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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JANUARY 31, 1998
COMMISSION FILE NUMBER 1-10299
WOOLWORTH CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
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)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 553-2000
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
<TABLE>
<CAPTION>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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<S> <C>
COMMON STOCK, PAR VALUE $.01 NEW YORK STOCK EXCHANGE
PREFERRED STOCK PURCHASE RIGHTS NEW YORK STOCK EXCHANGE
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
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 [ ]
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]
See pages 21 through 24 for Index of Exhibits.
Number of shares of Common Stock outstanding at April 1, 1998: 135,219,715
Aggregate market value of voting stock held by non-affiliates at April 1,
1998: $3,361,909,334*
- ---------------
* For purposes of this calculation only (a) all directors plus one executive
officer of the Registrant are deemed to be affiliates of the Registrant and
(b) shares deemed to be "held" by such persons at April 1, 1998, include only
outstanding shares of the Registrant's voting stock with respect to which such
persons had, on such date, voting or investment power.
DOCUMENTS INCORPORATED BY REFERENCE
The Registrant's definitive Proxy Statement to be dated April 28, 1998 (the
"Proxy Statement") issued in connection with the annual meeting of
shareholders: Part III.
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TABLE OF CONTENTS
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PAGE
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PART I
Item 1. Business.................................................... 1
Item 2. Properties.................................................. 4
Item 3. Legal Proceedings........................................... 4
Item 4. Submission of Matters to a Vote of Security Holders......... 5
PART II
Item 5. Market for the Company's Common Equity and Related
Stockholder Matters....................................... 6
Item 6. Selected Financial Data..................................... 7
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 8
Item 7A. Quantitative and Qualitative Disclosures about Market
Risk...................................................... 18
Item 8. Consolidated Financial Statements and Supplementary Data.... 19
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................. 19
PART III
Item 10. Directors and Executive Officers of the Company............. 19
Item 11. Executive Compensation...................................... 20
Item 12. Security Ownership of Certain Beneficial Owners and
Management................................................ 20
Item 13. Certain Relationships and Related Transactions.............. 20
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K....................................................... 20
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PART I
ITEM 1. BUSINESS
GENERAL
Woolworth Corporation (the "Company"), incorporated under the laws of the
State of New York in 1989, has origins dating back to 1879. The Company and its
retail divisions operate a multinational retailing business selling a broad
range of merchandise through 7,237 stores in North America, Europe, Asia and
Australia.
The Company's retailing business is conducted through two major segments:
Specialty and International General Merchandise. The Specialty segment includes:
the Athletic Group, the Northern Group, Specialty Footwear and Other Specialty.
The International General Merchandise segment includes operations in Germany and
Canada.
STORE PROFILE
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AT JANUARY 25, AT JANUARY 31,
FORMATS 1997 OPENED CLOSED 1998
------- -------------- ------ ------ --------------
<S> <C> <C> <C> <C>
Foot Locker................................. 1,980 93 65 2,008
Lady Foot Locker............................ 626 33 10 649
Kids Foot Locker............................ 186 93 5 274
Champs Sports............................... 602 74 19 657
----- --- --- -----
TOTAL ATHLETIC GROUP........................ 3,394 293 99 3,588
----- --- --- -----
Northern Reflections........................ 541 28 12 557
Northern Getaway............................ 109 31 1 139
Northern Elements........................... 66 18 4 80
Northern Traditions......................... 44 8 1 51
----- --- --- -----
TOTAL NORTHERN GROUP........................ 760 85 18 827
----- --- --- -----
Kinney Shoes................................ 643 6 67 582
Footquarters................................ 97 13 6 104
Williams the Shoeman........................ 162 1 20 143
Mathers..................................... 114 2 1 115
Colorado.................................... 13 5 -- 18
Other....................................... 170 -- 111 59
----- --- --- -----
TOTAL SPECIALTY FOOTWEAR.................... 1,199 27 205 1,021
----- --- --- -----
Afterthoughts............................... 834 19 62 791
The San Francisco Music Box Company......... 179 8 6 181
Weekend Edition............................. 192 23 50 165
Randy River................................. 107 -- 11 96
Burger King................................. 26 2 8 20
Other....................................... 67 5 50 22
----- --- --- -----
TOTAL OTHER SPECIALTY....................... 1,405 57 187 1,275
----- --- --- -----
German general merchandise.................. 374 2 11 365
The Bargain! Shop........................... 172 1 12 161
----- --- --- -----
INTERNATIONAL GENERAL MERCHANDISE........... 546 3 23 526
----- --- --- -----
Total continuing operations....... 7,304 465 532 7,237
----- --- --- -----
DOMESTIC GENERAL MERCHANDISE................ 442 -- 442 --
----- --- --- -----
Total............................. 7,746 465 974 7,237
===== === === =====
</TABLE>
The service marks and trademarks appearing on this page and elsewhere in this
report (except for Burger King) are owned by Woolworth Corporation or its
subsidiaries.
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SPECIALTY SEGMENT
Athletic Group
The Athletic Group, the Company's largest and most profitable business,
operates 3,588 stores in North America, Europe, Asia and Australia. In the
United States, the Athletic Group operates 3,083 stores which are located
primarily in regional malls. Additionally, it operates an apparel
imprint/embroidery factory located in the United States. In Europe, there are
252 Foot Locker stores located in the Netherlands, Belgium, England, Germany,
France, Italy, Spain, Austria and Luxembourg. In Canada, the group operates 195
Foot Locker and Champs Sports stores which are primarily located in regional
malls. The group also operates 55 Foot Locker stores in Australia and 3 in
Japan.
The following is a brief description of the Athletic Group's operating
businesses:
Foot Locker -- Offering the latest in technical, performance and
athletic-inspired products, both branded as well as private-label, Foot
Locker is the leading global athletic retailer with 2,008 stores in 12
countries. The stores range in size from 1,500 to 4,000 selling square feet
and product categories include running, basketball, tennis, aerobics,
fitness, baseball, football, soccer and more.
Lady Foot Locker -- Lady Foot Locker is the premier retailer of
athletic footwear, apparel and related products for today's active women.
The stores carry all major brands of athletic footwear and apparel for a
variety of sports including running, basketball and aerobics. Its 649
stores are located in the United States and Puerto Rico and typically range
from 800-1200 selling square feet.
Kids Foot Locker -- The Company's 274 Kids Foot Locker stores are
located in major malls in the United States, Hawaii and Puerto Rico. They
offer the largest selection of brand name merchandise for infants, boys and
girls. The stores offer a fun and easy-to-shop layout pleasing to both
parents and children. Average selling square footage for these stores is
between 1,000-1,500 square feet.
Champs Sports -- Champs Sports is a mall-based chain selling athletic
branded, trend-setting products for the sportsminded consumer. Stores are
located throughout North America and plans include expansion in key
markets, such as the mid-west, as indicated by last year's acquisition of
27 Koenig Sports Goods stores, a privately held Cleveland-based company.
Champs Sports stores range from 3,500-3,700 selling square feet.
Eastbay, Inc. -- Acquired in January 1997, Eastbay, Inc. ("Eastbay")
is the largest direct marketer of athletic footwear, apparel, equipment and
licensed private-label merchandise. Its distinctive catalogues provide
convenience, superior customer service and broad selection of products to
its technically oriented customers.
Northern Group
The Northern Group consists of 827 stores in the United States (401 stores)
and Canada (426 stores) that offer a unique range of private label casual
apparel for women (Northern Reflections), children (Northern Getaway) and men
(Northern Elements) in addition to private label coordinates for dressy,
non-formal occasions (Northern Traditions). The average selling square footage
for each concept is between 1,500-1,700 square feet.
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Specialty Footwear
Specialty Footwear includes formats in the United States, Canada, and
Australia, the largest of which is the Kinney shoe store chain. This group
operates 1,021 retail stores and 3 factories located in the United States which
manufacture footwear.
The following is a brief summary of the Specialty Footwear businesses:
Kinney Shoes -- The Kinney family of shoe stores offers trend-setting,
moderately priced, branded footwear for the entire family. Kinney operates
582 primarily mall-based stores in the United States. Kinney stores range
from 1,200-1,600 selling square feet.
Colorado -- Colorado offers only top quality name brand and
private-label merchandise designed for the lifestyle of the active outdoor
consumer. Colorado operates 18 primarily mall-based stores and the average
selling square footage is 3,000 square feet.
Other Specialty
Other Specialty is comprised of non-footwear specialty chains and operates
1,275 stores in the United States and abroad.
The following is a brief description of the Other Specialty businesses:
Afterthoughts -- Afterthoughts provides today's pre-teen, teenage
girl, as well as the young woman, with the latest in fashion jewelry,
accessories, cosmetics and gifts. Afterthoughts stores provide customers
with value, fun and excitement, especially with its new "backstage to a
concert" design. Store sizes range from 800 to 1,500 square feet.
The San Francisco Music Box Company -- The San Francisco Music Box
operates 181 year-round retail stores and over 200 kiosks during the
Christmas holiday season which sell unique musical giftware in an
enchanting shopping environment. Store sizes range from 800-1,200 selling
square feet.
Burger King -- The Company operates 20 Burger King locations as a
franchisee of the Burger King Corporation.
INTERNATIONAL GENERAL MERCHANDISE SEGMENT
Through Retail Company of Germany, Inc., the Company operates 365 Woolworth
general merchandise stores in Germany and Austria. They offer a wide variety of
household and personal products. Woolworth Canada Inc. operates 161 general
merchandise stores through The Bargain! Shop chain, which operates high
volume/low margin sales of manufacturers' excess inventory.
INFORMATION REGARDING BUSINESS SEGMENTS AND GEOGRAPHIC AREAS
For information regarding sales, operating results and identifiable assets
of the Company by business segment and by geographic area as required by Item
101(d) of Regulation S-K, refer to footnote 4 to the Consolidated Financial
Statements on pages F-12 and F-13. For additional information on format
descriptions, refer to Management's Discussion and Analysis of Financial
Condition and Results of Operations on pages 8 to 17.
EMPLOYEES
The Company and its consolidated subsidiaries had approximately 75,000 full
and part-time employees at January 31, 1998. It considers employee relations to
be satisfactory.
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SEASONALITY
The Company's retail businesses are 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. As a result of these seasonal sale
patterns, inventory increases in the third quarter in anticipation of the strong
fourth quarter sales.
COMPETITION
The retailing business is highly competitive. Competition is based upon
such factors as price, quality, selection of merchandise, reputation, store
location, advertising and customer service.
MERCHANDISE PURCHASES
The Company and its consolidated subsidiaries purchase merchandise and
supplies from thousands of vendors worldwide. The Company purchased
approximately 25 percent of its 1997 merchandise from one major vendor. The
Company considers vendor relations to be satisfactory and maintains a minimal
amount of backlog orders in its retailing and manufacturing operations.
The Company's policy is to maintain sufficient quantities of inventory on
hand in its retail stores and distribution centers so that it can offer
customers a full selection of current merchandise. The Company emphasizes
turnover and takes markdowns where required to keep merchandise fresh and
current with trends.
ITEM 2. PROPERTIES
The properties of the Company and its consolidated subsidiaries consist of
land, leased and owned stores, factories and administrative and distribution
facilities. Total selling area at the end of the year was approximately 17.11
million square feet, of which approximately 10.48 million square feet pertained
to the Specialty segment and approximately 6.63 million square feet to the
International General Merchandise segment, the majority of which is leased.
These properties are located in the United States, Europe, and elsewhere. The
Company operated 9 distribution centers, of which 4 are owned and 5 are leased,
occupying an aggregate of 2.85 million square feet. Each of the distribution
centers serve major regions. The Company also has an additional 3 distribution
centers occupying 0.66 million square feet, the majority of which is leased and
sublet. Of the 12 distribution centers, 7 are located in the United States, 2
are located in Europe and 3 are located in other countries. Included among the
Company's owned properties is the national historical landmark Woolworth
Building in New York City in which its corporate headquarters and the executive
offices of the Athletic Group and Specialty Footwear Group are located. Refer to
footnote 9 on page F-15 for additional information regarding the Company's and
its consolidated subsidiaries' properties.
ITEM 3. LEGAL PROCEEDINGS
In 1994, the Company 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
Company's common stock during different periods between January 1992 and March
1994. These class action complaints purported to present claims under the
federal securities and other laws and sought unspecified damages based on
alleged misleading disclosures during the class periods. In 1994, 25 of these
actions, brought in the United States District Court for the Southern District
of New York, were consolidated under the caption In re Woolworth Corporation
Securities Class Action Litigation. On October 6, 1997, the court entered a
final judgment approving the settlement of the class action that provides for
the payment to the class of $20 million and dismissing the class action
4
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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
Company. In the opinion of management, the settlement did not have a material
adverse effect on the financial position or results of operations of the
Company.
On December 5, 1997, the 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. was dismissed with prejudice pursuant to a Stipulation
and Order of Dismissal submitted by the parties and so ordered by the court.
During 1994, the staff of the SEC initiated an inquiry relating to the
matters that were reviewed by the Special Committee established by the Board of
Directors in 1994 as well as in connection with trading in the Company's
securities by certain directors and officers of the Company. 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 Company.
The information in this section on Legal Proceedings is current as of April
17, 1998.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
fourth quarter of the year ended January 31, 1998.
EXECUTIVE OFFICERS OF THE COMPANY
Information with respect to Executive Officers of the Company, as of April
1, 1998, is set forth below:
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Chairman of the Board and Chief Executive Officer........... Roger N. Farah
President and Chief Operating Officer and Director.......... Dale W. Hilpert
Senior Vice President -- Corporate Development.............. M. Jeffrey Branman
Senior Vice President -- Real Estate........................ John E. DeWolf III
Senior Vice President -- Human Resources.................... John F. Gillespie
Senior Vice President and Chief Financial Officer........... Reid Johnson
Vice President, General Counsel and Secretary............... Gary M. Bahler
Vice President and Treasurer................................ John H. Cannon
Vice President and Controller............................... Bruce L. Hartman
</TABLE>
Roger N. Farah, age 45, has served as Chairman of the Board since December
15, 1994 and Chief Executive Officer since December 11, 1994. From July 1994 to
October 1994, Mr. Farah served as President and Chief Operating Officer of R. H.
Macy & Co., Inc. From June 1991 to July 1994, Mr. Farah served as the Chairman
and Chief Executive Officer of Federated Merchandising Services, the central
buying and product development arm of Federated Department Stores, Inc.
Dale W. Hilpert, age 55, has served as President and Chief Operating
Officer since May 15, 1995. From January 1985 to April 1995, Mr. Hilpert served
as Chairman and Chief Executive Officer of Payless ShoeSource, a division of The
May Department Stores Company.
M. Jeffrey Branman, age 42, has served as Senior Vice
President -- Corporate Development since March 4, 1996. From August 1989 to
March 4, 1996, Mr. Branman served as a Managing Director of Financo, Inc.
John E. DeWolf III, age 42, has served as Senior Vice President -- Real
Estate since March 11, 1996. From June 1993 to February 1996, Mr. DeWolf was
Senior Vice President -- Property Development for The Disney Store, Inc., a
division of The Walt Disney Company. Mr. DeWolf served as Vice President -- Real
Estate Counsel of The Limited, Inc. from October 1982 to June 1993.
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John F. Gillespie, age 50, has served as Senior Vice President -- Human
Resources since April 1, 1996. Mr. Gillespie served as Senior Vice
President -- Human Resources of Lever Brothers Company, a subsidiary of
Unilever, from 1990 to April 1996.
Reid Johnson, age 55, has served as Senior Vice President and Chief
Financial Officer since September 8, 1997. From July 27, 1994 to August 6, 1997,
Mr. Johnson served as the Executive Vice President and Chief Financial Officer
of Musicland Inc., the Minneapolis based entertainment chain of retail stores.
Mr. Johnson served as the Vice Chairman and Chief Administrative Officer of the
Department store division of Dayton Hudson Department Store Corporation from
February 1985 to July 1994.
Gary M. Bahler, age 46, has served as Vice President and General Counsel
since February 1, 1993, and as Secretary since February 1, 1990. Mr. Bahler
served as Deputy General Counsel from May 1, 1991 until February 1, 1993.
John H. Cannon, age 56, has served as Vice President and Treasurer since
October 12, 1983.
Bruce L. Hartman, age 44, has served as Vice President and Controller since
November 18, 1996. From March 1993 to October 1996, Mr. Hartman served as the
Chief Financial Officer of various divisions of the May Department Stores
Company. Mr. Hartman served as controller of Robinson's, a division of The May
Department Stores Company, from September 1990 to March 1993.
There are no family relationships among the executive officers or directors
of the Company.
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
SHAREHOLDER INFORMATION AND MARKET PRICES
Woolworth Corporation common stock is listed on the New York, Toronto,
Amsterdam, as well as the Lausanne and Elektronische Borse Schweiz (EBS) stock
exchanges in Switzerland. In addition, the stock is traded on the Boston,
Cincinnati, Chicago, Philadelphia and Pacific stock exchanges. The New York
Stock Exchange ticker symbol for the Company's common stock is "Z."
At January 31, 1998, 38,287 shareholders of record owned 134,976,174 common
shares.
Market prices for the Company's common and preferred stock is as follows:
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1997 1996
------------ ------------
HIGH LOW HIGH LOW
---- --- ---- ---
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COMMON STOCK
QUARTER
1st Q....................................... 24 1/8 18 1/2 19 3/4 10 7/8
2nd Q....................................... 28 3/16 19 3/8 23 1/4 18 1/4
3rd Q....................................... 28 3/4 19 1/4 22 3/8 18 5/8
4th Q....................................... 23 1/4 18 1/4 25 1/4 20 1/4
PREFERRED STOCK
QUARTER
1st Q....................................... -- -- 112 61
2nd Q....................................... -- -- 131 3/8 104
3rd Q....................................... -- -- 130 3/8 105 3/8
4th Q....................................... -- -- -- --
</TABLE>
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ITEM 6. SELECTED FINANCIAL DATA
The selected financial data below should be read in conjunction with the
Consolidated Financial Statements and the notes thereto and other information
contained elsewhere in this report. All selected financial data has been
restated for the discontinuance of the domestic general merchandise business,
except for return on average investment.
