee (or any delegate) with
respect to any matter arising under the Agreement shall be final, binding and
conclusive on all parties.
Decisions of the Committee shall be made by a majority of its members
attending a meeting at which a quorum is present (which meeting may be held
telephonically), or by written action in accordance with applicable law. All
decisions of the Committee on any question concerning the interpretation and
administration of the Agreement shall be final, conclusive and binding upon all
parties.
No member of the Committee and no officer, director or employee of the
Company or any other Affiliate shall be liable for any action or inaction with
respect to his or her functions under this Agreement unless such action or
inaction is adjudged to be due to gross negligence, willful misconduct or fraud.
Further, no such person shall be personally liable merely by virtue of any
instrument executed by him or her or on his or her behalf in connection with
this Agreement.
The Company shall indemnify, to the full extent permitted by law and
its Certificate of Incorporation and By-laws (but only to the extent not covered
by insurance) its officers and directors (and any employee involved in carrying
out the functions of the Company under the Agreement) and each member of the
Committee against any expenses, including amounts paid in settlement of a
liability, which are reasonably incurred in connection with any legal action to
which such person is a party by reason of his or her duties or responsibilities
with respect to the Agreement, except with regard to matters as to which he or
she shall be adjudged in such action to be liable for gross negligence, willful
misconduct or fraud in the performance of his or her duties.
6
<PAGE> 7
7. Claims Procedures. Any claim by the Executive or Beneficiary
("Claimant") with respect to participation, contributions, benefits or other
aspects of the operation of the Agreement shall be made in writing to the
Secretary of the Company or such other person designated by the Committee from
time to time for such purpose. If the designated person receiving a claim
believes, following consultation with the Chairman of the Committee, that the
claim should be denied, he or she shall notify the Claimant in writing of the
denial of the claim within 90 days after his or her receipt thereof (this period
may be extended an additional 90 days in special circumstances and, in such
event, the Claimant shall be notified in writing of the extension). Such notice
shall (a) set forth the specific reason or reasons for the denial making
reference to the pertinent provisions of the Agreement on which the denial is
based, (b) describe any additional material or information necessary to perfect
the claim, and explain why such material or information, if any, is necessary,
and (c) inform the Claimant of his or her right pursuant to this section to
request review of the decision.
A Claimant may appeal the denial of a claim by submitting a written
request for review to the Committee, within 60 days after the date on which such
denial is received. Such period may be extended by the Committee for good cause
shown. The claim will then be reviewed by the Committee. A Claimant or his or
her duly authorized representative may discuss any issues relevant to the claim,
may review pertinent documents and may submit issues and comments in writing. If
the Committee deems it appropriate, it may hold a hearing as to a claim. If a
hearing is held, the Claimant shall be entitled to be represented by counsel.
The Committee shall decide whether or not to grant the claim within 60 days
after receipt of the request for review, but this period may be extended by the
Committee for up to an additional 60 days in special circumstances. Written
notice of any such special circumstances shall be sent to the Claimant. Any
claim not decided upon in the required time period shall be deemed denied. All
interpretations, determi nations and decisions of the Committee with respect to
any claim shall be made in its sole discretion based on the Agreement and other
relevant documents and shall be final, conclusive and binding on all persons.
8. Incompetency; Payments to Minors. In the event that the Committee
finds that a Participant is unable to care for his or her affairs because of
illness or accident, then benefits payable hereunder, unless claim has been made
therefor by a duly appointed guardian, committee, or other legal representative,
may be paid in such manner as the Committee shall determine, and the application
thereof shall be a complete discharge of all liability for any payments or
benefits to which such Participant was or would have been otherwise entitled
under this Agreement. Any payments to a minor pursuant to this Agreement may be
paid by the Committee in its sole and absolute discretion (a) directly to such
minor; (b) to the legal or natural guardian of such minor; or (c) to any other
person, whether or not appointed guardian of the minor, who shall have the care
and custody of such minor. The receipt by such individual shall be a complete
discharge of all liability under the Agreement therefor.
9. Withholding. The Company shall have the right to make such
provisions as it deems necessary or appropriate to satisfy any obligations it
may have to withhold federal, state or local income or other taxes incurred by
reason of payments pursuant to this Agreement. In lieu thereof, the Employer
shall have the right to withhold the amount of such taxes from any other sums
due or
7
<PAGE> 8
to become due from the Employer to the Executive upon such terms and conditions
as the Committee may prescribe.
10. Assignment and Alienation. Except as provided herein, the benefits
payable under this Agreement shall not be subject to alienation, transfer,
assignment, garnishment, execution or levy of any kind, and any attempt to cause
any benefits to be so subjected shall not be recognized.