FIVE YEAR SUMMARY OF SELECTED FINANCIAL DATA
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<CAPTION>
1997 1996 1995 1994 1993
------ ------ ------ ------ ------
($ IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
SUMMARY OF CONTINUING OPERATIONS
Sales................................... $6,624 7,017 7,031 6,904 7,820
Gross Margin............................ $2,056 2,234 2,168 2,179 2,333
Selling, general and administrative
expenses.............................. $1,535 1,712 1,801 1,849 2,037
Depreciation and amortization........... $ 168 171 216 210 226
Interest expense........................ $ 44 59 104 90 64
Other income............................ $ (29) (28) (31) (50) (48)
Net income (loss) from continuing
operations............................ $ 213 193 (98) 38 (226)
Basic earnings per share................ $ 1.58 1.45 (0.73) 0.29 (1.72)
Diluted earnings per share.............. $ 1.57 1.44 (0.73) 0.29 (1.72)
Common stock dividends declared......... $ -- -- -- 0.74 1.16
Preferred stock dividends declared...... $ -- 1.10 2.20 2.20 2.20
Weighted-average common shares
outstanding (in millions)............. 134.6 133.5 132.9 132.3 131.7
Weighted-average common shares assuming
dilution (in millions)................ 135.8 134.3 132.9 132.9 131.7
FINANCIAL CONDITION
Merchandise inventories................. $1,159 1,066 1,185 1,351 1,300
Property and equipment, net............. $1,053 983 1,130 1,395 1,395
Total assets............................ $3,182 3,339 3,339 3,970 4,349
Short-term debt......................... $ -- -- 69 853 533
Long-term debt and obligations under
capital leases........................ $ 557 590 621 308 338
Total shareholders' equity.............. $1,271 1,334 1,229 1,358 1,349
FINANCIAL RATIOS
Return on equity (ROE).................. 16.3% 15.1 (7.5) 2.8 (13.3)
Return on average investment (ROI)...... 8.3% 6.9 0.8 3.6 (6.7)
Operating profit (loss) as a percentage
of sales.............................. 6.5% 6.3 0.3 3.4 (3.0)
Net income (loss) from continuing
operations as a percentage of sales... 3.2% 2.8 (1.4) 0.6 (2.9)
Debt capitalization percent............. 66.4% 65.6 69.0 70.5 68.4
Debt capitalization percent (without
present value of operating leases).... 30.5% 30.7 36.0 46.1 39.2
Current ratio........................... 1.9X 2.4 2.4 1.3 1.3
Number of stores at year end............ 7,237 7,304 7,734 8,170 7,899
Total selling square footage at year end
(in millions)......................... 17.11 17.13 17.92 19.0 28.8
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Company operates in two retail business segments, Specialty and
International General Merchandise. The Specialty segment includes the Athletic
Group, the Northern Group, Specialty Footwear and Other Specialty. The
International General Merchandise segment includes operations in Germany and
Canada. In 1997, the Company discontinued its domestic Woolworth general
merchandise business and, accordingly, prior year financial information has been
restated. A summary of sales by segment, after reclassification for disposed
operations (representing businesses closed other than the discontinued domestic
Woolworth general merchandise business) and the restatement to exclude the
domestic Woolworth general merchandise business, is as follows:
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<CAPTION>
1997 1996 1995
------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
Specialty.................................... $5,140 $4,996 $4,763
International General Merchandise............ 1,479 1,803 1,928
Disposed operations.......................... 5 218 340
------ ------ ------
$6,624 $7,017 $7,031
====== ====== ======
</TABLE>
A summary of operating results from continuing operations (excluding
corporate expense, corporate gains on real estate, interest expense and income
taxes) by segment is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
Specialty:
Operating results before non-recurring
items................................... $ 411 $ 496 $ 318
Charge for adoption of SFAS No. 121........ -- -- (121)
Net gain on sales of real estate........... 4 1 --
Disposed operations........................ (4) (49) (57)
------ ------ ------
Total operating results............ $ 411 $ 448 $ 140
====== ====== ======
International General Merchandise:
Operating results before non-recurring
items................................... $ 15 $ (32) $ (33)
Charge for adoption of SFAS No. 121........ -- -- (90)
Net gain on sales of real estate........... 6 27 6
Disposed operations........................ -- (2) --
------ ------ ------
Total operating results............ $ 21 $ (7) $ (117)
====== ====== ======
Total Company:
Operating results before non-recurring
items................................... $ 426 $ 464 $ 285
Charge for adoption of SFAS No. 121........ -- -- (211)
Net gain on sales of real estate........... 10 28 6
Disposed operations........................ (4) (51) (57)
------ ------ ------
Total operating results............ $ 432 $ 441 $ 23
====== ====== ======
</TABLE>
SALES
Total Company sales of $6.6 billion in 1997 decreased 5.6 percent from
sales of $7.0 billion in 1996. Excluding the effect of foreign currency
fluctuations and disposed operations, total Company sales increased 1.4 percent
as compared with 1996. Comparable-store sales
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decreased by 4.3 percent in 1997. The Specialty segment sales of $5.1 billion
(excluding disposed operations) in 1997 increased by 2.9 percent as compared
with 1996 while the International General Merchandise segment sales decreased
18.0 percent to $1.5 billion in 1997 as compared with $1.8 billion in the prior
year. Excluding the effect of foreign currency fluctuations, International
General Merchandise sales decreased by 6.0 percent. Comparable-store sales
declined 3.6 percent and 6.3 percent in 1997 for the Specialty and International
General Merchandise segments, respectively.
Sales of $7.0 billion in 1996 were unchanged from 1995. Excluding disposed
operations and the effect of foreign currency fluctuations, sales increased by
2.8 percent as compared with 1995. Comparable-store sales increased by 1.6
percent in 1996.
The 1997 reporting year includes 53 weeks as compared with the 52-week 1996
reporting year. The impact on sales and operating results of the additional week
in 1997 is not significant.
OPERATING RESULTS
Operating profit from continuing operations declined to $432 million in
1997 as compared with $441 million in 1996. Operating profit before
non-recurring items decreased to $426 million as compared with $464 million in
1996. These declines primarily resulted from lower sales and a decrease in gross
margin due to increased markdowns in the Specialty segment reflecting the
Company's strategy to maintain current inventories. This was partially offset by
an improvement in selling, general and administrative expenses in both the
Specialty and the International General Merchandise segments. The ratio of
selling, general and administrative expense to sales in 1997 declined by 1.2
percentage points as compared with 1996 reflecting the continued success of the
Company's expense management initiatives. Operating results for 1997 and 1996
include a total reduction of $22 million and $32 million, respectively, in the
restructuring reserve established in 1991 and the repositioning reserve
established in 1993. These adjustments were made to revise original estimates
based on actual experience to date.
The Company reported operating profit of $441 million in 1996 as compared
with $23 million in 1995. Operating profit before non-recurring items increased
to $464 million in 1996 from $285 million in the prior year. Major factors which
contributed to these improvements were increased Athletic Group sales, higher
gross margins, and lower selling, general and administrative expenses. The
Company's operating profit for 1995 includes a non-cash pre-tax charge of $211
million, on a restated basis, arising from the adoption of Statement of
Financial Accounting Standard No. 121 ("SFAS No. 121").
In 1997 and 1996, the Company recognized gains in operating results on
sales from non-strategic real estate of $10 million and $28 million,
respectively. The 1997 gain related primarily to the sale of real estate in
Germany and the sale of a vacant distribution center. These gains have been
included in Other Income in the Consolidated Statements of Operations. Also
included in Other Income is $12 million in 1997 and $17 million in 1995 of real
estate gains on corporate properties. During 1997, the Company sold or disposed
of seven businesses: the Gallery chain in Australia, the Moderna chain in
Germany, the Kinney Leased departments in Canada, Foot Locker in Mexico and Hong
Kong and the Best of Times and Basics stores, domestically. In 1996, five
businesses were sold or disposed: the Accessory Lady and Rx Place Drug Mart
chains in the United States, the Silk & Satin chain in Canada, the Lady Plus and
Rubin chains in Germany as well as its investment in the New Yorker Sud
business. The cost related to disposed operations was $4 million in 1997 and $51
million in 1996. In March 1998, the Company sold its Woolworth Nursery business
and will record the resultant gain in the first quarter of 1998. Also subsequent
to year end, the Company decided to close its Kinney shoe stores in Canada,
reflecting a commitment to monitor and close under-performing
9
<PAGE> 12
operations. The gain from the sale of the Woolworth Nursery business is expected
to more than offset the cost of closing Kinney Canada, both of which will be
recorded in the first quarter of 1998.
The Company ended the year with 7,237 stores consisting of 6,711 specialty
stores and 526 international general merchandise stores. During 1997, the
Company opened 465 stores, closed 974 stores (including disposed, sold and
discontinued operations) and remodeled or relocated 418 stores.
DISCONTINUED OPERATIONS
On July 17, 1997, the Company announced that it was exiting its domestic
Woolworth general merchandise business and recorded a charge for the disposal of
$310 million before-tax ($195 million after-tax). This charge includes outlays
for lease liabilities and other occupancy costs of $108 million, severance and
other personnel related costs of $72 million and non-cash charges to cover asset
write-downs of $42 million. Also included in the cost for disposal is the charge
for liquidation of working capital and other shut down costs. The loss from
discontinued operations recorded through July 17, 1997 was $47 million
before-tax ($28 million after-tax).
During the fourth quarter, the Company sold its general merchandise
business in Mexico. The impact of this sale is not significant and is included
in the reserve for discontinued operations.
Prior year financial statements have been restated to present the operating
results of these businesses as a discontinued operation.
SEGMENTS
The results by segment are as follows:
SPECIALTY SEGMENT
ATHLETIC GROUP
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
($ IN MILLIONS)
<S> <C> <C> <C>
Sales........................................ $3,720 $3,603 $3,407
Disposed operations.......................... 3 12 17
------ ------ ------
Total Sales........................ $3,723 $3,615 $3,424
====== ====== ======
Operating profit before non-recurring
items...................................... $ 376 $ 466 $ 312
Charge for adoption of SFAS No. 121.......... -- -- (28)
Disposed operations.......................... (1) (5) (7)
------ ------ ------
Operating profit................... $ 375 $ 461 $ 277
====== ====== ======
Sales as a percentage of consolidated
total...................................... 56% 52% 49%
Number of stores at year end................. 3,588 3,394 3,367
Selling square footage (millions)............ 6.28 5.49 5.29
</TABLE>
The Athletic Group, the Company's largest and most profitable business,
includes the Foot Locker businesses: Foot Locker, Lady Foot Locker, Kids Foot
Locker, World Foot Locker, as well as Champs Sports, Going to the Game! and
Eastbay, which was acquired in January 1997. These stores are in North America,
Europe, Asia and Australia. The Athletic Group, which leads the industry in
sales of branded athletic footwear and apparel in the U.S., had record worldwide
sales of $3.7 billion in 1997, representing an increase of $108 million, or 3.0
percent, as compared with 1996. This increase was primarily attributable to
sales from Eastbay (acquired
10
<PAGE> 13
in January 1997) and an increase of 194 stores over the prior year, offset by a
comparable-store sales decrease of 5.0 percent. Operating profit before
non-recurring items in 1997 was $376 million as compared with $466 million in
the prior year. The decline was primarily a result of lower gross margin due to
higher markdowns required to keep inventories current. As part of its strategy
to continue its growth trend, the Athletic Group is introducing new store
designs combining trend setting assortments with exciting and entertaining
retail environments. The Company has targeted $154 million in spending to open
approximately 275 new stores and remodel approximately 375 existing stores in
1998.
In 1996, the Athletic Group reported sales of $3.6 billion, an increase of
5.6 percent as compared with 1995. Comparable-store sales growth was 5.0 percent
in 1996. Operating profit (before non-recurring items) in 1996 was $466 million,
representing a 49.4 percent increase over the prior year, attributable to higher
gross margins, lower operating expenses and successful inventory management.
NORTHERN GROUP
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
($ IN MILLIONS)
<S> <C> <C> <C>
Sales.............................................. $455 $426 $367
==== ==== ====
Operating profit before non-recurring items........ $ 40 $ 42 $ 38
Charge for adoption of SFAS No. 121................ -- -- (6)
---- ---- ----
Operating profit......................... $ 40 $ 42 $ 32
==== ==== ====
Sales as a percentage of consolidated total........ 7% 6% 5%
Number of stores at year end....................... 827 760 692
Selling square footage (millions).................. 1.34 1.27 1.19
</TABLE>
The Northern Group consists of four formats: Northern Reflections, Northern
Traditions, Northern Getaway and Northern Elements. These stores sell specialty
apparel in Canada and the United States, specializing in a range of casual and
career apparel for women, and casual apparel for men and children. Of the 827
Northern Group stores in operation at January 31, 1998, 426 stores are located
in Canada and 401 stores are located in the United States. The Northern Group
sales of $455 million in 1997 increased 6.8 percent as compared with the prior
year. This increase was driven by 85 new store openings and comparable-store
sales gains of 1.9 percent. Operating profit before non-recurring items in 1997
was $40 million as compared with $42 million in 1996. This profit decline
resulted primarily from increased occupancy and wage costs associated with
additional stores.
The Company premiered its "Authentic Northern Experience" which links
formats together to create cross-shopping opportunities and operating expense
synergies. During 1997, the Northern Group opened 33 locations that incorporate
the new design.
Sales for 1996 increased by 16.1 percent over 1995, as a result of the
opening of 81 new stores and comparable-store sales gains of 4.0 percent.
Operating profit (before non-recurring items) in 1996 was $42 million as
compared with $38 million in 1995. This improvement was primarily related to the
increase in sales.
11
<PAGE> 14
SPECIALTY FOOTWEAR
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
($ IN MILLIONS)
<S> <C> <C> <C>
Sales............................................ $ 544 $ 560 $ 566
Disposed operations.............................. 2 161 163
----- ----- -----
Total Sales............................ $ 546 $ 721 $ 729
===== ===== =====
Operating loss before non-recurring items........ $ (12) $ (9) $ (23)
Charge for adoption of SFAS No. 121.............. -- -- (43)
Net gain on sales of real estate................. 4 1 --
Disposed operations.............................. (1) (2) 5
----- ----- -----
Operating loss......................... $ (9) $ (10) $ (61)
===== ===== =====
Sales as a percentage of consolidated total...... 8% 10% 10%
Number of stores at year end..................... 1,021 1,199 1,382
Selling square footage (millions)................ 1.61 1.97 2.66
</TABLE>
Specialty Footwear consists of various footwear store formats in the United
States, Canada and Australia, the largest of which is the Kinney shoe store
chain operating in the United States and Canada. Sales declined by $175 million
in 1997 as compared with 1996. This decline in sales was mainly attributable to
the closing in January 1997 of the Kinney leased department stores in Canada and
the sale of Moderna in Germany. The operating loss of $9 million in 1997 is
comparable with the operating loss of $10 million in 1996.
Sales of $721 million in 1996 represented a slight decline as compared with
1995, mainly due to the closing of 85 under-performing stores and a 1.0 percent
decline in comparable-store sales. The 1996 operating loss (before non-recurring
items) improved by $14 million as compared with 1995 primarily related to a
positive adjustment in 1996 of $11 million arising from a re-evaluation of the
repositioning reserve originally established in 1993. The 1993 charge reflected
the estimated cost to close under-performing specialty footwear stores in the
United States. The adjustment was made for revisions to original estimates based
on actual experience relating to lease costs, operating expenses, severance and
other personnel and related costs. Operating results for 1995 were also
negatively impacted by a $43 million charge for the adoption of SFAS No. 121.
OTHER SPECIALTY
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- ------
($ IN MILLIONS)
<S> <C> <C> <C>
Sales........................................... $ 421 $ 407 $ 423
Disposed operations............................. -- 45 160
----- ----- ------
Total sales........................... $ 421 $ 452 $ 583
===== ===== ======
Operating profit (loss) before non-recurring
items......................................... $ 7 $ (3) $ (9)
Charge for adoption of SFAS No. 121............. -- -- (44)
Disposed operations............................. (2) (42) (55)
----- ----- ------
Operating profit (loss)............... $ 5 $ (45) $ (108)
===== ===== ======
Sales as a percentage of consolidated total..... 7% 6% 8%
Number of stores at year end.................... 1,275 1,405 1,736
Selling square footage (millions)............... 1.25 1.23 1.74
</TABLE>
12
<PAGE> 15
Other Specialty consists of non-footwear specialty chains including
Afterthoughts, The San Francisco Music Box Company, Burger King franchised food
operations and the Woolworth Nursery business. The Company's Afterthoughts
business offers moderately priced costume jewelry and accessories. The San
Francisco Music Box Company features music boxes and gifts. Sales of $421
million in 1997 declined 6.9 percent from the prior year as a result of closing
187 stores during 1997. Excluding disposed operations, sales increased 3.4
percent as compared with 1996. Operating results improved due to the closure of
under-performing stores and lower operating expenses resulting from the
Company's ongoing expense management program.
Sales declined by $131 million in 1996 as compared with 1995. This decline
in sales was mainly attributable to the closing of 352 stores, of which 271
stores were primarily related to disposed businesses and 81 stores were
under-performing from ongoing businesses. In the United States, the Accessory
Lady and Rx Place Drug Mart businesses were disposed and the Company sold its
Silk & Satin chain in Canada and its Rubin and Lady Plus chains in Germany.
Operating results (before non-recurring items) improved in 1996 due to the
closure of under-performing stores, higher margins related to a better mix of
current merchandise and lower expense levels as a result of expense management
programs.
INTERNATIONAL GENERAL MERCHANDISE SEGMENT
The International General Merchandise segment is comprised of the Woolworth
stores in Germany and The Bargain! Shop chain in Canada.
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
($ IN MILLIONS)
<S> <C> <C> <C>
Sales........................................ $1,479 $1,803 $1,928
====== ====== ======
Operating profit (loss) before non-recurring
items...................................... $ 15 $ (32) $ (33)
Charge for adoption of SFAS No. 121.......... -- -- (90)
Net gain on sales of real estate............. 6 27 6
Disposed operations.......................... -- (2) --
------ ------ ------
Operating profit (loss)............ $ 21 $ (7) $ (117)
====== ====== ======
Sales as a percentage of consolidated
total...................................... 22% 26% 28%
Number of stores at year end................. 526 546 557
Selling square footage (millions)............ 6.63 7.17 7.04
</TABLE>
International general merchandise sales decreased $324 million,
representing a decrease of 18.0 percent as compared with 1996. Excluding the
impact of foreign currency fluctuations, sales decreased 6.0 percent as compared
with 1996. Comparable-store sales declined 6.3 percent. Persistent high levels
of unemployment and economic recession since reunification several years ago
continue to negatively impact sales of the German general merchandise business.
Sales in Canada declined primarily as a result of closing stores. Operating
results have improved $28 million to a profit of $21 million in 1997 as compared
with a loss of $7 million in 1996. This improvement is due principally to lower
operating costs in the Company's German operations reflecting the success of a
reorganization program implemented last year, which included a 1996 charge of
$33 million for severance and other personnel related costs. The 1997 operating
results include $6 million in gains on sales of non-strategic real estate in
Germany as compared with gains of $27 million in the prior year.
In 1996, sales decreased 6.5 percent from 1995. Excluding the impact of
foreign currency fluctuations, sales decreased 2.0 percent, while
comparable-store sales declined by 3.2 percent. This decline was primarily
attributable to high unemployment levels and record low levels of consumer
spending in Germany. Operating loss (before non-recurring items) in 1996 was
13
<PAGE> 16
$32 million, which included a charge of $33 million for severance and other
costs associated with transferring associates from full-time to part-time
employment in Germany.
COSTS AND EXPENSES
Corporate Expense and Income
Corporate expense totaled $62 million in both 1997 and 1996, and $69
million in 1995. The decrease in 1996 as compared with 1995 is a result of
severance and related costs arising from the consolidation of accounting
centers, the closing of three distribution centers and other corporate
reorganization costs in 1995.
Corporate income totaled $12 million in 1997 and $17 million in 1995
resulting from gains on sales of corporate properties.
Interest Expense
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ------
($ IN MILLIONS)
<S> <C> <C> <C>
Interest expense................................. $ 44 $ 59 $ 104
Weighted-average interest rate during the year:
Short-term debt without facility fees.......... 6.3% 6.0% 6.8%
Long-term debt................................. 8.0% 7.7% 8.1%
Total debt..................................... 7.9% 7.4% 8.8%
Short-term debt outstanding during the year:
High........................................... $207 $302 $1,043
Weighted-average............................... $ 23 $111 $ 804
</TABLE>
In 1997, interest expense was reduced by 25.4 percent primarily as a result
of lower weighted average short-term debt and reduced facility fees.
Weighted-average short-term debt was reduced by $88 million, or 79.3 percent, as
compared with 1996. In early 1997, the Company reduced its revolving credit
facility from $1 billion to $500 million available through 2002.
In 1996, interest expense decreased 43.3 percent to $59 million due to
lower borrowing levels. In 1996, the Company reduced total debt outstanding by
$116 million, with the short-term debt component decreasing by $69 million as
compared with 1995 levels. The weighted-average short-term debt decreased by
$693 million during 1996 as compared with 1995.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flow
Cash flow from operations of $218 million in 1997 decreased from $451
million in 1996, resulting primarily from an increase in the Company's
investment in working capital, principally inventories. The discontinuance of
the domestic general merchandise business did not require a net outlay of cash,
as the proceeds from the sales of inventories and operations in Mexico exceeded
payments required for occupancy, personnel and other closing costs.
The Company's capital expenditure program, totaling $284 million,
concentrated on new store openings and remodeling of existing facilities
(totaling approximately $175 million), particularly in the Athletic and Northern
Groups. Also included in 1997 capital expenditures is the initial portion of the
multi-year cost of the Company's development and installation of comprehensive
information systems. These new systems encompass merchandise planning and
control, logistics, finance and human resources, as well as a fully integrated
"data warehouse." The Company's existing systems are being replaced to address
many factors
14
<PAGE> 17
including integrated systems to meet divisional requirements and the development
of standard business processes.
Capital spending for technology in 1997 was approximately $61 million and
is included as part of cash used in investing activities of the Company.
Cash used in investing activities includes the Company's 1997 acquisition
of Eastbay, a leading U.S. catalogue company specializing in the direct
marketing of athletic goods for a purchase price of $140 million, and the
acquisition of 27 stores from Koenig Sporting Goods, Inc. for $8 million.
Cash used in financing activities reflects payments of short and long-term
debt obligations.
Cash flow from operations of $451 million in 1996 decreased from $503
million in 1995, resulting primarily from the decline in merchandise inventories
in 1995. The Company's lower cost structure and improved earnings contributed to
positive cash flow from operations. Other significant sources and uses of cash
included proceeds from sales of real estate and dispositions of specialty
businesses, predominantly in Germany.
Cash provided by operating activities for the two-year period including
1997 and 1996 was adequate to fund substantially all investing and financing
activities. The Company was able to generate $669 million from operating
activities which was $128 million in excess of funding requirements for its
investing and financing activities over the period. The cash flow from
operations, along with anticipated cash flow from future operations and
revolving credit facilities, are expected to support the Company's strategic
initiatives to grow its businesses through reinvestment.
Future cash flows from operating activities are expected to be sufficient
to cover any short-term and long-term debt and capital lease repayment
obligations, as well as planned increases in capital expenditures. Planned
capital expenditures for 1998 are approximately $435 million, of which $310
million relates to the opening of new stores and the modernization of existing
stores, and $135 million for information systems, infrastructure and logistics.
CAPITAL STRUCTURE
The Company's improved financial condition is expected to provide a solid
base for growth opportunities and enhanced financial flexibility. During 1997,
the Company was again able to reduce overall borrowings as it repaid $49 million
of long-term debt and ended the year with no short-term debt.
During 1997, the Company and its bankers finalized modifications to its
domestic revolving credit agreement. At the Company's election, the previous $1
billion facility was reduced to a $500 million facility available through 2002.
Management believes current domestic and international credit facilities and
cash provided by operations will be adequate to finance its working capital
requirements and support the development of the Company's short and long-term
strategies. At year end, the entire amount of the credit facility was unused.
The Company has a registration statement filed with the Securities and
Exchange Commission which allows for the additional issuance of up to $360
million of debt securities and warrants to purchase debt securities. Depending
on market conditions and capital needs, additional long-term financing may be
utilized.
For purposes of calculating debt to total capitalization, the Company
includes the present value of operating lease commitments. These commitments are
the primary financing vehicle
15
<PAGE> 18
used to fund store expansion. The following table sets forth the components of
the Company's capitalization, both with and without the present value of
operating leases:
<TABLE>
<CAPTION>
1997 1996
------ ------
($ IN MILLIONS)
<S> <C> <C>
Short-term debt......................................... $ -- $ --
Long-term debt and capital lease obligations............ 557 590
Present value of operating leases....................... 1,952 1,950
------ ------
Total debt.................................... 2,509 2,540
Shareholders' equity.................................... 1,271 1,334
====== ======
Total capitalization.................................... $3,780 $3,874
====== ======
Debt capitalization percent............................. 66.4% 65.6%
Debt capitalization percent without operating leases.... 30.5% 30.7%
</TABLE>
The debt to capital ratio remained consistent compared with 1996. Total
debt (including the present value of operating leases) decreased by $31 million
in 1997 and shareholders' equity decreased primarily due to the current year net
loss of $10 million and the foreign currency translation adjustment of $56
million. Management's objective is to further reduce its ratio of debt to
capitalization.
CREDIT RATINGS
The Company's debt credit ratings are as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
COMMERCIAL PAPER:
Standards & Poor's........................................ A-3 A-3
Moody's Investors Service................................. P3 P3
LONG-TERM DEBT:
Standards & Poor's........................................ BBB- BBB-
Moody's Investors Service................................. Baa3 Baa3
</TABLE>
STRATEGIC PLAN
During 1997, the financial structure of the Company continued to strengthen
with increased income from continuing operations and positive operating cash
flow. Its return on investment has increased to 8.3 percent in 1997 from 3.6
percent in 1994. During the year, the Company significantly reduced operating
costs and outstanding debt levels and disposed of non-strategic investments.
This financial strength will provide the Company with the ability to meet
its strategic goal of increasing its position in the global market for athletic
footwear, athletic apparel and sporting goods. As part of its strategy for
growth, the Company is in the process of converting approximately 130 of its
discontinued U.S. general merchandise locations into Foot Locker, Champs Sports
or other formats.
Throughout the coming years the Company expects to continue to focus on
growth opportunities and is planning capital investments of approximately $1
billion through the year 2000 for new and remodeled stores, information systems,
infrastructure and logistics. The Company will maximize the use of its resources
by the divestiture of non-strategic businesses and investment in those portions
of the business offering the highest returns.
On April 2, 1998, the Company announced the selection of a new corporate
name, Venator Group, Inc. The Company will continue to operate as Woolworth
Corporation pending shareholder approval of the new name in June 1998.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," which establishes standards for reporting and display of comprehensive
income and its components in the financial statements, and SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information," which
establishes revised standards for reporting and disclosure
16
<PAGE> 19
requirements for operating segments. The Company will adopt SFAS Nos. 130 and
131 by fiscal year-end 1998. These Statements increase disclosure only and will
have no effect on the Company's financial position or results of operations.
In February 1998, the FASB issued SFAS No. 132, "Employer's Disclosures
about Pensions and Other Postretirement Benefits," which is effective for fiscal
years beginning after December 15, 1997. This statement revises employer's
disclosures about pensions and other postretirement benefit plans. It does not
change the measurement or recognition of those plans.
SEASONALITY
The Company's retail businesses are 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.
IMPACT OF YEAR 2000
The year 2000 issue is the result of computer programs being written using
two digits, rather than four, to define the applicable year. Accordingly, any of
the Company's computer programs that have date sensitive software may cause
system failures or miscalculations if data entry of "00" is recognized as the
year 1900 rather than 2000. As discussed previously, included in 1997 capital
spending is a portion of the Company's cost for the development and installation
of comprehensive information systems. The installation of these systems, which
is being undertaken for business purposes, eliminates the need to reprogram or
replace certain existing software to address the impact of the year 2000 issue.
The Company is utilizing both internal and external resources to reprogram, or
replace, and test software for year 2000 compliance. Additionally, a review of
our suppliers is being made to assure that they are working toward year 2000
compliance. The Company estimates the total direct amount to remediate the year
2000 issue is not expected to be material to the Company's results of operations
or financial condition. All costs will be expensed as incurred, unless new
software is purchased which will be capitalized.
IMPACT OF THE EUROPEAN MONETARY UNIT
The European Common Market was established in 1987, leading to the European
Union of today. To further integrate these countries, the European Union is
planning to develop the European Monetary Union in which all participating
countries will use a common currency, the "Euro." Euro bank notes and coins are
scheduled to be introduced by January 2002. The Company is expecting that the
installation and development of the integrated information systems previously
discussed will accommodate the impact of the Euro. The Company is in the process
of reviewing the effect of supplier and customer compliance.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This report, including Management's Discussion and Analysis of Financial
Conditions and Results of Operations contains forward-looking statements within
the meaning of the federal securities laws. All statements, other than
statements of historical facts, which address activities, events or developments
that the Company expects or anticipates will or may occur in the future,
including such things as future capital expenditures, expansion, strategic
plans, expansion and growth of the Company's business and operations and other
such matters are forward-looking statements. These forward-looking statements
are based on many assumptions and factors including effects of currency
fluctuations, consumer preferences and economic conditions worldwide. Any
changes in such assumptions or factors could produce significantly different
results.
17
<PAGE> 20
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Derivatives
Derivative financial instruments are used by the Company to manage its
interest rate and international currency exposures. The Company's policy is not
to hold derivative financial instruments for trading or speculative purposes.
Interest Rates
The Company centrally manages its debt and investment portfolios
considering opportunities and risks, tax consequences and overall financing
strategies. The Company's investment portfolio consists of long-term investments
and short-term marketable securities. It is the Company's policy to hold these
investments until maturity. The Company's weighted-average interest rate on its
debt instruments is 7.6 percent and 7.5 percent in 1997 and 1996, respectively.
The following table presents the fair value of debt instruments by maturity
date:
<TABLE>
<CAPTION>
1997 1996
----- -----
(IN MILLIONS)
<S> <C> <C>
1997................................................ -- 12
1998................................................ 17 53
1999................................................ 2 2
2000................................................ 206 202
2001................................................ 53 51
2002 and Thereafter................................. 281 250
---- ----
Total............................................... $559 $570
==== ====
</TABLE>
Foreign Exchange
International operations constitutes approximately 15.5 percent of 1997
consolidated operating profit. As currency exchange rates change, translating
the income statements of international businesses into U.S. dollars affects
year-over-year comparability of operating results. Changes in currency exchange
rates that would have the largest impact on translating international operating
results are the German Mark and Canadian dollar. Net foreign exchange gains and
losses were not material to operating results in the past three years. The
Company's international operations purchase significant levels of inventory in
U.S. dollars. In order to mitigate this exposure the Company selectively hedges
these purchases through forward contracts which mature within one year. At
January 31, 1998, the fair value of these contracts was not material to the
Company's financial position.
18
<PAGE> 21
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information called for by this item is set forth in the Company's
Consolidated Financial Statements and supplementary data contained in this
report and is incorporated herein by this reference. Specific financial
statements and supplementary data can be found on the pages listed in the
following index:
<TABLE>
<CAPTION>
INDEX PAGE
----- ----
<S> <C>
Management's Report......................................... F-2
Independent Auditors' Report................................ F-3
Consolidated Statements of Operations....................... F-4
Consolidated Balance Sheets................................. F-5
Consolidated Statements of Shareholders' Equity............. F-6
Consolidated Statements of Cash Flows....................... F-7
Notes to Consolidated Financial Statements.................. F-8
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There were no disagreements between the Company and its independent
accountants on matters of accounting principles or practices.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
(a) Directors of the Company
Information relative to directors of the Company is set forth under
the section captioned "Election of Directors" in the Proxy Statement and is
incorporated herein by reference.
(b) Executive Officers of the Company
Information with respect to executive officers of the Company is set
forth immediately following Item 4 in Part I hereof on pages 5 and 6.
(c) Information with respect to compliance with Section 16(a) of the
Securities Exchange Act of 1934 is set forth under the section captioned
"Section 16(a) Beneficial Ownership Reporting Compliance" in the Proxy
Statement and is incorporated herein by reference.
19
<PAGE> 22
ITEM 11. EXECUTIVE COMPENSATION
Information set forth in the Proxy Statement, beginning with the section
captioned
"Director's Compensation and Benefits; Indemnification Arrangements" through and
including the section captioned "Compensation Committee Interlocks and Insider
Participation" is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information set forth in the Proxy Statement, under the section captioned
"Beneficial Ownership of the Company's Stock" is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information set forth in the Proxy Statement, under the section captioned
"Transactions with Management and Others" is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) Financial Statements
The list of financial statements required by this item is set forth
in Item 8 "Consolidated Financial Statements and Supplementary Data" and
is incorporated herein by reference.
(a)(2) and(d) Financial Statement Schedules
No financial statement schedules have been presented since the
required information is shown in the financial statements or Notes to
Consolidated Financial Statements.
Separate financial statements of the parent company have not been
presented since all consolidated subsidiaries of the Company are wholly
owned and have indebtedness, not guaranteed by the parent company, in the
aggregate of less than 5 percent of the Company's consolidated total
assets.
Separate financial statements of subsidiaries less than 50 percent
owned have not been presented since these subsidiaries, both individually
and in the aggregate, do not constitute significant subsidiaries.
20
<PAGE> 23
(a)(3) and (c) Exhibits
The following exhibits are filed herewith or incorporated by reference as
indicated below.
<TABLE>
<CAPTION>
EXHIBIT NO.
IN ITEM 601 OF
REGULATION S-K DESCRIPTION
- -------------- -----------
<S> <C>
1 *
2 *
3(i)(a) Certificate of Incorporation of the Company, 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 Company 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 Company, 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) to the July 26, 1997 Form
10-Q).
3(ii) By-laws of the Company, as amended (incorporated herein by
reference to Exhibit 3(ii) to the July 26, 1997 Form 10-Q).
4.1 The rights of holders of the Company's equity securities are
defined in the Company'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).
4.2 Rights Agreement dated as of March 11, 1998, between
Woolworth Corporation and First Chicago Trust Company of New
York, as Rights Agent (incorporated herein by reference to
Exhibit 4 to the Form 8-K dated March 11, 1998).
4.3 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).
4.4 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).
4.5 Form of 8 1/2% Debentures due 2022 (incorporated herein by
reference to Exhibit 4 to the Company's Form 8-K dated
January 16, 1992).
4.6 Purchase Agreement dated June 1, 1995 and Form of 7% Notes
due 2000 (incorporated herein by reference to Exhibits 1 and
4, respectively, to the Company's Form 8-K dated June 7,
1995).
4.7 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 the
Company's Form 8-K dated July 13, 1995).
5 *
8 *
9 *
10.1 1986 Woolworth Stock Option Plan (incorporated herein by
reference to Exhibit 10(b) to the Company's Annual Report on
Form 10-K for the year ended January 28, 1995, filed by the
Company with the SEC on April 24, 1995 (the "1994 10-K")).
10.2 Amendment to the 1986 Woolworth Stock Option Plan
(incorporated herein by reference to Exhibit 10(a) to the
Company's Annual Report on Form 10-K for the year ended
January 27, 1996, filed by the Company on April 26, 1996
(the "1995 10-K")).
</TABLE>
21
<PAGE> 24
<TABLE>
<CAPTION>
EXHIBIT NO.
IN ITEM 601 OF
REGULATION S-K DESCRIPTION
- -------------- -----------
<S> <C>
10.3 Woolworth Corporation 1995 Stock Option and Award Plan
(incorporated herein by reference to Exhibit 10(p) to the
1994 10-K).
10.4 1998 Stock Option and Award Plan adopted by the Board of
Directors on April 8, 1998, subject to shareholder approval
at the 1998 annual meeting of shareholders.
10.5 Executive Supplemental Retirement Plan (incorporated herein
by reference to Exhibit 10(d) to the Registration Statement
on Form 8-B filed by the Company with the SEC on August 7,
1989 (Registration No. 1-10299) (the "8-B Registration
Statement")).
10.6 Amendments to the Executive Supplemental Retirement Plan
(incorporated herein by reference to Exhibit 10(c)(i) to the
1994 10-K).
10.7 Amendment to the Executive Supplemental Retirement Plan
(incorporated herein by reference to Exhibit 10(d)(ii) to
the 1995 10-K).
10.8 Supplemental Executive Retirement Plan (incorporated herein
by reference to Exhibit 10(e) to the 1995 10-K).
10.9 Long-Term Incentive Compensation Plan, as amended and
restated (incorporated herein by reference to Exhibit 10(f)
to the 1995 10-K).
10.10 Annual Incentive Compensation Plan, as amended and restated
(incorporated herein by reference to Exhibit 10(g) to the
1995 10-K).
10.11 Form of indemnification agreement, as amended (incorporated
herein by reference to Exhibit 10(g) to the 8-B Registration
Statement).
10.12 Woolworth Corporation Voluntary Deferred Compensation Plan
(incorporated herein by reference to Exhibit 10(i) to the
1995 10-K).
10.13 Trust agreement dated as of November 12, 1987, between F.W.
Woolworth Co. and The Bank of New York, as amended and
assumed by the Company (incorporated herein by reference to
Exhibit 10(j) to the 8-B Registration Statement).
10.14 Woolworth Corporation Directors' Retirement Plan, as amended
(incorporated herein by reference to Exhibit 10(k) to the
8-B Registration Statement).
10.15 Amendments to the Woolworth Corporation Directors'
Retirement Plan (incorporated herein by reference to Exhibit
10(c) to the Company's Form 10-Q, for the period ended
October 28, 1995, filed with the SEC on December 11, 1995
(the "October 28, 1995 10-Q")).
10.16 Employment agreement with Roger N. Farah dated as of
December 11, 1994 (incorporated herein by reference to
Exhibit 10(d) to the Company's 1994 10-K).
10.17 Restricted Stock Agreement with Roger N. Farah dated as of
January 9, 1995 (incorporated herein by reference to Exhibit
10(m) to the 1994 10-K).
10.18 Employment agreement with Dale W. Hilpert dated as of May 1,
1997 (incorporated herein by reference to Exhibit 10 to the
Registrant's Form 10-Q for the period ended April 26, 1997
filed with the SEC on June 6, 1997).
10.19 Consulting Agreement with DBSS Group, Inc. dated July 1,
1996 (incorporated herein by reference to Exhibit 10.2 to
the Company's Form 10-K for the year ended January 25, 1997,
filed by the Company with the SEC on April 25, 1997 (the
"1996 10-K")).
10.20 Agreement with M. Jeffrey Branman dated April 24, 1997
(incorporated herein by reference to Exhibit 10(r) to the
1996 10-K).
10.21 Supplemental agreement with M. Jeffrey Branman dated April
24, 1997 (incorporated herein by reference to Exhibit
10(r)(i) to the 1996 10-K).
</TABLE>
22
<PAGE> 25
<TABLE>
<CAPTION>
EXHIBIT NO.
IN ITEM 601 OF
REGULATION S-K DESCRIPTION
- -------------- -----------
<S> <C>
10.22 Employment Term Sheet for M. Jeffrey Branman dated February
15, 1996 (incorporated herein by reference to Exhibit
10(r)(ii) to the 1996 10-K).
10.23 Agreement with John E. DeWolf III dated April 7, 1997
(incorporated herein by reference to Exhibit 10(s) to the
1996 10-K).
10.24 Employment Term Sheet for John E. DeWolf III dated February
8, 1996 (incorporated herein by reference to Exhibit
10(s)(i) to the 1996 10-K).
10.25 Agreement with John F. Gillespie dated April 7, 1997
(incorporated herein by reference to Exhibit 10(t) to the
1996 10-K).
10.26 Employment Term Sheet for John F. Gillespie dated February
26, 1996 (incorporated herein by reference to Exhibit
10(t)(i) to the 1996 10-K).
10.27 Woolworth Corporation Executive Severance Pay Plan
(incorporated herein by reference to Exhibit 10(u) to the
1995 10-K).
10.28 Agreement with Reid Johnson dated September 8, 1997
(incorporated herein by reference to Exhibit 10 to the
Company's Form 10-Q for the period ended October 25, 1997
filed with the SEC on December 8, 1997).
10.29 Employment Terms for Reid Johnson dated July 25, 1997.
10.30 Form of Senior Executive Severance Agreement (incorporated
herein by reference to Exhibit 10(v) to the 1995 10-K).
10.31 Woolworth Corporation Directors' Stock Plan (incorporated
herein by reference to Exhibit 10(b) to the Company's
October 28, 1995 10-Q).
10.32 $500 million Credit Agreement dated as of April 9, 1997
(incorporated herein by reference to Exhibit 10(y) to the
1996 10-K).
10.33 Woolworth Corporation Excess Cash Balance Plan (incorporated
herein by reference to Exhibit 10(c) to the 1995 10-K).
10.34 Amendment No. 1 dated as of July 16, 1997 to the Credit
Agreement dated April 9, 1997 (incorporated herein by
reference to Exhibit 10 to the July 26, 1997 Form 10-Q).
10.35 Amendment No. 2 dated as of April 13, 1998 to the Credit
Agreement dated April 9, 1997.
11 *
12 Computation of Ratio of Earnings to Fixed Charges.
13 *
15 *
16 *
17 *
18 *
19 *
20 *
21 Subsidiaries of the Company.
22 *
23 Consent of Independent Auditors.
24 *
25 *
</TABLE>
23
<PAGE> 26
<TABLE>
<CAPTION>
EXHIBIT NO.
IN ITEM 601 OF
REGULATION S-K DESCRIPTION
- -------------- -----------
<S> <C>
26 *
27.1 Financial Data Schedule, which is submitted electronically
to the SEC for information only and not filed.
27.2 1996 Restated Financial Data Schedule, which is submitted
electronically to the SEC for information only and not
filed.
27.3 1995 Restated Financial Data Schedule, which is submitted
electronically to the SEC for information only and not
filed.
99 *
</TABLE>
- ---------------
* Not applicable
(b) Reports on Form 8-K
There were no reports on Form 8-K filed for the quarter ended January 31,
1998.
24
<PAGE> 27
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
WOOLWORTH CORPORATION
By: /s/ ROGER N. FARAH
------------------------------------
Roger N. Farah
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on April 8, 1998, by the following persons on
behalf of the Company and in the capacities indicated.
<TABLE>
<S> <C>
/s/ ROGER N. FARAH /s/ JAROBIN GILBERT JR.
- --------------------------------------------------- ---------------------------------------------------
Roger N. Farah Jarobin Gilbert Jr.
Chairman of the Board and Director
Chief Executive Officer
/s/ DALE W. HILPERT /s/ ALLAN Z. LOREN
- --------------------------------------------------- ---------------------------------------------------
Dale W. Hilpert Allan Z. Loren
President and Director
Chief Operating Officer
/s/ REID JOHNSON /s/ MARGARET P. MACKIMM
- --------------------------------------------------- ---------------------------------------------------
Reid Johnson Margaret P. MacKimm
Senior Vice President and Director
Chief Financial Officer
/s/ BRUCE L. HARTMAN /s/ JOHN J. MACKOWSKI
- --------------------------------------------------- ---------------------------------------------------
Bruce L. Hartman John J. Mackowski
Vice President and Controller Director
/s/ J. CARTER BACOT /s/ JAMES E. PRESTON
- --------------------------------------------------- ---------------------------------------------------
J. Carter Bacot James E. Preston
Director Director
/s/ PURDY CRAWFORD /s/ CHRISTOPHER A. SINCLAIR
- --------------------------------------------------- ---------------------------------------------------
Purdy Crawford Christopher A. Sinclair
Director Director
/s/ PHILIP H. GEIER JR.
- ---------------------------------------------------
Philip H. Geier Jr.