11. Successors; Binding Agreement. In addition to any obligations
imposed by law upon any successor to the Company, the Company will require any
successor (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Company to expressly assume and agree in writing to perform this Agreement in
the same manner and to the same extent that the Company would be required to
perform it if no such succession had taken place. This Agreement shall inure to
the benefit of and be enforceable by the Executive's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If the Executive shall die while any amount would still
be payable to the Executive hereunder if the Executive had continued to live,
all such amounts, unless otherwise provided herein, shall be paid in accordance
with the terms of this Agreement to the Executive's Beneficiary, or the
executors, personal representatives or administrators of the Executive's estate.
12. Miscellaneous. No provisions of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing and signed by the Executive and such officer as may be specifically
designated by the Board. No waiver by either party hereto at any time of any
breach by the other party hereto of, or compliance with, any condition or
provision shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof have been made by either party which are not expressly set
forth in this Agreement. All references to sections of the Code or any other law
shall be deemed also to refer to any successor provisions to such sections and
laws.
13. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
14. Confidentiality. The Executive shall not at any time during the
term of this Agreement, or thereafter, communicate or disclose to any
unauthorized person, or use for the Executive's own account, without the prior
written consent of the Board, any proprietary processes, or other confidential
information of the Company or any subsidiary concerning their business or
affairs, accounts or customers, it being understood, however, that the
obligations of this section shall not apply to the extent that the aforesaid
matters (a) are disclosed in circumstances in which the Executive is legally
required to do so, or (b) become generally known to and available for use by the
public other than by the Executive's wrongful act or omission.
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<PAGE> 9
15. Special Provisions. Notwithstanding any other provision of this
agreement to the contrary, the Severance Benefit payable hereunder shall be no
less than one year's Salary and Bonus.
16. Severability. If any provisions of this Agreement shall be declared
to be invalid or unenforceable, in whole or in part, such invalidity or
unenforceability shall not affect the remaining provisions hereof which shall
remain in full force and effect.
17. Arbitration. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration,
conducted before a panel of three arbitrators in New York, New York, or in such
other city in which the Executive is then located, in accordance with the rules
of the American Arbitration Association then in effect. The determination of the
arbitrators, which shall be based upon a de novo interpretation of this
Agreement, shall be final and binding and judgment may be entered on the
arbitrators' award in any court having jurisdiction. The Company shall pay all
costs of the American Arbitration Association and the arbitrator.
18. Non-Exclusivity of Rights. Nothing in this Agreement shall prevent
or limit the Executive's continuing or future participation in any benefit,
bonus, incentive or other plan or program provided by the Company or any of its
subsidiary companies and for which the Executive may qualify.
19. Governing Law. This Agreement shall be construed, interpreted, and
governed by the Employee Retirement Income Security Act of 1974, as amended. To
the extent not so governed, it shall be governed by the laws of the State of New
York (without reference to rules relating to conflicts of law).
20. Top-hat Plan. This Agreement is intended to be a "top-hat" welfare
plan within the meaning of Department of Labor Regulation Section 2520.104-24.
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed and the Executive's hand has hereunto been set as of the date first set
forth above.
WOOLWORTH CORPORATION
By:/s/ Dale W. Hilpert
----------------------
/s/ Reid Johnson
----------------------
Reid Johnson
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<PAGE> 10
APPENDIX A
Change in Control
A Change in Control shall mean any of the following: (i) (A) the making
of a tender or exchange offer by any person or entity or group of associated
persons or entities (within the meaning of Section 13(d)(3) or 14(d)(2) of the
Securities Exchange Act of 1934 (a "Person") (other than the Company or its
Affiliates) for shares of common stock of the Company pursuant to which
purchases are made of securities representing at least twenty percent (20%) of
the total combined voting power of the Company's then issued and outstanding
voting securities; (B) the merger or consolidation of the Company with, or the
sale or disposition of all or substantially all of the assets of the Company to,
any Person other than (a) a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving or parent entity) fifty percent (50%) or
more of the combined voting power of the voting securities of the Company or
such surviving or parent entity outstanding immediately after such merger or
consolidation; or (b) a merger or capitalization effected to implement a
recapitalization of the Company (or similar transaction) in which no Person is
or becomes the beneficial owner, directly or indirectly (as determined under
Rule 13d-3 promulgated under the Securities Exchange Act of 1934), of securities
representing more than the amounts set forth in (C) below; (C) the acquisition
of direct or indirect beneficial ownership (as determined under Rule 13d-3
promulgated under the Securities Exchange Act of 1934), in the aggregate, of
securities of the Company representing twenty percent (20%) or more of the total
combined voting power of the Company's then issued and outstanding voting
securities by any Person acting in concert as of the date of this Agreement;
provided, however, that the Board may at any time and from time to time and in
the sole discretion of the Board, as the case may be, increase the voting
security ownership percentage threshold of this item (C) to an amount not
exceeding forty percent (40%); or (D) the approval by the shareholders of the
Company of any plan or proposal for the complete liquidation or dissolution of
the Company or for the sale of all or substantially all of the assets of the
Company; or (ii) during any period of not more than two (2) consecutive years,
individuals who at the beginning of such period constitute the Board, and any
new director (other than a director designated by a person who has entered into
agreement with the Company to effect a transaction described in clause (i))
whose election by the Board or nomination for election by the Company's
stockholders was approved by a vote of at least two-thirds (2/3) of the
directors then still in office who either were directors at the beginning of the
period or whose election or nomination for election was previously so approved,
cease for any reason to constitute at least a majority thereof.
10
<PAGE> 1
EXHIBIT 11
WOOLWORTH CORPORATION
COMPUTATION OF NET INCOME (LOSS) PER COMMON SHARE
(Unaudited)
(in millions, except per share amounts)
<TABLE>
<CAPTION>
Thirteen weeks ended Thirty-nine weeks ended
------------------------ ------------------------
Oct. 25, Oct. 26, Oct. 25, Oct. 26,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
FINANCIAL STATEMENT PRESENTATION
Weighted-average number of common shares outstanding 134.9 133.6 134.5 133.3
======= ======= ======= =======
Income (loss) from continuing operations 55 77 98 88
Less: Preferred dividends -- -- -- --
------- ------- ------- -------
Income from continuing operations applicable to common shares 55 77 98 88
Loss from discontinued operations -- (8) (223) (19)
------- ------- ------- -------
Net income (loss) $ 55 $ 69 $ (125) $ 69
======= ======= ======= =======
Per Common Share:
Income from continuing operations $ 0.41 $ 0.58 $ 0.73 $ 0.66
Loss from discontinued operations -- (0.06) (1.66) (0.14)
------- ------- ------- -------
Net income (loss) per share of common stock $ 0.41 $ 0.52 $ (0.93) $ 0.52
======= ======= ======= =======
PRIMARY(1)
Weighted-average number of common shares
outstanding and common share equivalents 136.3 134.6 134.5 134.0
======= ======= ======= =======
Income from continuing operations applicable to common shares 55 77 98 88
Loss from discontinued operations -- (8) (223) (19)
------- ------- ------- -------
Net income (loss) $ 55 $ 69 $ (125) $ 69
======= ======= ======= =======
Primary:
Income from continuing operations $ 0.40 $ 0.57 $ 0.73 $ 0.66
Loss from discontinued operations -- (0.06) (1.66) (0.14)
------- ------- ------- -------
Net income (loss) per share of common stock $ 0.40 $ 0.51 $ (0.93) $ 0.52
======= ======= ======= =======
FULLY DILUTED (1) (2)
Weighted-average number of common shares outstanding
and fully diluted common share equivalents 136.3 135.1 136.0 134.7
Assumed conversion of preferred stock -- -- -- --
------- ------- ------- -------
Adjusted weighted-average number of common
shares and common share equivalents 136.3 135.1 136.0 134.7
======= ======= ======= =======
Income from continuing operations applicable to common shares 55 77 98 88
Loss from discontinued operations -- (8) (223) (19)
------- ------- ------- -------
Net income (loss) $ 55 $ 69 $ (125) $ 69
======= ======= ======= =======
Fully Diluted:
Income from continuing operations $ 0.40 $ 0.57 $ 0.72 $ 0.65
Loss from discontinued operations -- (0.06) (1.64) (0.14)
------- ------- ------- -------
Net income (loss) per share of common stock $ 0.40 $ 0.51 $ (0.92) $ 0.51
======= ======= ======= =======
</TABLE>
(1) This calculation is submitted in accordance with Securities Exchange
Act of 1934 Release No. 9083 although not required by footnote 2 to
paragraph 14 of APB Opinion No. 15 because it results in dilution of
less than 3%.
(2) This calculation is submitted for the 1997 loss in accordance with
Regulation S-K, Item 601(b)(11) although it is contrary to paragraph 40
of APB Opinion No. 15 because it produces an anti-dilutive result.