Director
</TABLE>
25
<PAGE> 28
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Management's Report......................................... F-2
Independent Auditors' Report................................ F-3
Consolidated Statements of Operations....................... F-4
Consolidated Balance Sheets................................. F-5
Consolidated Statements of Shareholders' Equity............. F-6
Consolidated Statements of Cash Flows....................... F-7
Notes to Consolidated Financial Statements.................. F-8
</TABLE>
F-1
<PAGE> 29
MANAGEMENT'S REPORT
The integrity and objectivity of the financial statements and other
financial information presented in this annual report are the responsibility of
management of the Company. The financial statements have been prepared in
conformity with generally accepted accounting principles and necessarily include
amounts based on the best estimates and judgment of management.
The Company maintains accounting systems and related internal policies and
procedures designed to provide reasonable assurance that assets are safeguarded,
transactions are executed in accordance with management's authorization and are
properly recorded, and accounting records may be relied upon for the preparation
of financial statements and other financial information. The design, monitoring
and revision of internal accounting control procedures involve, among other
things, management's judgment with respect to the relative costs and expected
benefits related to specific control measures. The Company also maintains an
internal audit function for evaluating and formally reporting on the adequacy
and effectiveness of internal accounting controls, policies and procedures.
The Company's financial statements have been audited by KPMG Peat Marwick
LLP, the Company's independent auditors, whose report expresses their opinion
with respect to the fairness of the presentation of the statements.
The Audit Committee of the Board of Directors, which is comprised solely of
directors who are not officers or employees of the Company, meet regularly with
the Company's management, internal auditors, legal counsel and KPMG Peat Marwick
LLP to review the activities of each group and to satisfy itself that each is
properly discharging its responsibility. In addition, the Audit Committee meets
on a periodic basis with KPMG Peat Marwick LLP, without management's presence,
to discuss the audit of the financial statements as well as other auditing and
financial reporting matters. The Company's internal auditors and independent
auditors have direct access to the Audit Committee.
/s/ ROGER N. FARAH
--------------------------------------
ROGER N. FARAH,
Chairman of the Board and
Chief Executive Officer
/s/ DALE W. HILPERT
--------------------------------------
DALE W. HILPERT,
President and Chief Operating Officer
/s/ REID JOHNSON
--------------------------------------
REID JOHNSON,
Senior Vice President and
Chief Financial Officer
April 8, 1998
F-2
<PAGE> 30
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
and Shareholders of
Woolworth Corporation
We have audited the accompanying consolidated balance sheets of Woolworth
Corporation and subsidiaries as of January 31, 1998 and January 25, 1997 and the
related consolidated statements of operations, shareholders' equity and cash
flows for each of the years in the three-year period ended January 31, 1998.
These consolidated financial statements are the responsibility of Woolworth
Corporation'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 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 Woolworth
Corporation and subsidiaries as of January 31, 1998 and January 25, 1997, and
the results of their operations and their cash flows for each of the years in
the three-year period ended January 31, 1998 in conformity with generally
accepted accounting principles.
As discussed in note 3 to the consolidated financial statements, in 1995
Woolworth Corporation adopted Statement of Financial 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, NY
March 11, 1998
F-3
<PAGE> 31
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
SALES.................................................... $6,624 $7,017 $7,031
------ ------ ------
COSTS AND EXPENSES
Cost of sales............................................ 4,568 4,783 4,863
Selling, general and administrative expenses............. 1,535 1,712 1,801
Depreciation and amortization............................ 168 171 216
Interest expense......................................... 44 59 104
Other income............................................. (29) (28) (31)
Adoption of accounting standard for impairment of long-
lived assets........................................... -- -- 211
------ ------ ------
6,286 6,697 7,164
------ ------ ------
Income (loss) from continuing operations before income
taxes.................................................. 338 320 (133)
Income tax expense (benefit)............................. 125 127 (35)
------ ------ ------
INCOME (LOSS) FROM CONTINUING OPERATIONS................. 213 193 (98)
------ ------ ------
Loss from discontinued operations, net of income taxes of
$19, $16 and $34 respectively.......................... (28) (24) (66)
Loss on disposal of discontinued operations, net of
income taxes of $115................................... (195) -- --
------ ------ ------
NET INCOME (LOSS)........................................ $ (10) $ 169 $ (164)
====== ====== ======
Basic earnings per share:
Income (loss) from continuing operations............ $ 1.58 $ 1.45 $(0.73)
Loss from discontinued operations................... (1.66) (0.19) (0.50)
------ ------ ------
Net income (loss)................................... $(0.08) $ 1.26 $(1.23)
====== ====== ======
Diluted earnings per share:
Income (loss) from continuing operations............ $ 1.57 $ 1.44 $(0.73)
Loss from discontinued operations................... (1.64) (0.18) (0.50)
------ ------ ------
Net income (loss)................................... $(0.07) $ 1.26 $(1.23)
====== ====== ======
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
on pages F-8 to F-27.
F-4
<PAGE> 32
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
1997 1996
------ ------
(IN MILLIONS)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents................................. $ 116 $ 328
Merchandise inventories................................... 1,159 1,066
Net assets of discontinued operations..................... 7 186
Other current assets...................................... 177 202
------ ------
1,459 1,782
PROPERTY AND EQUIPMENT, NET................................. 1,053 983
DEFERRED CHARGES AND OTHER ASSETS........................... 670 574
------ ------
$3,182 $3,339
====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable.......................................... $ 327 $ 286
Accrued liabilities....................................... 335 447
Current portion of reserve for discontinued operations.... 72 --
Current portion of long-term debt and obligations under
capital leases......................................... 22 15
------ ------
756 748
LONG-TERM DEBT AND OBLIGATIONS UNDER CAPITAL LEASES......... 535 575
DEFERRED TAXES.............................................. 48 55
RESERVE FOR DISCONTINUED OPERATIONS......................... 18 --
OTHER LIABILITIES........................................... 554 627
SHAREHOLDERS' EQUITY........................................ 1,271 1,334
COMMITMENTS.................................................
------ ------
$3,182 $3,339
====== ======
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
on pages F-8 to F-27.
F-5
<PAGE> 33
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
1997 1996 1995
---------------- ---------------- ----------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------- ------ ------- ------ ------- ------
(SHARES IN THOUSANDS, AMOUNTS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
PREFERRED STOCK
$2.20 Series A Convertible Preferred,
par value
$1 per share, 7 million shares
authorized
Outstanding at beginning of year........ -- $ -- 97 $ -- 101 $ --
Converted during year................... -- -- (97) -- (4) --
------- ------ ------- ------ ------- ------
Outstanding at end of year.............. -- -- -- -- 97 --
------- ------ ------- ------ ------- ------
COMMON STOCK AND PAID-IN CAPITAL
Par value $.01 per share, 500 million
shares authorized
Issued at beginning of year............. 134,047 299 133,051 290 132,505 282
Issued upon conversion of preferred
shares................................ -- -- 461 -- 21 --
Issued under employee stock plans....... 939 18 535 9 525 7
------- ------ ------- ------ ------- ------
Issued at end of year................... 134,986 317 134,047 299 133,051 289
------- ------ ------- ------ ------- ------
Common stock in treasury at beginning of
year.................................. -- -- -- -- -- --
Acquired at cost........................ (10) -- -- -- -- --
Restricted stock........................ -- -- -- -- -- --
Common stock in treasury at end of
year.................................. (10) -- -- -- -- --
------- ------ ------- ------ ------- ------
Amortization of stock issued under
restricted stock option plan.......... -- -- -- 1 -- 1
Redemption of preferred stock........... -- -- -- (1) -- --
------- ------ ------- ------ ------- ------
Common stock outstanding and paid-in
capital at end of year................ 134,976 317 134,047 299 133,051 290
------- ------ ------- ------ ------- ------
RETAINED EARNINGS
Balance at beginning of year............ 1,050 891 1,055
Net income (loss)....................... (10) 169 (164)
Change in subsidiaries' year end........ (7) (10) --
Cash dividends declared:
Preferred stock....................... -- -- --
------ ------ ------
Balance at end of year.................. 1,033 1,050 891
------ ------ ------
SHAREHOLDERS' EQUITY BEFORE
ADJUSTMENTS........................... 1,350 1,349 1,181
------ ------ ------
FOREIGN CURRENCY TRANSLATION ADJUSTMENT
Balance at beginning of year............ 22 83 31
Aggregate translation adjustment, net of
deferred tax benefit.................. (56) (61) 52
------ ------ ------
Balance at end of year.................. (34) 22 83
------ ------ ------
MINIMUM PENSION LIABILITY ADJUSTMENT
Balance at beginning of year............ (37) (35) (10)
Change during year, net of deferred tax
benefit............................... (8) (2) (25)
------ ------ ------
Balance at end of year.................. (45) (37) (35)
------ ------ ------
TOTAL SHAREHOLDERS' EQUITY.............. $1,271 $1,334 $1,229
====== ====== ======
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
on pages F-8 to F-27.
F-6
<PAGE> 34
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
(IN MILLIONS)
<S> <C> <C> <C>
FROM OPERATING ACTIVITIES
Net income (loss)........................................... $ (10) $ 169 $(164)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Non-cash charge for discontinued operations, net of tax... 33 -- --
Depreciation and amortization............................. 168 171 216
Gain on sales of real estate.............................. (22) (35) (34)
Adoption of accounting standard for impairment of
long-lived assets...................................... -- -- 211
Change in deferred taxes.................................. 32 (62) (79)
Change in assets and liabilities, net of acquisitions:
Merchandise inventories................................ (99) 86 200
Accounts payable and other accruals.................... (5) 112 2
Net assets of discontinued operations.................. 179 55 106
Repositioning and restructuring reserves............... (47) (63) (63)
Other, net............................................. (11) 18 108
----- ----- -----
Net cash provided by operating activities................... 218 451 503
----- ----- -----
FROM INVESTING ACTIVITIES
Proceeds from sales of real estate.......................... 41 53 110
Capital expenditures........................................ (284) (114) (139)
Cost of acquisitions, net of cash acquired.................. (148) -- (10)
Purchase of investments..................................... -- -- (64)
Proceeds from sales of assets and investments............... -- 26 33
----- ----- -----
Net cash used in investing activities....................... (391) (35) (70)
----- ----- -----
FROM FINANCING ACTIVITIES
Decrease in short-term debt................................. -- (69) (784)
Proceeds from issuance of long-term debt.................... -- -- 332
Principal payments of long-term debt........................ (44) (19) (21)
Reduction in capital lease obligations...................... (3) (3) (3)
Issuance of common stock.................................... 16 7 7
Purchase of treasury stock.................................. -- -- --
Dividends paid.............................................. -- -- (20)
----- ----- -----
Net cash used in financing activities....................... (31) (84) (489)
----- ----- -----
EFFECT OF EXCHANGE RATE FLUCTUATIONS ON CASH AND CASH
EQUIVALENTS............................................... (8) (18) 6
----- ----- -----
NET CHANGE IN CASH AND CASH EQUIVALENTS..................... (212) 314 (50)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR.............. 328 14 64
----- ----- -----
CASH AND CASH EQUIVALENTS AT END OF YEAR.................... $ 116 $ 328 $ 14
===== ===== =====
CASH PAID DURING THE YEAR:
Interest.................................................. $ 41 $ 59 $ 108
Income taxes.............................................. $ 55 $ 55 $ 23
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
on pages F-8 to F-27.
F-7
<PAGE> 35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements include the accounts of Woolworth
Corporation and its domestic and international subsidiaries, all of which are
wholly owned. All significant intercompany amounts have been eliminated. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent liabilities at the date of the financial statements, and the reported
amounts of revenue and expense during the reporting period. Actual results are
not expected to differ significantly from those estimates.
Reporting Year
The reporting period for the Company and its subsidiaries is the 52 or
53-week period ending on the last Saturday in January. The 1997 reporting year
represents the 53 weeks ended January 31, 1998. The 1996 and 1995 reporting
years represent the 52 weeks ended January 25, 1997 and January 27, 1996,
respectively.
Beginning with 1998, the Company plans to change its reporting period to
the Saturday closest to the last day in January.
In 1997, the Company changed the reporting period for its Foot Locker
Europe operations from a calendar year ending December 31, to the 53-week period
ended on the last Saturday in January. The results of operations for the period
from January 1 through January 31, 1998 were charged to retained earnings in the
current year in order to report only 12 months' operating results.
In 1996, the Company changed the reporting period for its German operations
from a calendar year ending December 31, to the 52-week period ended on the last
Saturday in January. The results of operations for the period from January 1
through January 25, 1997 were charged to retained earnings for the reporting
year ended January 25, 1997 in order to report only 12 months' operating
results.
Cash and Cash Equivalents
The Company considers all highly liquid investments with remaining
maturities of three months or less when purchased to be cash equivalents.
Merchandise Inventories
Merchandise inventories are valued at the lower of cost or market using the
retail method. Cost is determined on the last-in, first-out (LIFO) basis for
most domestic inventories and the first-in, first-out (FIFO) basis for
international inventories.
Property and Equipment
Significant additions and improvements to property and equipment are
capitalized. Maintenance and repairs are charged to current operations as
incurred. Major renewals or replacements that substantially extend the useful
life of an asset are capitalized and depreciated.
Capitalized Software
Certain costs related to software developed for internal use are
capitalized and amortized on a straight-line basis over periods not exceeding 8
years.
F-8
<PAGE> 36
Depreciation and Amortization
Owned property and equipment is depreciated on a straight-line basis over
the estimated useful lives of the assets: 25 to 45 years for buildings and 3 to
10 years for furniture, fixtures and equipment. Leased property and equipment
under capital leases and improvements to leased premises are amortized on a
straight-line basis over the lesser of the life of the asset or the remaining
term of the lease.
Goodwill
Excess purchase price over the fair value of assets acquired is amortized
on a straight-line basis over periods not exceeding 40 years. Goodwill arising
from acquisitions made since 1995 is being amortized over periods not exceeding
20 years. Recoverability of goodwill is evaluated based upon estimated future
profitability and cash flows.
Derivative Financial Instruments
Derivative financial instruments are used by the Company to manage its
interest rate and international currency exposures. The Company does not hold
derivative financial instruments for trading or speculative purposes. For
interest rate swap agreements, the interest rate differential to be paid or
received under the agreement is recognized over the life of the swap agreement
and is included as an adjustment to interest expense. The carrying amount of
each interest rate swap is reflected in the Consolidated Balance Sheets as a
current receivable or payable as appropriate. For forward foreign exchange
contracts, gains and losses designated as hedges of inventory purchases are
deferred and included in the cost of inventory. Gains and losses that result
from hedges of net investments in international subsidiaries are recognized as
part of the foreign currency translation adjustment included in shareholders'
equity until such time as the investment is liquidated.
Fair Value of Financial Instruments
The fair value of financial instruments is determined by reference to
various market data and other valuation techniques as appropriate. The carrying
value of cash and cash equivalents, other current receivables and short-term
debt approximate fair value. Quoted market prices of the same or similar
instruments are used to determine fair value of long-term investments, long-term
debt, interest rate swaps and forward foreign exchange contracts. Discounted
cash flows are used to determine the fair value of long-term receivables and
mortgages if quoted market prices on these instruments are unavailable.
Recoverability of Long-Lived Assets
An impairment loss is recognized whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable.
Beginning in 1995, with the adoption of Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of" ("SFAS No. 121"), assets are grouped and
evaluated at the lowest level for which there are identifiable cash flows that
are largely independent of the cash flows of other groups of assets. The Company
has identified this lowest level to be principally individual stores. The
Company considers historical performance and future estimated results in its
evaluation of potential impairment and then compares the carrying amount of the
asset to the estimated future cash flows expected to result from the use of the
asset. If the carrying amount of the asset exceeds estimated expected
undiscounted future cash flows, the Company measures the amount of the
impairment by comparing the carrying amount of the asset to its fair value. The
estimation of fair value is generally measured by discounting expected future
cash flows at the rate the Company utilizes to evaluate potential investments.
The Company
F-9
<PAGE> 37
estimates fair value based on the best information available making whatever
estimates, judgments and projections are considered necessary.
Stock-Based Compensation
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation," ("SFAS No. 123") encourages, but does not require,
companies to record compensation cost for stock-based employee compensation at
fair value. The Company has chosen to continue to account for stock-based
compensation using the intrinsic value method prescribed in Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB No. 25"). In accordance with APB No. 25, compensation expense is not
recorded for options granted if the option price is equal to the quoted market
price at the date of grant. Compensation expense is also not recorded for
employee purchases of stock under the 1994 Stock Purchase Plan since the plan is
non-compensatory as defined in APB No. 25.
Income Taxes
The Company determines its deferred tax provision under the liability
method, whereby deferred tax assets and liabilities are recognized for the
expected tax consequences of temporary differences between the tax bases of
assets and liabilities and their reported amounts using presently enacted tax
rates. Deferred tax assets are recognized for tax credit and net operating loss
carryforwards, reduced by a valuation allowance which is established when "it is
more likely than not" that some portion or all of the deferred tax assets will
not be realized. The effect on deferred tax assets and liabilities of a change
in tax rates is recognized in income in the period that includes the enactment
date.
Provision for U.S. income taxes on undistributed earnings of foreign
subsidiaries is made only on those amounts in excess of the funds considered to
be permanently reinvested.
Store Pre-Opening and Closing Costs
Store pre-opening costs are charged to expense as incurred. In the event a
store is closed before its lease has expired, the estimated lease obligation,
less sublease rental income, is provided for when a decision to close the store
is made.
Foreign Currency Translation
The functional currency of the Company's international operations is the
applicable local currency. The translation of the applicable foreign currency
into U.S. dollars is performed for balance sheet accounts using current exchange
rates in effect at the balance sheet date and for revenue and expense accounts
using the weighted-average rates of exchange prevailing during the year. The
unearned gains and losses resulting from such translation are included as a
separate component of shareholders' equity.
Earnings Per Share
The Company has adopted Statement of Financial Accounting Standards No.
128, "Earnings Per Share" ("SFAS No. 128"). SFAS No. 128 requires the
presentation of basic earnings per share and diluted earnings per share. Basic
earnings per share is computed as net earnings divided by the weighted-average
number of common shares outstanding for the period. Diluted earnings per share
reflects the potential dilution that could occur from common shares issuable
through stock-based compensation including stock options, restricted stock
awards and other convertible securities.
F-10
<PAGE> 38
A reconciliation of weighted-average common shares outstanding to
weighted-average common shares outstanding assuming dilution follows:
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
(IN MILLIONS)
<S> <C> <C> <C>
Average common shares outstanding................ 134.6 133.5 132.9
Incremental common shares issuable............... 1.2 .8 --
----- ----- -----
Average common shares outstanding assuming
dilution....................................... 135.8 134.3 132.9
===== ===== =====
</TABLE>
Options with an exercise price greater than the average market price were
not included in the computation of diluted earnings per share and would not have
a material impact on diluted earnings per share.
Reclassifications
Certain balances in prior fiscal years have been reclassified to conform
with the presentation adopted in the current fiscal year.
As discussed in note 5 to the consolidated financial statements, all
financial statements and related footnotes have been restated to reflect the
discontinuance of the domestic Woolworth general merchandise business.
2 ACQUISITIONS
On January 30, 1997, the Company acquired Eastbay, Inc. ("Eastbay") in a
transaction accounted for as a purchase. Under the purchase agreement,
stockholders of Eastbay received cash in amounts between $22 and $24 for each of
their shares. The cash acquisition cost was $140 million with an additional $6
million contingently payable for attaining certain performance goals. The
Company's consolidated results of operations include those of Eastbay beginning
with the date the acquisition was consummated. The excess of cost over net
assets acquired of approximately $107 million is amortized using the
straight-line method over 20 years.
On August 18, 1997, the Company acquired 27 Koenig Sporting Goods stores
from Koenig Sporting Goods, Inc. for approximately $8 million in cash and is
converting these stores into the Champs Sports format. This transaction was
accounted for as a purchase.
On February 26, 1998, the Company acquired 94 Athletic Fitters stores from
Athletic Fitters, Inc., ("Athletic Fitters") a Minneapolis-based company, for a
cash price of approximately $29 million. The stores purchased will be converted
to such Athletic formats as Foot Locker, Lady Foot Locker and Kids Foot Locker.
This acquisition was accounted for as a purchase and the excess of cost over net
assets acquired of approximately $12 million will be amortized using the
straight-line method over 20 years.
3 IMPAIRMENT OF LONG-LIVED ASSETS
In 1995, the Company adopted SFAS No. 121 and recorded a non-cash pre-tax
charge of $241 million ($165 million after-tax) of which $211 million related to
continuing operations. Of the total impairment loss recognized upon adoption,
$209 million represented impairment of long-lived assets such as properties,
store fixtures and leasehold improvements, $24 million related to goodwill and
$8 million pertained to other intangibles. For continuing operations, pre-tax
impairment of $3 million and $6 million for 1997 and 1996, respectively, is
included in selling, general and administrative expenses.
F-11
<PAGE> 39
4 SEGMENT INFORMATION
The Company's stores are categorized into two segments: Specialty and
International General Merchandise. The Specialty segment includes: the Athletic
Group, the Northern Group, Specialty Footwear and Other Specialty. The
International General Merchandise segment includes operations in Germany and
Canada. See Management's Discussion and Analysis of Financial Condition and
Results of Operations for further commentary.
SALES
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
SPECIALTY:
Athletic Group............................................ $3,723 $3,615 $3,424
Northern Group............................................ 455 426 367
Specialty Footwear........................................ 546 721 729
Other Specialty........................................... 421 452 583
------ ------ ------
5,145 5,214 5,103
------ ------ ------
INTERNATIONAL GENERAL MERCHANDISE........................... 1,479 1,803 1,928
------ ------ ------
$6,624 $7,017 $7,031
====== ====== ======
</TABLE>
OPERATING RESULTS
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- -----
(IN MILLIONS)
<S> <C> <C> <C>
SPECIALTY:
Athletic Group............................................ $375 $461 $ 277
Northern Group............................................ 40 42 32
Specialty Footwear........................................ (9) (10) (61)
Other Specialty........................................... 5 (45) (108)
---- ---- -----
411 448 140
---- ---- -----
INTERNATIONAL GENERAL MERCHANDISE........................... 21 (7) (117)
---- ---- -----
Operating results......................................... 432 441 23
Corporate expense and income.............................. 50 62 52
Interest expense.......................................... 44 59 104
---- ---- -----
Income (loss) before income taxes........................... $338 $320 $(133)
==== ==== =====
</TABLE>
F-12
<PAGE> 40
<TABLE>
<CAPTION>
DEPRECIATION AND
AMORTIZATION CAPITAL EXPENDITURES TOTAL ASSETS
------------------ --------------------- ------------------------
1997 1996 1995 1997 1996 1995 1997 1996 1995
---- ---- ---- ----- ----- ----- ------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SPECIALTY:
Athletic Group....... $ 81 $ 76 $ 85 $135 $ 53 $ 40 $1,308 $1,075 $1,044
Northern Group....... 10 11 11 23 10 13 215 224 169
Specialty Footwear... 11 13 21 22 16 9 227 271 284
Other Specialty...... 11 15 27 14 5 8 142 157 239
---- ---- ---- ---- ---- ---- ------ ------ ------
113 115 144 194 84 70 1,892 1,727 1,736
INTERNATIONAL GENERAL
MERCHANDISE.......... 37 44 59 16 13 61 868 1,095 1,175
Corporate............ 18 12 13 74 17 8 415 331 196
Discontinued
operations, net... 7 186 232
---- ---- ---- ---- ---- ---- ------ ------ ------
Total
Company.... $168 $171 $216 $284 $114 $139 $3,182 $3,339 $3,339
==== ==== ==== ==== ==== ==== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
SALES OPERATING RESULTS TOTAL ASSETS
------------------------ ------------------- ------------------------
1997 1996 1995 1997 1996 1995 1997 1996 1995
------ ------ ------ ---- ---- ----- ------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
United States........ $4,194 $4,050 $3,970 $365 $404 $ 172 $1,954 $1,758 $1,700
Europe............... 1,574 1,942 2,021 44 16 (100) 912 1,175 1,196
Canada............... 643 798 814 18 28 (33) 247 307 342
Pacific Rim.......... 210 221 217 5 (6) (12) 69 80 82
Mexico............... 3 6 9 -- (1) (4) -- 19 19
------ ------ ------ ---- ---- ----- ------ ------ ------
$6,624 $7,017 $7,031 $432 $441 $ 23 $3,182 $3,339 $3,339
====== ====== ====== ==== ==== ===== ====== ====== ======
</TABLE>
5 RESERVE FOR DISCONTINUED OPERATIONS
On July 17, 1997, the Company announced the closing of its 400 store
domestic Woolworth general merchandise business. The Company expects to convert
approximately 130 of the prime locations to Foot Locker, Champs Sports and other
athletic or specialty formats. The Company has converted 28 of the stores to
Athletic Group formats through year-end. The remaining domestic Woolworth
general merchandise stores as well as its distribution center in Denver,
Pennsylvania were closed in November 1997.
In July 1997, the Company recorded a charge of $310 million before-tax or
$195 million after-tax, for the loss on the disposal of discontinued operations.
Disposition activity related to the discontinued operations reserve for the
period ended January 31, 1998 was a reduction of approximately $220 million and
related primarily to the payments for leasehold and real estate disposition
expenses, severance and related benefit costs and other related expenses. The
remaining reserve balance at January 31, 1998 was $90 million, which consists
principally of leasehold improvements and real estate disposition costs.
The results of operations for all periods presented have been classified as
discontinued operations in the Consolidated Statements of Operations. Sales from
discontinued operations for the period ended July 17, 1997 (date of close) were
$427 million. Sales for the 52-week period ended January 25, 1997 were $1,075
million.
F-13
<PAGE> 41
The following is a summary of the net assets of discontinued operations:
<TABLE>
<CAPTION>
1997 1996
----- -----
(IN MILLIONS)
<S> <C> <C>
Assets............................................... $28 $323
Liabilities.......................................... 21 137
--- ----
Net assets of discontinued operations................ $ 7 $186
=== ====
</TABLE>
The assets consist primarily of inventory and fixed assets, and liabilities
consist primarily of amounts due to vendors. During the period from July 17,
1997 through January 31, 1998, proceeds from disposal related to discontinued
operations were $261 million which were primarily from the sale of merchandise
inventories.
On December 8, 1997, the Company 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.
6 REPOSITIONING AND RESTRUCTURING RESERVES
The Company recorded charges of $558 million in 1993 and $390 million in
1991 to reflect the anticipated costs to sell or close under-performing
specialty and general merchandise stores in the United States and Canada. The
1993 charge included estimated cash outlays for lease liabilities and other
occupancy and facilities-related costs of $245 million, operating expenses
during the shutdown period of $88 million, and severance and other personnel and
related costs of $28 million. Non-cash charges cover asset and inventory
write-downs of $197 million. The 1991 charge included estimated cash outlays for
lease liabilities and other occupancy and facilities-related costs of $123
million, operating expenses during the shutdown period of $106 million, and
severance and other personnel and related costs of $47 million. Non-cash charges
cover asset and inventory write-downs of $114 million.
Under the 1993 repositioning program, approximately 970 stores were
identified for closing or conversion to other formats. Approximately 13,000
store and distribution center employees were terminated under this program.
Under the 1991 restructuring program, approximately 900 stores were closed or
converted to other formats. Approximately 7,700 store employees were terminated
and 2,300 employees were transferred to other stores.
Included in 1997 and 1996 operating results are adjustments of $22 million
and $32 million, respectively, which were made to revise the original estimates
based on actual experience to date. These adjustments were made for revisions to
original estimates based on actual experience relating to lease costs, operating
expenses, severance and other personnel and related costs.
The activity in the reserves was as follows:
<TABLE>
<CAPTION>
1997 1996
----- -----
(IN MILLIONS)
<S> <C> <C>
Balance at beginning of year................................ $ 84 $147
Interest on net present value of lease obligations.......... 5 6
Cash payments............................................... (30) (37)
Adjustment for revision of estimates........................ (22) (32)
---- ----
Balance at end of year...................................... $ 37 $ 84
==== ====
</TABLE>
F-14
<PAGE> 42
Components of the balance are as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
(IN MILLIONS)
<S> <C> <C>
Real estate and related occupancy costs................... $32 $61
Facilities-related costs.................................. 5 19
Personnel and related costs............................... -- 4
--- ---
$37 $84
=== ===
</TABLE>
To date, the Company has substantially completed its negotiations to cancel
leases or sell the properties in the reserve. The remaining balance will be
required to satisfy the lease cancellations or property sales over the next few
years.
7 MERCHANDISE INVENTORIES
<TABLE>
<CAPTION>
1997 1996
------ ------
(IN MILLIONS)
<S> <C> <C>
LIFO inventories....................................... $ 678 $ 578
FIFO inventories....................................... 481 488
------ ------
Total merchandise inventories.......................... $1,159 $1,066
====== ======
Excess of current cost (FIFO) over stated LIFO cost.... $ 4 $ 2
</TABLE>
8 OTHER CURRENT ASSETS
<TABLE>
<CAPTION>
1997 1996
---- ----
(IN MILLIONS)
<S> <C> <C>
Net receivables.......................................... $108 $115
Operating supplies and prepaid expenses.................. 33 41
Deferred taxes........................................... 32 42
Other.................................................... 4 4
---- ----
$177 $202
==== ====
</TABLE>
9 PROPERTY AND EQUIPMENT, NET
<TABLE>
<CAPTION>
1997 1996
------- -------
(IN MILLIONS)
<S> <C> <C>
LAND.................................................. $ 93 $ 101
BUILDINGS:
Owned............................................... 624 734
Leased.............................................. 18 20
FURNITURE, FIXTURES AND EQUIPMENT:
Owned............................................... 1,126 1,025
Leased.............................................. 25 8
------- -------
1,886 1,888
Less accumulated depreciation......................... (1,065) (1,084)
------- -------
821 804
ALTERATIONS TO LEASED AND OWNED BUILDINGS, NET OF
ACCUMULATED AMORTIZATION............................ 232 179
------- -------
$ 1,053 $ 983
======= =======
</TABLE>
F-15
<PAGE> 43
10 DEFERRED CHARGES AND OTHER ASSETS
<TABLE>
<CAPTION>
1997 1996
----- -----
(IN MILLIONS)
<S> <C> <C>
Deferred taxes.............................................. $337 $301
Goodwill (net of accumulated amortization).................. 185 86
Lease acquisition costs..................................... 49 60
Pension intangible.......................................... 10 16
Other....................................................... 89 111
---- ----
$670 $574
==== ====
</TABLE>
11 ACCRUED LIABILITIES
<TABLE>
<CAPTION>
1997 1996
----- -----
(IN MILLIONS)
<S> <C> <C>
Payroll and related costs................................... $ 97 $153
Pension benefits............................................ 31 20
Taxes other than income taxes............................... 34 57
Store closings and real estate-related costs................ 31 46
Income taxes payable........................................ -- 31
Repositioning and restructuring............................. 19 25
Deferred taxes.............................................. 13 9
Other operating costs....................................... 110 106
---- ----
$335 $447
==== ====
</TABLE>
12 SHORT-TERM DEBT
At January 31, 1998 and January 25, 1997, the Company had no outstanding
short-term debt. At January 31, 1998, unused lines of credit under which the
Company may borrow funds totaled $542 million, of which domestic credit lines
totaled $500 million and international lines totaled $42 million. The $500
million domestic credit lines consisted of a revolving credit agreement with 13
lending institutions for general corporate purposes. The $42 million
international credit lines consisted of overdraft facilities maintained for
temporary needs. The Company has additional informal agreements with certain
banks in the United States.
At the Company's election in 1997, its existing $1 billion credit facility
was reduced to $500 million and the terms modified. Restrictive covenants under
the new agreement include tangible net worth levels, leverage ratios and
fixed-charge coverage ratios. Up-front fees paid under the modified agreement
will be amortized over the life of the facility on a pro-rata basis. In addition
the Company pays an annual facility fee based on the Company's current credit
rating of 0.15 percent. The $500 million facility expires in 2002.
F-16
<PAGE> 44
13 LONG-TERM DEBT AND OBLIGATIONS UNDER CAPITAL LEASES
Following is a summary of long-term debt and obligations under capital
leases:
<TABLE>
<CAPTION>
1997 1996
----- -----
(IN MILLIONS)
<S> <C> <C>
8.5% debentures payable 2022................................ $200 $200
7.0% debentures payable 2000................................ 200 200
6.98% to 7.43% medium-term notes payable through 2002....... 105 115
3.75% to 10.5% mortgage obligations on real estate payable
through 2013.............................................. 20 22
Other....................................................... 1 38
---- ----
Total long-term debt........................................ 526 575
Obligations under capital leases............................ 31 15
---- ----
557 590
Less: current portion....................................... 22 15
---- ----
$535 $575
==== ====
</TABLE>
Maturities of long-term debt and minimum rent payments under capital leases
in future periods are:
<TABLE>
<CAPTION>
LONG-TERM CAPITAL
DEBT LEASES TOTAL
--------- ------- -----
(IN MILLIONS)
<S> <C> <C> <C>
1998........................................... $ 17 $ 6 $ 23
1999........................................... 2 6 8
2000........................................... 202 4 206
2001........................................... 52 2 54
2002........................................... 42 2 44
Thereafter..................................... 211 18 229
---- --- ----
526 38 564
Less: Imputed interest......................... -- 7 7
Executory expenses....................... -- -- --
Current portion.......................... 17 5 22
---- --- ----
$509 $26 $535
==== === ====
</TABLE>
14 LEASES
The Company is obligated under capital and operating leases for a major
portion of its store properties. Some of the store leases contain purchase or
renewal options with varying terms and conditions. Management expects that in
the normal course of business, expiring leases will generally be renewed or,
upon making a decision to relocate, replaced by leases on other premises.
Operating lease periods generally range from 5 to 10 years with options to
renew, with terms ranging from 5 to 10 years. Certain leases provide for
additional rent payments based on a percentage of store sales.
F-17
<PAGE> 45
Rent expense consists of the following:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C>
Minimum rent....................................... $613 $634 $620
Contingent rent based on sales:
Operating leases................................. 21 26 27
Capital leases................................... -- -- --
Sublease income.................................... (23) (20) (20)
---- ---- ----
Total rent expense................................. $611 $640 $627
==== ==== ====
</TABLE>
Future minimum lease payments under non-cancelable operating leases are:
<TABLE>
<CAPTION>
(IN MILLIONS)
<S> <C>
1998................................................... $ 477
1999................................................... 435
2000................................................... 372
2001................................................... 313
2002................................................... 258
Thereafter............................................. 703
------
Total operating lease commitments...................... $2,558
======
Present value of operating lease commitments........... $1,952
======
</TABLE>
15 OTHER LIABILITIES
<TABLE>
<CAPTION>
1997 1996
----- -----
(IN MILLIONS)
<S> <C> <C>
Pension benefits............................................ $254 $259
Other postretirement benefits............................... 205 209
Repositioning and restructuring............................. 18 59
Other....................................................... 77 100
---- ----
$554 $627
==== ====
</TABLE>
16 FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
Foreign Exchange Risk Management
The Company enters into forward foreign exchange and option contracts to
reduce the effect of fluctuations in currency exchange rates. Exposures arising
from short-term intercompany transactions, inventory purchases and hedges of the
Company's net investment in international subsidiaries are managed through the
use of forward and option contracts. Determination of hedge activity is based
upon market conditions, magnitude of inventory commitments and perceived risks.
All contracts mature within one year.
F-18
<PAGE> 46
The following table presents gross forward foreign exchange commitments, by
currency and type:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
BUY SELL BUY SELL
---- ---- ---- ----
($U.S. IN MILLIONS)
<S> <C> <C> <C> <C>
INVENTORY PURCHASES:
U.S. dollar................................. $150 $ -- $ 72 $ --
Other currencies............................ $ -- $ 11 $ 4 $ --
INTERCOMPANY:
Canadian dollar............................. $ 37 $ -- $ 19 $ --
German mark................................. $ 32 $ -- $ -- $ --
Other currencies............................ $ 2 $ -- $ 2 $ 15
</TABLE>
Fair Value of Financial Instruments
The estimated fair values of certain financial instruments are as follows:
<TABLE>
<CAPTION>
1997 1996
----------------- -----------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- ----- -------- -----
(IN MILLIONS)
<S> <C> <C> <C> <C>
Long-term investments................. $ 49 $ 22 $ 58 $ 24
Long-term debt........................ $526 $559 $575 $570
</TABLE>
The carrying value approximates fair value for all other financial
instruments.
Interest Rate Risk Management
The Company has used interest rate swaps to manage its exposure to
fluctuations in interest rates. In October 1992, the Company entered into a $200
million, five-year swap agreement that matured in October 1997. The swap
agreement effectively converted the interest rate on the Company's 8.5 percent
debentures to a floating rate equal to the six-month LIBOR plus 3.05 percent.
The effective interest rate on the debentures was 8.87 percent in 1997, 8.81
percent in 1996 and 9.44 percent in 1995.
Credit Risk
Credit risk of interest rate swaps and forward foreign exchange contracts
is considered minimal, as management closely monitors the financial condition of
the counter-parties to the contracts, which are financial institutions with
credit ratings of A- or higher.
Business Risk
The retailing business is highly competitive. Price, quality and selection
of merchandise, reputation, store location, advertising and customer service are
important competitive factors in the Company's business. The Company purchased
merchandise and supplies from thousands of vendors worldwide. The Company
purchased approximately 25 percent of its 1997 merchandise from one major
vendor. The Company considers vendor relations to be satisfactory.
F-19
<PAGE> 47
17 INCOME TAXES
Following are the domestic and international components of pre-tax income
(loss):
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- -----
(IN MILLIONS)
<S> <C> <C> <C>
Domestic.......................................... $274 $303 $ 53
International..................................... 64 17 (186)
---- ---- -----
Total pre-tax..................................... $338 $320 $(133)
==== ==== =====
</TABLE>
The income tax (benefit) provision consists of the following:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C>
CURRENT:
Federal.......................................... $ 64 $ 71 $ 13
State and local.................................. 16 23 9
International.................................... 37 19 2
---- ---- ----
Total current tax provision........................ 117 113 24
---- ---- ----
DEFERRED:
Federal.......................................... 17 14 (1)
State and local.................................. (9) -- 1
International.................................... -- -- (59)
---- ---- ----
Total deferred tax provision (benefit)............. 8 14 (59)
---- ---- ----
Total income tax provision (benefit)............... $125 $127 $(35)
==== ==== ====
</TABLE>
Provision has been made in the accompanying Consolidated Statements of
Operations for additional income taxes applicable to dividends received or
expected to be received from international subsidiaries. The amount of
unremitted earnings of international subsidiaries, for which no such tax is
provided and which is considered to be permanently reinvested in the
subsidiaries, totaled $383 million at January 31, 1998.
A reconciliation of the significant differences between the federal
statutory income tax rate and the effective income tax rate on pre-tax income
(loss) is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- -----
<S> <C> <C> <C>
Federal statutory income tax rate.................. 35.0% 35.0% (35.0)%
State and local income taxes, net of federal tax
benefit.......................................... 4.4 4.6 4.8
International income taxed at varying rates........ 2.4 1.1 4.6
Reduction in tax valuation allowance............... (4.3) -- --
Targeted jobs tax credit........................... -- -- (0.6)
Other, net......................................... (0.5) (1.2) (0.1)
---- ---- -----
Effective income tax rate.......................... 37.0% 39.5% (26.3)%
==== ==== =====
</TABLE>
F-20
<PAGE> 48
Items that gave rise to significant portions of the deferred tax accounts
are as follows:
<TABLE>
<CAPTION>
1997 1996
----- -----
(IN MILLIONS)
<S> <C> <C>
DEFERRED TAX ASSETS:
Tax loss/credit carryforwards............................. $185 $191
Employee benefits......................................... 129 116
Reserve for discontinued operations....................... 60 --
Repositioning and restructuring reserves.................. 32 70
Other..................................................... 7 50
---- ----
Total....................................................... 413 427
Valuation allowance....................................... (44) (64)
---- ----
Total deferred tax assets, net.............................. 369 363
---- ----
DEFERRED TAX LIABILITIES:
Inventories............................................... 41 48
Property and equipment.................................... 12 25
Other..................................................... 8 11
---- ----
Total deferred tax liabilities.............................. 61 84
---- ----
Net deferred tax asset...................................... $308 $279
==== ====
BALANCE SHEET CAPTION REPORTED IN:
Other current assets...................................... $ 32 $ 42
Deferred charges and other assets......................... 337 301
Accrued liabilities....................................... (13) (9)
Deferred taxes............................................ (48) (55)
---- ----
$308 $279
==== ====
</TABLE>
As of January 31, 1998, the Company had a valuation allowance of $44
million to reduce its deferred tax assets to estimated realizable value. The
valuation allowance primarily relates to the deferred tax assets arising from
state tax loss carryforwards of certain domestic operations, tax loss
carryforwards of certain European operations and tax loss and capital loss
carryforwards of the Canadian operations. The net change in the total valuation
allowance for the year ended January 31, 1998 was principally due to the use of
state and foreign tax loss carryforwards.
Based upon the level of historical taxable income and projections for
future taxable income over the periods in which the temporary differences are
anticipated to reverse, management believes it is more likely than not that the
Company will realize the benefits of these deductible differences, net of the
valuation allowances at January 31, 1998. However, the amount of the deferred
tax asset considered realizable could be adjusted in the future if estimates of
taxable income are revised.