<PAGE> 1
EXHIBIT 12
WOOLWORTH CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Unaudited)
(dollars in millions)
<TABLE>
<CAPTION>
Fiscal Fiscal Fiscal Fiscal Fiscal Fiscal
39 weeks Year Year Year Year Year
ended ended ended ended ended ended
Oct. 25, Jan. 25, Jan. 27, Jan. 28, Jan. 29, Jan. 30,
1997 1997 1996 1995 1994 1993
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
NET EARNINGS
Net income (loss) $(125) $ 169 $(164) $ 47 $(495) $280
Income tax expense (benefit) (76) 111 (69) 49 (303) 157
Interest expense, excluding capitalized
interest 34 77 124 110 86 94
Portion of rents deemed representative
of the interest factor (1/3) 54 230 224 211 210 199
----- ----- ----- ----- ----- ----
$(113) $ 587 $ 115 $ 417 $(502) $730
===== ===== ===== ===== ===== ====
FIXED CHARGES
Gross interest expense $ 34 $ 77 $ 124 $ 111 $ 86 $ 94
Portion of rents deemed representative
of the interest factor (1/3) 54 230 224 211 210 199
----- ---- ----- ----- ----- ----
$ 88 $307 $ 348 $ 322 $ 296 $293
===== ==== ===== ===== ===== ====
RATIO OF EARNINGS TO FIXED
CHARGES -- 1.9 0.3 1.3 -- 2.5
===== ==== ===== ===== ===== ====
</TABLE>
Earnings were not adequate to cover fixed charges by $201 million, $233 million
and $798 million for the period ended October 25, 1997 and for the fiscal years
ended January 27, 1996 and January 29, 1994, respectively.
<PAGE> 1
EXHIBIT 15
Accountants' Acknowledgment
Woolworth Corporation
New York, New York
Board of Directors:
Re: Registration Statements Numbers 33-10783, 33-91888, 33-91886, 33-97832,
333- 07215 and 333-21131 on Form S-8 and Numbers 33-43334 and 33-86300
on Form S-3
With respect to the subject registration statements, we acknowledge our
awareness of the use therein of our report dated November 12, 1997 related to
our review of interim financial information.
Pursuant to Rule 436(c) under the Securities Act of 1933, such report is not
considered a part of a registration statement prepared or certified by an
accountant or a report prepared or certified by an accountant within the meaning
of Sections 7 and 11 of the Act.
/s/ KPMG Peat Marwick LLP
New York, New York
December 8, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENTS OF INCOME FOR THE NINE MONTHS ENDED October 25, 1997 AND
THE CONSOLIDATED BALANCE SHEET AS OF October 25, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> JAN-26-1997
<PERIOD-END> OCT-25-1997
<CASH> 49
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 1,377
<CURRENT-ASSETS> 1,600
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 3,300
<CURRENT-LIABILITIES> 865
<BONDS> 571
0
0
<COMMON> 0
<OTHER-SE> 1,154
<TOTAL-LIABILITY-AND-EQUITY> 3,300
<SALES> 4,622
<TOTAL-REVENUES> 4,622
<CGS> 3,201
<TOTAL-COSTS> 3,201
<OTHER-EXPENSES> 108
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 32
<INCOME-PRETAX> 156
<INCOME-TAX> 58
<INCOME-CONTINUING> 98
<DISCONTINUED> (223)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (125)
<EPS-PRIMARY> (0.93)
<EPS-DILUTED> (0.93)
</TABLE>
<PAGE>
EXHIBIT 99
Independent Accountants' Review Report
The Board of Directors and Shareholders
Woolworth Corporation:
We have reviewed the condensed consolidated balance sheets of Woolworth
Corporation and subsidiaries as of October 25, 1997 and October 26, 1996, and
the related condensed consolidated statements of operations, retained earnings,
and cash flows for the thirteen and thirty-nine week periods ended October 25,
1997 and October 26, 1996. These condensed consolidated financial statements are
the responsibility of Woolworth Corporation's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the condensed consolidated financial statements referred to above for
them to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Woolworth Corporation and
subsidiaries as of January 25, 1997, and the related consolidated statements of
operations, changes in shareholders' equity, and cash flows for the year then
ended (not presented herein); and in our report dated March 11, 1997 we
expressed an unqualified opinion on those consolidated financial statements. In
our opinion, the information set forth in the accompanying condensed
consolidated balance sheet as of January 25, 1997, is fairly stated, in all
material respects, in relation to the consolidated balance sheet from which it
has been derived.
Our report, referred to above, contains an explanatory paragraph that states
that Woolworth Corporation, in 1995, adopted the position of the Financial
Accounting Standards Board's Statement of Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of."
/s/ KPMG Peat Marwick LLP
New York, New York
November 12, 1997