At January 31, 1998, the Company had international operating loss
carryforwards of approximately $321 million. Those expiring between 1998 and
2003 were $250 million and those that do not expire were $71 million. The
Company has state net operating loss carryforwards with a potential tax benefit
of $29 million in the sixteen states where the Company does not file a combined
return. These loss carryforwards expire between 2007 and 2012. Foreign tax
credits of approximately $26 million expiring between 1998 and 2003 are also
available to the Company.
F-21
<PAGE> 49
18 RETIREMENT PLANS AND OTHER BENEFITS
Retirement Plans
The Company has defined benefit pension plans covering most of its
employees. Benefits generally are based on years of service and career-average
compensation. Plans are funded in accordance with the provisions of the laws of
the countries where the plans are in effect. A significant portion of the
unfunded projected benefit obligation represents the German pension accrual for
which there are no offsetting plan assets. The Company does not fund the German
pension obligations as is customary and as permitted by local statutory
requirements. Plan assets consist primarily of stocks, bonds and temporary
investments.
<TABLE>
<CAPTION>
PRINCIPAL ASSUMPTIONS 1997 1996 1995
--------------------- ---- ---- ----
<S> <C> <C> <C>
Weighted-average discount rate....................... 7.1% 7.5% 7.3%
Weighted-average rate of compensation increase....... 4.3% 4.4% 4.4%
Weighted-average long-term rate of return on
assets............................................. 9.9% 9.8% 10.0%
</TABLE>
The components of net pension expense are:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- -----
(IN MILLIONS)
<S> <C> <C> <C>
Service cost: benefits earned during period....... $ 13 $ 17 $ 19
Interest cost on projected benefit obligation..... 67 70 76
Actual return on plan assets...................... (69) (60) (140)
Net amortization and deferral..................... 17 7 81
Curtailment loss/(gain)........................... 8 -- (8)
---- ---- -----
Net pension expense............................... $ 36 $ 34 $ 28
==== ==== =====
</TABLE>
In 1995, the Company curtailed a supplemental retirement plan for
executives and reduced its pension liability by $8 million. During 1997, the
Company revised the actuarial estimates of the supplemental retirement plan
liability resulting in an $8 million charge to pension expense.
F-22
<PAGE> 50
The following table sets forth the plans' funded status and amounts
recognized in the Consolidated Balance Sheets:
<TABLE>
<CAPTION>
1997 1996
----------------- -----------------
ASSETS ABO ASSETS ABO
EXCEED EXCEEDS EXCEED EXCEEDS
ABO ASSETS ABO ASSETS
------ ------- ------ -------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Actuarial present value of obligations:
Vested.............................................. $ 3 $ 900 $ 4 $ 904
Nonvested........................................... -- 4 -- 20
--- ----- --- -----
Accumulated benefit obligation (ABO).................. 3 904 4 924
Obligation for future salary increases................ -- 25 -- 48
--- ----- --- -----
Projected benefit obligation (PBO).................... 3 929 4 972
Plan assets at fair value............................. 4 621 6 646
--- ----- --- -----
Amount of plan assets over (under) PBO................ 1 (308) 2 (326)
Unrecognized net asset at transition.................. (2) (8) (3) (17)
Unrecognized prior service cost....................... -- 17 -- 25
Unrecognized net loss................................. 2 93 2 111
Recognition of a portion of the minimum liability as
an intangible asset................................. -- (10) -- (16)
Recognition of remaining minimum liability............ -- (70) -- (57)
--- ----- --- -----
Prepaid (accrued) pension cost........................ $ 1 $(286) $ 1 $(280)
=== ===== === =====
</TABLE>
Postretirement Plans Other Than Pensions
In addition to providing pension benefits, the Company sponsors
postretirement medical and life insurance plans which are available to most of
its retired U.S. employees. In order to be eligible for these plans, employees
must retire from the Company and have been previously covered under the
Company's active medical or life insurance plans. The level of benefits
available depends on the year of retirement and the plan in effect at that time.
The plans are contributory and are not funded. Contributions are adjusted
annually and depend on year of retirement and, in some cases, years of service.
The weighted-average discount rate used to determine the accumulated
postretirement benefit obligation ("APBO") was 7.0 percent in 1997 and 7.5
percent in 1996.
Net postretirement benefit expense included the following actuarially
determined components:
<TABLE>
<CAPTION>
1997 1996
----- -----
(IN MILLIONS)
<S> <C> <C>
Interest cost on APBO....................................... $ 8 $ 8
Amortization of net gain.................................... (5) (5)
--- ---
Net postretirement benefit expense.......................... $ 3 $ 3
=== ===
</TABLE>
The service cost component of the net postretirement benefit expense is not
significant.
F-23
<PAGE> 51
The following table sets forth the plans' combined accrued postretirement
benefit obligation:
<TABLE>
<CAPTION>
1997 1996
----- -----
(IN MILLIONS)
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees.................................................. $110 $104
Fully eligible active plan participants................... 1 8
Other active plan participants............................ 1 5
---- ----
112 117
Unrecognized actuarial gain................................. 93 92
---- ----
Accrued postretirement benefit obligation................... $205 $209
==== ====
</TABLE>
For measurement purposes, a 9.2 percent increase in the cost of covered
health care benefits was assumed for 1997. The rate was assumed to decline
gradually to 5 percent in 2008 and remain at that level thereafter. A 1 percent
increase in the health care cost trend rate would increase the 1997 accumulated
postretirement benefit obligation by $7 million and the 1997 expense by $0.5
million.
The cash cost to provide retiree medical and life insurance benefits was $9
million in 1997, and $7 million in both 1996 and 1995.
401(k) Plan
In January 1996, the Company established a savings plan under Section
401(k) of the Internal Revenue Code. This savings plan allows eligible employees
to contribute up to 15 percent of their compensation on a pre-tax basis. The
Company matches 25 percent of the first 4 percent of the employees'
contribution. Effective January 1, 1998, such matching Company contributions are
vested incrementally over 5 years. The charge to operations for the Company's
matching contribution was $1.3 million and $1.5 million in 1997 and 1996,
respectively.
19 SHAREHOLDER RIGHTS PLAN
Effective April 14, 1998, simultaneously with the expiration of the then
existing rights, the Company has issued one right for each outstanding share of
common stock. Each right entitles a shareholder to purchase one two-hundredth of
a share of Series B Participating Preferred Stock at an exercise price of $100,
subject to adjustment. Generally, the rights become exercisable only if a person
or group of affiliated or associated persons (i) becomes an "Interested
Shareholder" as defined in Section 912 of the New York Business Corporation Law
(an "Acquiring Person") or (ii) announces a tender or exchange offer that
results in that person or group becoming an Acquiring Person, other than
pursuant to an offer for all outstanding shares of the common stock of the
Company which the Board of Directors determines not to be inadequate and to
otherwise be in the best interests of, the Company and its shareholders. The
Company will be able to redeem the rights at $0.01 per right at any time during
the period prior to the 10th business day following the date a person or group
becomes an Acquiring Person.
Upon exercise of the right, each holder of a right will be entitled to
receive common stock (or, in certain circumstances, cash, property or other
securities of the Company) having a value equal to two times the exercise price
of the right. The rights, which cannot vote and cannot be transferred separately
from the shares of common stock to which they are presently attached, expire on
April 14, 2008 unless extended prior thereto by the Board, or earlier redeemed
or exchanged by the Company.
F-24
<PAGE> 52
20 STOCK PLANS
Under the Company's 1995 Stock Option and Award Plan, options to purchase
shares of common stock may be granted to officers and key employees at the
market price on the date of grant. Under the plan, the Company may grant
officers and other key employees, including those at the subsidiary level, stock
options, stock appreciation rights (SARs), restricted stock or other stock-based
awards. One-half of each stock option is exercisable on each of the first two
anniversary dates of the date of grant. Generally, for stock options granted
beginning in 1996, one-third of each stock option is exercisable on each of the
first three anniversary dates of the date of grant. The options terminate up to
10 years from the date of grant. The 1995 Stock Option and Award Plan provides
for awards of up to 6,000,000 shares of the Company's common stock. The number
of shares reserved for issuance as restricted stock cannot exceed 1,500,000
shares.
In addition, options to purchase shares of common stock remain outstanding
under the Company's 1986 Stock Option Plan. The ability to grant options under
the 1986 Stock Option Plan expired in June 1996. Options granted under that plan
generally have terms similar to those granted under the 1995 plan, except that a
majority of the options become exercisable in two equal installments on the
first and the second anniversary of the date of grant.
Under the Company's 1998 Stock Option and Award Plan, subject to
shareholder approval, options to purchase shares of common stock may be granted
to officers and key employees at the market price on the date of grant. The 1998
Stock Option and Award Plan is substantially the same as the 1995 Stock Option
and Award Plan.
In 1996, the Company established the Directors' Stock Plan (the "Directors'
Plan"). Under the Directors' Plan, non-employee directors receive 50 percent of
their annual retainer in shares of common stock and may elect to receive up to
100 percent of their retainer in common stock. The maximum number of shares of
common stock that may be issued under the Directors' Plan is 250,000 shares.
Under the Company's 1994 Stock Purchase Plan, participating employees may
contribute up to 10 percent of their annual compensation to acquire shares of
common stock at 85 percent of the lower market price on one of two specified
dates in each plan year. Of the 8,000,000 shares of common stock authorized for
purchase under the 1994 plan, 1,855 participating employees purchased 253,631
shares during the year.
When common stock is issued under these plans, the proceeds from options
exercised or shares purchased are credited to common stock to the extent of the
par value of the shares issued and the excess is credited to additional paid-in
capital. When treasury common stock is issued, the difference between the
average cost of treasury stock used and the proceeds from options exercised or
shares awarded or purchased is charged or credited, as appropriate, to either
additional paid-in capital or retained earnings. The tax benefits relating to
amounts deductible for federal income tax purposes which are not included in
income for financial reporting purposes have been credited to additional paid-in
capital.
The Financial Accounting Standards Board issued SFAS No. 123, which
requires disclosure of the impact on earnings per share if the fair value method
of accounting for stock-based compensation is applied for companies electing to
continue to account for stock-based plans under APB No. 25. Accounting for the
Company's 1997 and 1996 grants for stock-based compensation in accordance with
the fair value method provisions of SFAS No. 123 would have resulted in the
following:
<TABLE>
<CAPTION>
1997 1996
--------- --------
($ IN MILLIONS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C>
Net income (loss):
As reported....................................... $ (10) $ 169
Pro forma......................................... $ (18) $ 165
Basic earnings per share:
As reported....................................... $(0.08) $1.26
Pro forma......................................... $(0.13) $1.23
Diluted earnings per share:
As reported....................................... $(0.07) $1.26
Pro forma......................................... $(0.13) $1.23
</TABLE>
F-25
<PAGE> 53
These pro forma amounts are not expected to be indicative of the effects of
applying the fair-value based method on future earnings since the Company's
stock options vest over several periods.
The fair values of the Company's various stock option and purchase plans
were estimated at the grant date using a Black-Scholes option pricing model.
<TABLE>
<CAPTION>
STOCK OPTION PLANS STOCK PURCHASE PLAN
------------------- -------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Weighted-average risk free rate of
interest............................ 6.44% 6.05% 5.84% 6.03%
Volatility............................ 30% 30% 25% 25%
Weighted-average expected award life.. 2 years 2 years .7 years .7 years
Dividend yield........................ -- -- -- --
Weighted-average fair value........... $ 7.52 $ 5.31 $ 6.44 $ 5.14
</TABLE>
The information set forth in the following table covers options granted
under the Company's stock option plans:
<TABLE>
<CAPTION>
1997 1996 1995
------------------ ------------------ ------------------
WEIGHTED- WEIGHTED- WEIGHTED-
NUMBER AVERAGE NUMBER AVERAGE NUMBER AVERAGE
OF EXERCISE OF EXERCISE OF EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------ --------- ------ --------- ------ ---------
(IN THOUSANDS, EXCEPT PRICES PER SHARE)
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at beginning of
year................................ 7,376 $22.02 6,913 $24.13 6,183 $26.13
Granted............................... 2,321 $21.68 1,757 $16.25 1,288 $15.32
Exercised............................. 565 $16.76 159 $17.27 2 $10.55
Expired or canceled................... 1,682 $25.84 1,135 $26.59 556 $26.18
----- ----- -----
Options outstanding at end of year.... 7,450 $21.45 7,376 $22.02 6,913 $24.13
===== ===== =====
Options exercisable at end of year.... 4,466 $22.34 5,155 $24.59 5,026 $27.03
----- ----- -----
Options available for future grant at
end of year......................... 1,896 3,798 6,087
----- ----- -----
</TABLE>
The following table summarized information about stock options outstanding
and exercisable at January 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
---------------------------------- OPTIONS EXERCISABLE
WEIGHTED- --------------------
AVERAGE WEIGHTED- WEIGHTED-
REMAINING AVERAGE AVERAGE
CONTRACTUAL EXERCISE EXERCISE
RANGE OF EXERCISE PRICE SHARES LIFE PRICE SHARES PRICE
----------------------- ------ ----------- --------- ------ ----------
(IN THOUSANDS, EXCEPT PRICES PER SHARE)
<S> <C> <C> <C> <C> <C>
$11.97 to $15.75.............. 2,512 7.4 $14.80 1,622 $14.49
$15.88 to $21.88.............. 829 7.2 18.40 514 17.06
$22.19 to $24.69.............. 2,291 8.5 22.86 557 24.61
$25.28 to $29.94.............. 1,133 3.9 29.17 1,088 29.25
$30.06 to $34.25.............. 685 2.6 32.08 685 32.08
----- -----
$11.97 to $34.25.............. 7,450 6.7 $21.45 4,466 $22.34
===== =====
</TABLE>
F-26
<PAGE> 54
21 RESTRICTED STOCK
In 1994, 200,000 restricted shares of common stock were granted to an
officer of the Company. The market value of the shares at the date of grant
amounted to $3 million and is recorded within shareholders' equity in the
accompanying Consolidated Financial Statements. The market value is being
amortized as compensation expense over the related vesting period. The
compensation expense was $0.5, $0.8 million and $1.4 million in 1997, 1996 and
1995, respectively.
22 PREFERRED STOCK
In August 1996, the Company called for the redemption of all the issued and
outstanding shares of the $2.20 Series A Convertible Preferred Stock ("preferred
stock") at the redemption price of $45 per share on October 23, 1996 (the
"redemption date"). Shares of preferred stock were convertible into 5.68 shares
of the Company's common stock for each share of preferred stock. Conversion
privileges expired on the redemption date. Substantially all of the outstanding
shares of preferred stock were converted by the holders into the Company's
common stock.
23 COMMITMENTS
In connection with the sale of various businesses, the Company guarantees
the payment of lease commitments transferred to third parties pursuant to those
sales. The Company is also operating certain stores for which lease agreements
are in the process of being negotiated with landlords. Although there is no
contractual commitment to make these contingent payments, it is likely that a
final contract will be executed. Management believes that the probable
resolution of such contingencies will not materially affect the financial
position or result of operations of the Company.
24 QUARTERLY RESULTS (UNAUDITED)
<TABLE>
<CAPTION>
1ST Q 2ND Q 3RD Q 4TH Q YEAR
------ ------ ------ ----- ------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Sales
1997........................................ $1,539 1,500 1,583 2,002 $6,624
1996........................................ $1,570 1,607 1,790 2,050 $7,017
Gross profit(a)
1997........................................ $ 465 463 493 635 $2,056
1996........................................ $ 451 512 591 680 $2,234
Operating profit(loss)(b)
1997........................................ $ 57 74 103 198 $ 432
1996........................................ $ 8 72 152 209 $ 441
Net income (loss) from continuing
operations(c)
1997........................................ $ 17 26 55 115 $ 213
1996........................................ $ (15) 26 77 105 $ 193
Net income(loss)
1997........................................ $ 1 (181) 55 115 $ (10)
1996........................................ $ (22) 22 69 100 $ 169
Basic earnings per share:
1997
Income from continuing operations......... $ 0.13 0.19 0.41 0.85 $ 1.58
Loss from discontinued operations......... $(0.12) (1.54) -- -- $(1.66)
Net income (loss)......................... $ 0.01 (1.35) 0.41 0.85 $(0.08)
1996
Income (loss) from continuing
operations.............................. $(0.11) 0.19 0.58 0.79 $ 1.45
Loss from discontinued operations......... $(0.06) (0.02) (0.06) (0.05) $(0.19)
Net income (loss)......................... $(0.17) 0.17 0.52 0.74 $ 1.26
Diluted earnings per share:
1997
Income from continuing operations......... $ 0.13 0.19 0.40 0.85 $ 1.57
Loss from discontinued operations......... $(0.12) (1.52) -- -- $(1.64)
Net income (loss)......................... $ 0.01 (1.33) 0.40 0.85 $(0.07)
1996
Income (loss) from continuing
operations.............................. $(0.11) 0.19 0.58 0.78 $ 1.44
Loss from discontinued operations......... $(0.05) (0.03) (0.06) (0.04) $(0.18)
Net income (loss)......................... $(0.16) 0.16 0.52 0.74 $ 1.26
</TABLE>
- ---------------
(a) Gross profit represents sales less costs of sales.
(b) Operating profit (loss) represents income (loss) before income taxes,
interest expense, and corporate expense.
(c) Results of the first quarter has been restated to segregate the results of
discontinued operations.
F-27
<PAGE> 55
CORPORATE INFORMATION
CORPORATE HEADQUARTERS
Woolworth Building
233 Broadway
New York, New York 10279-0003
(212) 553-2000
TRANSFER AGENTS AND REGISTRARS
First Chicago Trust Company of New York
P.O. Box 2500
Jersey City, New Jersey 07303-2500
(800) 519-3111
The R-M Trust Company
Corporate Trust Services
P.O. Box 7010
Adelaide Street Postal Station
Toronto, Ontario M5C 2W9
(800) 387-0825
(416) 813-4500
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
345 Park Avenue
New York, New York 10154
(212) 758-9700
SHAREHOLDERS' MEETING
The next annual meeting of shareholders will be held at the Arsenal Mall,
485 Arsenal Street, Watertown, Massachusetts 02172 at 8:30 A.M. (local time) on
June 11, 1998. The formal notice of the meeting, proxy statement and form of
proxy will be mailed to each shareholder on or about April 28, 1998, at which
time proxies will be requested by management.
INVESTOR INFORMATION
Investor inquiries should be directed to the Investor Relations Department
at (212) 553-2600.
<PAGE> 56
EXHIBIT INDEX
Exhibit No.
10.4 1998 Stock Option and Award Plan, subject to Shareholder
approval.
10.29 Employment Terms for Reid Johnson dated July 25, 1997.
10.35 Amendment No. 2 dated as of April 13, 1998 to the
Credit Agreement dated April 9, 1997.
12 Computation of Ratio of Earnings to Fixed Charges.
21 Subsidiaries of the Company.
23 Consent of Independent Auditors.
27.1 1997 Financial Data Schedule.
27.2 1996 Restated Financial Data Schedule.
27.3 1995 Restated Financial Data Schedule.
<PAGE> 1
EXHIBIT 10.4
WOOLWORTH CORPORATION
1998 STOCK OPTION AND AWARD PLAN
1. PURPOSE.
The purpose of the Woolworth Corporation 1998 Stock Option and Award Plan
(the "Plan") is to align the interests of officers and other employees of
Woolworth Corporation and its subsidiaries (collectively, the "Company") with
those of the shareholders of Woolworth Corporation ("Woolworth"); to reinforce
corporate, organizational and business-development goals; to promote the
achievement of year-to-year and long-range financial and other business
objectives; and to reward the performance of individual officers and other
employees in fulfilling their personal responsibilities for long-range
achievements.
2. DEFINITIONS.
The following terms, as used herein, shall have the following meanings:
(a) "Award" shall mean any Option, Restricted Stock, SAR or Other
Stock-Based Award granted pursuant to the Plan.
(b) "Award Agreement" shall mean any written agreement, contract, or
other instrument or document between Woolworth and a Participant evidencing
an Award.
(c) "Board" shall mean the Board of Directors of Woolworth.
(d) "Cause" shall mean, with respect to a Participant's Termination of
Employment, (i) in the case where there is no employment agreement between
the Company and the Participant, or where there is an employment agreement,
but such agreement does not define cause (or words of like import),
termination due to a Participant's dishonesty, fraud, material
insubordination or refusal to perform for any reason other than illness or
incapacity or materially unsatisfactory performance of his or her duties
for the Company, or (ii) in the case where there is an employment agreement
between the Company and the Participant, termination that is or would be
deemed to be for cause (or words of like import) as defined under such
employment agreement.
(e) "Change in Control" shall mean the occurrence of an event
described in Section 9(f) hereof.
(f) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(g) "Committee" shall mean a committee or subcommittee of the Board
appointed from time to time by the Board, which committee or subcommittee
shall be intended to consist of two (2) or more non-employee directors,
each of whom shall be an "non-employee director" as defined in Rule 16b-3
and an "outside director" as defined under Section 162(m) of the Code.
Notwithstanding the foregoing, if and to the extent that no Committee
exists which has the authority to administer the Plan, the functions of the
Committee shall be exercised by the Board. If for any reason the appointed
Committee does not meet the requirements of Rule 16b-3 or Section 162(m) of
the Code, such noncompliance with the requirements of Rule 16b-3 or Section
162(m) of the Code shall not affect the validity of the awards, grants,
interpretations or other actions of the Committee.
(h) "Company" shall mean, collectively, Woolworth and all of its
subsidiaries now held or hereafter acquired.
<PAGE> 2
(i) "Disability" shall mean a disability which would qualify as such
under Woolworth's Long-Term Disability Plan.
(j) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(k) "Fair Market Value" of a share of Stock shall mean, as of any
date, the average of the high and low prices of a share of such Stock as
reported for such date on the Composite Tape for New York Stock
Exchange-Listed Stocks, or, if Stock was not traded on the New York Stock
Exchange on such date, the "Fair Market Value" of a share of Stock as of
such date shall be the average of the high and low prices of a share of
such Stock as reported on said Composite Tape on the next preceding date on
which such trades were reported on said Composite Tape.
(l) "Good Reason" shall mean, with respect to a Participant's
Termination of Employment, (1) in the case where there is no employment
agreement between the Company and the Participant, or where there is an
employment agreement, but such agreement does not define good reason (or
words of like import), a voluntary termination due to "good reason," as the
Committee, in its sole discretion, decides to treat as a Good Reason
termination; or (2) in the case where there is an employment agreement
between the Company and the Participant, a termination due to "good reason"
(or words of like import), as specifically provided in such employment
agreement.
(m) "Incentive Stock Option" shall mean an Option that meets the
requirements of Section 422 of the Code, or any successor provision, and
that is designated by the Committee as an Incentive Stock Option.
(n) "Nonqualified Stock Option" shall mean an Option other than an
Incentive Stock Option.
(o) "Other Stock-Based Award" shall mean an award, granted pursuant to
this Plan, that is valued in whole or in part by reference to, or is
payable in or otherwise based on Stock.
(p) "Option" shall mean the right, granted pursuant to this Plan, of a
holder to purchase shares of Stock under the Stock Option and SAR Program
at a price and upon the terms to be specified by the Committee.
(q) "Participant" shall mean an officer or other employee of the
Company who is, pursuant to Section 4 of the Plan, selected to participate
herein.
(r) "Plan" shall mean the Woolworth Corporation 1998 Stock Option and
Award Plan.
(s) "Plan Year" shall mean Woolworth's fiscal year.
(t) "Restricted Stock" shall mean any shares of Stock issued to a
Participant, without payment to the Company to the extent permitted by
applicable law, pursuant to Section 7(a) of the Plan.
(u) "Restriction Period" shall have the meaning set forth in Section
7(b)(4).
(v) "Retirement" shall mean a Participant's Termination of Employment
without Cause from the Company who (i) has retired from the employ of the
Company and is entitled to a distribution from The Woolworth Retirement
Plan, any successor plan thereto or any other tax-qualified, tax-registered
or tax-favored retirement plan or scheme sponsored or maintained by any
member of the Company or, (ii) if a Participant is not covered by such
plan, has attained at least his or her 65th birthday.
(w) "Rule 16b-3" shall mean Rule 16b-3 under Section 16(b) of the
Exchange Act as then in effect or any successor provisions.
<PAGE> 3
(x) "Section 162(m) of the Code" shall mean the exception for
performance-based compensation under Section 162(m) of the Code and any
Treasury regulations thereunder.
(y) "Stock" shall mean shares of common stock, par value $.01 per
share, of Woolworth.
(z) "SAR" shall mean a tandem or freestanding stock appreciation
right, granted to a Participant under Section 6(a)(7) or 6(b), as the case
may be, to be paid an amount measured by the appreciation in the Fair
Market Value of Stock from the date of grant to the date of exercise of the
right.
(aa) "Stock Option and SAR Program" shall mean the program set forth
in Section 6 hereof.
(bb) "Ten Percent Shareholder" shall mean a Participant who, at the
time an Incentive Stock Option is to be granted to such Participant, owns
(within the meaning of Section 422(b)(6) of the Code) stock possessing more
than ten percent (10%) of the total combined voting power of all classes of
stock of the Company or a parent corporation or subsidiary corporation
within the meaning of Code Sections 424(e) or 424(f), respectively.
(cc) "Termination of Employment" shall mean (1) a termination of
service for reasons other than a military or personal leave of absence
granted by the Company or a transfer of a Participant from or among the
Company and a parent corporation or subsidiary corporation, as defined
under Code Sections 424(e) or 424(f), respectively; or (2) when a
subsidiary, which is employing a Participant, ceases to be a subsidiary
corporation, as defined under Section 424(f) of the Code.
(dd) "Transfer" or "Transferred" or "Transferable" shall mean
anticipate, alienate, attach, sell, assign, pledge, encumber, charge,
hypothecate or otherwise transfer.
(ee) "Woolworth" shall mean Woolworth Corporation, a New York
corporation.
3. ADMINISTRATION.
(a) The Committee. The Plan shall be administered and interpreted by the
Committee. The Committee shall have the authority in its sole discretion,
subject to and not inconsistent with the express provisions of the Plan, to
administer the Plan and to exercise all the powers and authorities either
specifically granted to it under the Plan or necessary or advisable in the
administration of the Plan, including, without limitation, the authority to
grant Awards; to determine the persons to whom and the time or times at which
Awards shall be granted; to determine the type and number of Awards to be
granted and the number of shares of Stock to which an Award may relate; to
determine the terms, conditions, restrictions and performance criteria, not
inconsistent with the terms of this Plan, relating to any Award (including, but
not limited to, the share price, any restriction or limitation, any vesting
schedule or acceleration thereof, or any forfeiture or waiver thereof, based on
such factors, if any, as the Committee shall determine in its sole discretion);
to determine whether, to what extent and under what circumstances grants of
Awards are to operate on a tandem basis and/or in conjunction with or apart from
other awards made by the Company outside this Plan; to determine whether, to
what extent and under what circumstances an Award may be settled, cancelled,
forfeited, exchanged or surrendered (provided that in no event shall the
foregoing be construed to permit the repricing of an Option (whether by
amendment, cancellation and regrant or otherwise) to a lower exercise price); to
make adjustments in recognition of unusual or non-recurring events affecting the
Company or the financial statements of the Company, or in response to changes in
applicable laws, regulations, or accounting principles; to construe and
interpret the Plan and any Award; to determine whether to require, as a
condition of the granting of any Award, a
<PAGE> 4
Participant to not sell or otherwise dispose of Stock acquired pursuant to the
exercise of an Option or Award for a period of time as determined by the
Committee, in its sole discretion, following the date of the acquisition of such
Option or Award; to prescribe, amend and rescind rules and regulations relating
to the Plan; to determine the terms and provisions of Award Agreements; and to
make all other determinations deemed necessary or advisable for the
administration of the Plan.
Subject to Section 9(e) hereof, the Committee shall have the authority to
adopt, alter and repeal such administrative rules, guidelines and practices
governing this Plan and perform all acts, including the delegation of its
administrative responsibilities, as it shall, from time to time, deem advisable;
to construe and interpret the terms and provisions of this Plan and any Award
issued under this Plan (and any agreements relating thereto); and to otherwise
supervise the administration of this Plan. The Committee may correct any defect,
supply any omission or reconcile any inconsistency in this Plan or in any
agreement relating thereto in the manner and to the extent it shall deem
necessary to carry this Plan into effect but only to the extent any such action
would be permitted under the applicable provisions of both Rule 16b-3 and
Section 162(m) of the Code. The Committee may adopt special guidelines for
persons who are residing in, or subject to taxes of, countries other than the
United States to comply with applicable tax and securities laws.
The Committee may appoint a chairperson and a secretary and may make such
rules and regulations for the conduct of its business as it shall deem
advisable, and shall keep minutes of its meetings. All determinations of the
Committee shall be made by a majority of its members either present in person or
participating by conference telephone at a meeting or by written consent. The
Committee may delegate to one or more of its members or to one or more agents
such administrative duties as it may deem advisable, and the Committee or any
person to whom it has delegated duties as aforesaid may employ one or more
persons to render advice with respect to any responsibility the Committee or
such person may have under the Plan. All decisions, determinations and
interpretations of the Committee shall be final and binding on all persons,
including the Company, the Participant (or any person claiming any rights under
the Plan from or through any Participant) and any shareholder.
The Company, the Board or the Committee may consult with legal counsel, who
may be counsel for the Company or other counsel, with respect to its obligations
or duties hereunder, or with respect to any action or proceeding or any question
of law, and shall not be liable with respect to any action taken or omitted by
it in good faith pursuant to the advice of such counsel.
(b) Designation of Consultants/Liability.
The Committee may designate employees of the Company and professional
advisors to assist the Committee in the administration of this Plan and may
grant authority to employees to execute agreements or other documents on behalf
of the Committee.
The Committee may employ such legal counsel, consultants and agents as it
may deem desirable for the administration of this Plan and may rely upon any
opinion received from any such counsel or consultant and any computation
received from any such consultant or agent. Expenses incurred by the committee
or Board in the engagement of any such counsel, consultant or agent shall be
paid by the Company. The Committee, its members and any person designated
pursuant to Section 3(b) shall not be liable for any action or determination
made in good faith with respect to this Plan. To the maximum extent permitted by
applicable law, no officer of the Company or member or former member of the
Committee shall be liable for any action or determination made in good faith
with respect to this Plan or any Award granted hereunder. To the maximum extent
permitted by applicable law and the Certificate of Incorporation and By-Laws of
the Company and to the extent not covered by insurance, each officer and member
or former member of the Committee or of the Board shall be indemnified and held
harmless by the Company against any cost or expense (including reasonable fees
of
<PAGE> 5
counsel reasonably acceptable to the Company) or liability (including any sum
paid in settlement of a claim with the approval of the Company), and advanced
amounts necessary to pay the foregoing at the earliest time and to the fullest
extent permitted, arising out of any act or omission to act in connection with
the Plan, except to the extent arising out of such officer's, member's or former
member's own fraud or bad faith. Such indemnification shall be in addition to
any rights of indemnification the officers, directors or members of former
officers, directors or members may have under applicable law or under the
Certificate of Incorporation or By-Laws of the Company or Subsidiary.
Notwithstanding anything else herein, this indemnification will not apply to the
actions or determinations made by an individual with regard to Awards granted to
him or her under this Plan.
4. ELIGIBILITY.
Awards may be granted to officers and other employees of the Company in the
sole discretion of the Committee. In determining the persons to whom Awards
shall be granted and the type of Award, the Committee shall take into account
such factors as the Committee shall deem relevant in connection with
accomplishing the purposes of the Plan.
5. STOCK SUBJECT TO THE PLAN; LIMITATION ON GRANTS.
(a) The maximum number of shares of Stock reserved for issuance pursuant to
the Plan or with respect to which Awards may be granted shall be six million
(6,000,000) shares, subject to adjustment as provided herein, except that the
number of such shares reserved for issuance as Restricted Stock shall be one
million five hundred thousand (1,500,000) shares. Such shares may, in whole or
in part, be authorized but unissued shares or shares that shall have been or may
be reacquired by the Company in the open market, in private transactions or
otherwise. If any shares subject to an Award are forfeited, cancelled, exchanged
or surrendered, or if an Award otherwise terminates or expires without a
distribution of shares to the Participant, the shares of Stock with respect to
such Award shall, to the extent of any such forfeiture, cancellation, exchange,
surrender, termination or expiration, again be available for Awards under the
Plan; provided that, to the extent required for the Plan to comply with Rule
16b-3 promulgated under the Exchange Act, in the case of forfeiture,
cancellation, exchange or surrender of shares of Restricted Stock, the number of
shares with respect to such Awards shall not be available for Awards hereunder
unless dividends paid on such shares are also forfeited, cancelled, exchanged or
surrendered. Upon the exercise of any Award granted in tandem with any other
Awards, such related Awards shall be cancelled to the extent of the number of
shares of Stock as to which the Award is exercised and, notwithstanding the
foregoing, such number of shares shall no longer be available for Awards under
the Plan. Notwithstanding any provision of this Plan to the contrary, if
authorized but previously unissued shares of Stock are issued under this Plan,
such shares shall not be issued for a consideration which is less than par
value.
(b) During the term of this Plan, no Participant can receive Options,
Restricted Stock, Other Stock-Based Awards and freestanding SARs, relating to
shares of Stock which in the aggregate exceed ten percent (10%) of the total
number of shares of Stock authorized pursuant to the Plan, as adjusted pursuant
to the terms hereof.
(c) Subject to the aggregate limitation in Section 5(b), the maximum number
of shares of Stock subject to each different type of Award which may be granted
under this Plan to each Participant is six hundred thousand (600,000) shares
(subject to adjustment as provided herein) for each Plan Year during the entire
term of the Plan. To the extent that shares of Stock for which Options or Stock
Appreciation Rights are permitted to be granted to a Participant during a Plan
Year are not covered by a grant of an Option or a Stock Appreciation Right to an
Eligible Employee issued in such Plan Year, such shares of Stock shall
automatically increase the number of shares available for grant of Awards to
such Eligible Employee in the subsequent Plan Year during the term of the Plan.
<PAGE> 6
(d) The existence of the Plan and the Awards granted hereunder shall not
affect in any way the right or power of the Board or the shareholders of
Woolworth to make or authorize any adjustment, recapitalization, reorganization
or other change in Woolworth's capital structure or its business, any merger or
consolidation of the Company or any part thereof, any issue of bonds,
debentures, preferred or prior preference stock ahead of or affecting Stock, the
dissolution or liquidation of the Company or any part thereof, any sale or
transfer of all or part of its assets or business or any other corporate act or
proceeding.
(e) In the event that the Committee shall determine that any dividend or
other distribution (whether in the form of cash, Stock or other property),
recapitalization, Stock split, reverse Stock split, reorganization, merger,
consolidation, spin-off, combination, repurchase, or share exchange,
reclassification of any capital stock, issuance of warrants or options to
purchase Stock or securities convertible into Stock, or other similar corporate
transaction or event, affects the Stock such that an adjustment is appropriate
in order to prevent dilution or enlargement of the rights of Participants under
the Plan, then the Committee shall make such equitable changes or adjustments as
it deems necessary or appropriate to any or all of (i) the number and kind of
shares of Stock which may thereafter be issued in connection with Awards, (ii)
the number and kind of shares of Stock issued or issuable in respect of
outstanding Awards, and (iii) the exercise price, grant price or purchase price
relating to any Award; provided that, with respect to Incentive Stock Options,
such adjustment shall be made in accordance with Section 424 of the Code.
(f) Fractional shares of Stock resulting from any adjustment in Options and
other Awards pursuant to this Section shall be aggregated until, and eliminated
at, the time of exercise by rounding-down for fractions less than one-half (1/2)
and rounding-up for fractions equal to or greater than one-half (1/2). No cash
settlements shall be made with respect to fractional shares of Stock eliminated
by rounding. Notice of any adjustment shall be given by the Committee to each
Participant whose Option or other Award has been adjusted and such adjustment
(whether or not such notice is given) shall be effective and binding for all
purposes of the Plan.
(g) In the event of a merger or consolidation in which Woolworth is not the
surviving entity or in the event of any transaction that results in the
acquisition of substantially all of Woolworth's outstanding Stock by a single
person or entity or by a group of persons and/or entities acting in concert, or
in the event of the sale or transfer of all of Woolworth's assets (all of the
foregoing being referred to as "Acquisition Events"), then the Committee may, in
its sole discretion, terminate all outstanding Options and/or any Award,
effective as of the date of the Acquisition Event, by delivering notice of
termination to each Participant at least twenty (20) days prior to the date of
consummation of the Acquisition Event; provided, that during the period from the
date on which such notice of termination is delivered to the consummation of the
Acquisition Event, each Participant shall have the right to exercise in full all
of his or her Options and Awards that are then outstanding (without regard to
any limitations on exercisability otherwise contained in the Option or Award
Agreements) but contingent on occurrence of the Acquisition Event, and, provided
that, if the Acquisition Event does not take place within a specified period
after giving such notice for any reason whatsoever, the notice and exercise
shall be null and void.
6. STOCK OPTION AND SAR PROGRAM.
Each Option or freestanding SAR granted pursuant to this Section 6 shall be
evidenced by an Award Agreement, in such form and containing such terms and
conditions as the Committee
<PAGE> 7
shall from time to time approve, which Award Agreement shall comply with and be
subject to the following terms and conditions, as applicable:
(a) Stock Options
(1) Number of Shares. Each Award Agreement shall state the number of
shares of Stock to which the Option relates.
(2) Type of Option. Each Award Agreement shall specifically state that the
Option constitutes an Incentive Stock Option or a Nonqualified Stock Option. To
the extent that any Option does not qualify as an Incentive Stock Option
(whether because of its provisions or the time or manner of exercise or
otherwise), such Option or portion thereof which does not qualify, shall
constitute a separate Nonqualified Stock Option.
(3) Option Price. Except as set forth in Section 6(a)(8)(B) herein
relating to Incentive Stock Options granted to a Ten Percent Shareholder, each
Award Agreement shall state the Option price, which shall not be less than one
hundred percent (100%) of the Fair Market Value of the shares of Stock covered
by the Option on the date of grant. The Option price shall be subject to
adjustment as provided in Section 5 hereof. The date as of which the Committee
adopts a resolution expressly granting an Option shall be considered the day on
which such Option is granted.
(4) Method and Time of Payment. The Option price shall be paid in full, at
the time of exercise, in cash or in shares of Stock having a Fair Market Value
equal to such Option price or in a combination of cash and Stock or, in the sole
discretion of the Committee, through a cashless exercise procedure. Options may
contain provisions permitting the use of shares of Stock to exercise and settle
an Option ("Stock Swaps"). With respect to Stock Swaps, shares of Stock shall be
valued at Fair Market Value on the date of exercise and shall have the same
remaining time period as the shares of Stock that were swapped.
(5) Term and Exercisability of Options. Each Award Agreement shall provide
that each Option shall become exercisable as to fifty percent (50%) of the Stock
covered by the Option on the first anniversary of the date the Option was
granted and as to an additional fifty percent (50%) of the Stock covered by the
Option on the second anniversary of the date the Option was granted, unless the
Committee prescribes an exercise schedule of longer duration; provided, that,
the Committee shall have the authority to accelerate the exercisability of any
outstanding Option at such time and under such circumstances as it, in its sole
discretion, deems appropriate. The exercise period shall be ten (10) years from
the date of the grant of the Option or such shorter period as is determined by
the Committee. The exercise period shall be subject to earlier termination as
provided in Section 6(a)(6) hereof. An Option may be exercised, as to any or all
full shares of Stock as to which the Option has become exercisable, by written
notice delivered in person or by mail to the Secretary of Woolworth, specifying
the number of shares of Stock with respect to which the Option is being
exercised. For purposes of the preceding sentence, the date of exercise will be
deemed to be the date upon which the Secretary of Woolworth receives such
notification.
(6) Termination. Upon a Participant's Termination of Employment by the
Company, Options granted to such Participant prior to such termination shall
remain exercisable following the effective date of such termination as follows:
(i) Cause. If a Participant's Termination of Employment is for Cause,
all Options granted to such Participant shall be cancelled as of the
effective date of such termination.
(ii) Retirement, Termination of Employment for Good Reason or
Disability. Upon a Participant's Retirement, Termination of Employment for
Good Reason or Disability, all Options granted to such Participant that are
"deemed exercisable" (as defined in the following sentence) on the
effective date of such Participant's Retirement, Termination of
<PAGE> 8
Employment for Good Reason or Disability shall remain exercisable for a
period of three (3) years following such effective date (or for such longer
period as may be prescribed by the Committee, but in no event beyond the
expiration date of such Option). Those Options that are "deemed
exercisable" on and after the effective date of a Participant's Retirement,
Termination of Employment for Good Reason or Disability, as provided above,
shall consist of all unexercised Options (or portions thereof) that are
immediately exercisable on such date plus those Options (or portions
thereof) that would have become exercisable had such Participant not
retired or had his employment not terminated until after the next
succeeding anniversary of the date of grant of each such Option;
(iii) Other Terminations of Employment. If a Participant's
Termination of Employment by the Company is for any reason other than those
described in subsections (i) or (ii) above, his "deemed exercisable"
Options, which, for purposes of this subsection, shall mean all Options (or
portions thereof) granted to such Participant that are immediately
exercisable on the effective date of such Termination of Employment shall
remain exercisable as follows: (A) if such Participant has ten (10) or more
years of service with the Company, such period of service to be determined
as of such effective date of termination, for a period of one year from the
effective date of such Termination of Employment (or for such longer period
as may be prescribed by the Committee, but in no event beyond the
expiration date of such Option), or (B) if a Participant has less than ten
(10) years of service with the Company, for a period of three (3) months
from the effective date of such Termination of Employment (or for such
longer period as may be prescribed by the Committee, but in no event beyond
the expiration date of such Option).
(iv) Death.
(A) If a Participant dies during the applicable Option exercise
period following the effective date of his Retirement, Disability or
other Termination of Employment, as described in subsections (ii) or
(iii) above, his executors, administrators, legatees or distributees
shall have a period expiring on the date one year from the date of his
death (or for such longer period as may be prescribed by the Committee,
but in no event beyond the expiration date of such Option) within which
to exercise his "deemed exercisable" Options, as described in such
applicable subsection.
(B) If a Participant dies while employed by the Company, his
executors, administrators, legatees or distributees shall have a period
expiring on the date one year from the date of his death (or for such
longer period as may be prescribed by the Committee, but in no event
beyond the expiration date of such Option) within which to exercise his
"deemed exercisable" Options, which shall consist of all unexercised
Options (or portions thereof) that are immediately exercisable on such
date of death plus those Options (or portions thereof) that would have
become exercisable had such Participant not died until after the next
succeeding anniversary of the date of grant of each such Option.
(v) Buyout and Settlement Provisions. The Committee may at any time
on behalf of the Company offer to buy out an Option previously granted,
based on such terms and conditions as the Committee shall establish and
communicate to the Participant at the time that such offer is made.
(7) Tandem Stock Appreciation Rights. The Committee shall have authority
to grant a tandem SAR to the grantee of any Option under the Plan with respect
to all or some of the shares of Stock covered by such related Option. A tandem
SAR shall, except as provided in this paragraph (7), be subject to the same
terms and conditions as the related Option. Each tandem SAR granted pursuant to
the Plan shall be reflected in the Award Agreement relating to the related
Option.
<PAGE> 9
(A) Time of Grant. A tandem SAR may be granted either at the time of
grant, or at any time thereafter during the term of the Option; provided,
however that tandem SARs related to Incentive Stock Options may only be
granted at the time of grant of the related Option.
(B) Payment. A tandem SAR shall entitle the holder thereof, upon
exercise of the tandem SAR or any portion thereof, to receive payment of an
amount computed pursuant to paragraph (D) below.
(C) Exercise. A tandem SAR shall be exercisable at such time or times
and only to the extent that the related Option is exercisable, and will not
be Transferable except to the extent the related Option may be
Transferable. A tandem SAR granted in connection with an Incentive Stock
Option shall be exercisable only if the Fair Market Value of a share of
Stock on the date of exercise exceeds the purchase price specified in the
related Incentive Stock Option. Upon the exercise of a tandem SAR, the
related Option or part thereof to which such SAR relates, shall be deemed
to have been exercised for the purpose of the limitations set forth in
Section (a) of the Plan on the number of shares of Stock to be issued under
the Plan.
(D) Amount Payable. Upon the exercise of a tandem SAR, the
Participant shall be entitled to receive an amount determined by
multiplying (i) the excess of the Fair Market Value of a share of Stock on
the date of exercise of such SAR over the price of the Option, by (ii) the
number of shares of Stock as to which such tandem SAR is being exercised.
Notwithstanding the foregoing, the Committee may limit in any manner the
amount payable with respect to any tandem SAR by including such a limit at
the time it is granted.
(E) Treatment of Related Options and Tandem SARs Upon Exercise. Upon
the exercise of a tandem SAR, the related Option shall be cancelled to the
extent of the number of shares of Stock as to which the tandem SAR is
exercised and upon the exercise of an Option granted in connection with a
tandem SAR, the tandem SAR shall be cancelled to the extent of the number
of shares of Stock as to which the Option is exercised.
(F) Method of Exercise. Tandem SARs shall be exercised by a
Participant only by a written notice delivered in person or by mail to the
Secretary of Woolworth, specifying the number of shares of Stock with
respect to which the tandem SAR is being exercised. If requested by the
Committee, the Participant shall deliver the Award Agreement evidencing the
tandem SAR and the related Option to the Secretary of Woolworth, who shall
endorse thereon a notation of such exercise and return such Award Agreement
to the Participant. For purposes of this paragraph (F), the date of
exercise will be deemed to be the date upon which the Secretary of
Woolworth receives such notification.
(G) Form of Payment. Payment of the amount determined under paragraph
(D) above may be made solely in whole shares of Stock in a number
determined based upon their Fair Market Value on the date of exercise of
the tandem SAR or, alternatively, at the sole discretion of the Committee,
solely in cash, or in a combination of cash and shares of Stock as the
Committee deems advisable.
(H) Limited SARs. The Committee may, in its sole discretion, grant
tandem SARs or freestanding SARs either as general SARs or as limited SARs.
Limited SARs may be exercised only upon the occurrence of a Change in
Control or such other event as the Committee may, in its sole discretion,
designate at the time of grant or thereafter.
(8) Incentive Stock Options. Options granted as Incentive Stock Options
shall be subject to the following special terms and conditions, in addition to
the general terms and conditions specified in this Section 6.
(A) Value of Shares. The aggregate Fair Market Value (determined as
of the date the Incentive Stock Option is granted) of the shares of Stock
with respect to which Incentive
<PAGE> 10
Stock Options granted under this Plan and all other Plans of the Company
become exercisable for the first time by each Participant during any
calendar year shall not exceed one hundred thousand dollars ($100,000). To
the extent that such aggregate Fair Market Value exceeds such one hundred
thousand dollars ($100,000) limitation, such Options shall be treated as
Options which are not Incentive Stock Options and shall be treated as
Nonqualified Stock Options.
(B) Ten Percent Shareholder. In the case of an Incentive Stock Option
granted to a Ten Percent Shareholder, (x) the Option Price shall not be
less than one hundred ten percent (110%) of the Fair Market Value of the
shares of Stock on the date of grant of such Incentive Stock Option, and
(y) the exercise period shall not exceed five (5) years from the date of
grant of such Incentive Stock Option.
(C) Exercise Following Termination of Employment. If an Eligible
Employee does not remain employed by the company, any parent corporation or
subsidiary corporation (within the meaning of Code Sections 424(e) and
424(f), respectively) at all times from the time the Option is granted
until three (3) months prior to the date of exercise (or such other period
as required by applicable law), such Option shall be treated as a
Nonqualified Stock Option.
(D) Should either (A), (B) or (C) above not be necessary in order for
the Options to qualify as Incentive Stock Options, or should any additional
provisions be required, the Committee may amend the Plan accordingly,
without the necessity of obtaining the approval of the shareholders of
Woolworth.
(b) Freestanding Stock Appreciation Rights. The Committee shall have
authority to grant a freestanding SAR which is not related to any Option.
Freestanding SARs shall be subject to the following terms and conditions:
(1) Number of Shares. Each Award Agreement relating to freestanding
SARs shall state the number of shares of Stock to which the freestanding
SARs relate.
(2) Exercise Price. Each Award Agreement shall state the exercise
price, which shall not be less than one hundred percent (100%) of the Fair
Market Value of the shares of Stock (to which the freestanding SARs relate)
on the date of grant. The exercise price shall be subject to adjustment as
provided in Section 5 hereof.
(3) Term and Exercisability of Freestanding SARs. Each Award
Agreement shall provide the exercise schedule for the freestanding SAR as
determined by the Committee, provided, that, the Committee shall have the
authority to accelerate the exercisability of any freestanding SAR at such
time and under such circumstances as it, in its sole discretion, deems
appropriate. The exercise period shall be ten (10) years from the date of
the grant of the freestanding SAR or such shorter period as is determined
by the Committee. The exercise period shall be subject to earlier
termination as provided in paragraph (b)(7) hereof. A freestanding SAR may
be exercised, as to any or all full shares of Stock as to which the
freestanding SAR has become exercisable, by written notice delivered in
person or by mail to the Secretary of Woolworth, specifying the number of
shares of Stock with respect to which the freestanding SAR is being
exercised. For purposes of the preceding sentence, the date of exercise
will be deemed to be the date upon which the Secretary of Woolworth
receives such notification.
(4) Payment. A freestanding SAR shall entitle the holder thereof,
upon exercise of the freestanding SAR or any portion thereof, to receive
payment of an amount computed pursuant to paragraph (5) below.
(5) Amount Payable. Upon the exercise of a freestanding SAR, the
Participant shall be entitled to receive an amount determined by
multiplying (i) the excess of the Fair
<PAGE> 11
Market Value of a share of Stock on the date of exercise of such SAR over
the exercise price of such SAR, by (ii) the number of shares of Stock as to
which such freestanding SAR is being exercised. Notwithstanding the
foregoing, the Committee may limit in any manner the amount payable with
respect to any freestanding SAR by including such a limit at the time it is
granted.
(6) Form of Payment. Payment of the amount determined under paragraph
(5) above may be made solely in whole shares of Stock in a number
determined based upon their Fair Market Value on the date of exercise of
the freestanding SAR or, alternatively, at the sole discretion of the
Committee, solely in cash, or in a combination of cash and shares of Stock
as the Committee deems advisable.
(7) The terms and conditions set forth in Section 6(a)(6) hereof,
relating to exercisability of Options in the event of Termination of
Employment with the Company, shall apply equally with respect to the
exercisability of freestanding SARs following Termination of Employment.
7. RESTRICTED STOCK.
Awards granted pursuant to this Section 7 shall be evidenced by an Award
Agreement in such form as the Committee shall from time to time approve and the
terms and conditions of such Awards shall be set forth therein. Shares of
Restricted Stock may be issued either alone or in addition to other Awards
granted under the Plan.
(a) Restricted Stock. The Committee shall determine the eligible
persons to whom, and the time or times at which, grants of Restricted Stock
will be made, the number of shares to be awarded, the price (if any) to be
paid by the recipient, the time or times within which such Awards may be
subject to forfeiture, the vesting schedule and rights to acceleration
thereof, and all other terms and conditions of the Awards. The Committee
may condition the grant of Restricted Stock upon the attainment of
specified performance goals or such other factors as the Committee may
determine, in its sole discretion.
(b) Awards and Certificates. The prospective Participant selected to
receive Restricted Stock shall not have any rights with respect to such
Award, unless and until such Participant has delivered a fully executed
copy of the Award Agreement to the Company and has otherwise complied with
the applicable terms and conditions of such Award. Further, such Award
shall be subject to the following conditions:
(1) Purchase Price. Subject to the last sentence of Section 5(a),
the purchase price for shares of Restricted Stock may be less than their
par value and may be zero, to the extent permitted by applicable law.
(2) Acceptance. Awards of Restricted Stock must be accepted within
a period of sixty (60) days (or such shorter period as the Committee may
specify at grant) after the Award date, by executing a Restricted Stock
Award Agreement and by paying whatever price (if any) the Committee has
designated thereunder.
(3) Certificates/Legend. Upon an Award of Restricted Stock, the
Committee may, in its sole discretion, decide to either have the Company
or other escrow agent appointed by the Committee hold the share
certificates representing such shares of Restricted Stock in escrow or
issue share certificates to the Participant. Regardless of whether the
certificates are held in escrow or are given to Participants, each
certificate shall be registered in the name of such Participant, and
shall bear an appropriate
<PAGE> 12
legend referring to the terms, conditions and restrictions applicable to
such Award, substantially in the following form:
"The anticipation, alienation, attachment, sale, transfer,
assignment, pledge, encumbrance or charge of the shares of stock
represented hereby are subject to the terms and conditions (including
forfeiture) of the 1998 Woolworth Corporation (the "Company") Stock
Option and Award Plan and an Agreement entered into between the
registered owner and the Company dated . Copies of such
Plan and Agreement are on file at the principal office of the
Company."
(4) Restrictions. During a period set by the Committee commencing
with the date of an Award of Restricted Stock (the "Restriction
Period"), shares of Restricted Stock may not be sold, assigned,
Transferred, pledged, hypothecated or otherwise disposed of, except by
will or the laws of descent and distribution, as set forth in the Award
Agreement and such Award Agreement shall set forth a vesting schedule
and any events which would accelerate vesting of the shares of
Restricted Stock. Any attempt to dispose of any such shares of Stock in
contravention of such restrictions shall be null and void and without
effect. Notwithstanding the foregoing, no vesting limitation shall
apply, and the Participant's interest in such shares shall be fully
vested, in the event of a Change in Control which occurs prior to the
expiration of the vesting period set forth in the Award Agreement.
Within these limits, based on service, performance and/or such other
factors or criteria as the Committee may determine in its sole
discretion, the Committee may provide for the lapse of such restrictions
in installments in whole or in part, or may accelerate the vesting of
all or any part of any Restricted Stock Award and/or waive the deferral
limitations for all or any part of such Award (including, without
limitation, any deferral of dividends).
(5) Forfeiture. Subject to such exceptions as may be determined by
the Committee, if the Participant's continuous employment with the
Company shall terminate for any reason prior to the expiration of the
Restriction Period of an Award, or to the extent any goals for the
Restriction Period are not met, any shares of Stock remaining subject to
restrictions shall thereupon be forfeited by the Participant and
Transferred to, and reacquired by, Woolworth at no cost to Woolworth.
(6) Ownership. Except to the extent otherwise set forth in the
Award Agreement, during the Restriction Period the Participant shall
possess all incidents of ownership of such shares, subject to Section
7(b)(4), including the right to receive dividends with respect to such
shares and to vote and tender such shares. The Committee, in its sole
discretion, as determined at the time of the Award, may permit or
require the payment of dividends to be deferred.
(7) Lapse of Restrictions. If and when the Restriction Period
expires without a prior forfeiture of the Restricted Stock subject to
such Restriction Period, the certificates for such shares shall be
delivered to the Participant. All legends shall be removed from said
certificates at the time of delivery to the Participant.
8. OTHER STOCK-BASED AWARDS.
(a) Other Awards. Other Awards of Stock and other Awards that are valued
in whole or in part by reference to, or are payable in or otherwise based on,
Stock ("Other Stock-Based Awards"), including, without limitation, Awards valued
by reference to performance of a subsidiary, may be granted either alone or in
addition to or in tandem with Stock Options, SARs or Restricted Stock.
Subject to the provisions of the Plan, the Committee shall have authority
to determine the persons to whom and the time or times at which such Awards
shall be made, the number of
<PAGE> 13
shares of Stock to be awarded pursuant to such Awards, and all other conditions
of the Awards. The Committee may also provide for the grant of Stock under such
Awards upon the completion of a specified performance goal or period.
(b) Terms and Conditions. Other Stock-Based Awards made pursuant to this
Section 8 shall be subject to the following terms and conditions:
(1) Dividends. Unless otherwise determined by the Committee at the
time of Award, subject to the provisions of the Award Agreement and this
Plan, the recipient of an Award under this Section shall be entitled to
receive, currently or on a deferred basis, dividends or dividend
equivalents with respect to the number of shares of Stock covered by the
Award, as determined at the time of the Award by the Committee, in its sole
discretion.
(2) Vesting. Any Award under this Section and any Stock covered by
any such Award shall vest or be forfeited to the extent so provided in the
Award Agreement, as determined by the Committee, in its sole discretion.
(3) Waiver of Limitation. In the event of the Participant's
Retirement, Termination of Employment for Good Reason, Disability or death,
or in cases of special circumstances, the Committee may, in its sole
discretion, waive in whole or in part any or all of the limitations imposed
hereunder (if any) with respect to any or all of an Award under this
Section 8.
(4) Price. Stock issued on a bonus basis under this Section 8 may be
issued for no cash consideration; Stock purchased pursuant to a purchase
right awarded under this Section shall be priced as determined by the
Committee.
9. GENERAL PROVISIONS.
(a) Compliance with Legal Requirements. The Plan and the granting and
exercising of Awards, and the other obligations of the Company under the Plan
and any Award Agreement or other agreement shall be subject to all applicable
federal and state laws, rules and regulations, and to such approvals by any
regulatory or governmental agency as may be required. The Company, in its
discretion, may postpone the issuance or delivery of Stock under any Award as
the Company may consider appropriate, and may require any Participant to make
such representations and furnish such information as it may consider appropriate
in connection with the issuance or delivery of Stock in compliance with
applicable laws, rules and regulations.
(b) Nontransferability. No Award shall be Transferred by the Participant
otherwise than by will or by the laws of descent and distribution. All Awards
shall be exercisable, during the Participant's lifetime, only by the
Participant. No Award shall, except as otherwise specifically provided by law or
herein, be Transferred in any manner, and any attempt to Transfer any such Award
shall be void, and no such Award shall in any manner be used for the payment of,
subject to, or otherwise encumbered by or hypothecated for the debts, contracts,
liabilities, engagements or torts of any person who shall be entitled to such
Award, nor shall it be subject to attachment or legal process for or against
such person. Notwithstanding the foregoing, the Committee may determine at the
time of grant or thereafter, that an Award, other than an Incentive Stock that
is otherwise not Transferable pursuant to this Section 9(b) is Transferable in
whole or part and in such circumstances, and under such conditions, as specified
by the Committee.
(c) No Right To Continued Employment. Nothing in the Plan or in any Award
granted or any Award Agreement or other agreement entered into pursuant hereto
shall confer upon any Participant the right to continue in the employ of the
Company or to be entitled to any remuneration or benefits not set forth in the
Plan or such Award Agreement or other agreement or to interfere with or limit in
any way the right of the Company to terminate such Participant's employment.
<PAGE> 14
(d) Withholding Taxes. Where a Participant or other person is entitled to
receive shares of Stock pursuant to the exercise of an Option or is otherwise
entitled to receive shares of Stock or cash pursuant to an Award hereunder, the
Company shall have the right to require the Participant or such other person to
pay to the Company the amount of any taxes which the Company may be required to
withhold before delivery to such Participant or other person of cash or a
certificate or certificates representing such shares.
Upon the disposition of shares of Stock acquired pursuant to the exercise
of an Incentive Stock Option, the Company shall have the right to require the
payment of the amount of any taxes which are required by law to be withheld with
respect to such disposition.
Unless otherwise prohibited by the Committee or by applicable law, a
Participant may satisfy any such withholding tax obligation by any of the
following methods, or by a combination of such methods: (a) tendering a cash
payment; (b) authorizing the Company to withhold from the shares of Stock or
cash otherwise payable to such Participant (1) one or more of such shares having
an aggregate Fair Market Value, determined as of the date the withholding tax
obligation arises, less than or equal to the amount of the total withholding tax
obligation or (2) cash in an amount less than or equal to the amount of the
total withholding tax obligation; or (c) delivering to the Company previously
acquired shares of Stock (none of which shares may be subject to any claim,
lien, security interest, community property right or other right of spouses or
present or former family members, pledge, option, voting agreement or other
restriction or encumbrance of any nature whatsoever) having an aggregate Fair
Market Value, determined as of the date the withholding tax obligation arises,
less than or equal to the amount of the total withholding tax obligation. A
Participant's election to pay his or her withholding tax obligation (in whole or
in part) by the method described in (b)(1) above is irrevocable once it is made.
(e) Amendment and Termination of the Plan. Notwithstanding any other
provision of this Plan, the Board or the Committee may at any time and from time
to time alter, amend, suspend, or terminate the Plan in whole or in part;
provided that, no amendment which requires shareholder approval under applicable
New York law or in order for the Plan to continue to comply with Rule 16b-3 or
Section 162(m) of the Code shall be effective unless the same shall be approved
by the requisite vote of the shareholders of the Company. Notwithstanding the
foregoing, no amendment shall affect adversely any of the rights of any
Participant, without such Participant's consent, under any Award theretofore
granted under the Plan. The power to grant Options under the Plan will
automatically terminate ten years after the adoption of the Plan by the
shareholders. If the Plan is terminated, any unexercised Option shall continue
to be exercisable in accordance with its terms and the terms of the Plan in
effect immediately prior to such termination.
(f) Change in Control. Notwithstanding any other provision of the Plan to
the contrary, if, while any Awards remain outstanding under the Plan, a "Change
in Control" of Woolworth (as defined in this Section 9(f)) shall occur, (1) all
Options and freestanding SARs granted under the Plan that are outstanding at the
time of such Change in Control shall become immediately exercisable in full,
without regard to the years that have elapsed from the date of grant; (2) unless
the Committee determines otherwise at the time of grant pursuant to an Award
Agreement or other arrangement or plan granting such Award, all restrictions
with respect to shares of Restricted Stock shall lapse, and such shares shall be
fully vested and nonforfeitable; and (3) unless the Committee determines
otherwise at the time of grant pursuant to an Award Agreement or other
arrangement or plan granting such Award, with respect to Other Stock-Based
Awards, any performance periods or goals outstanding at the time of a Change in
Control shall be deemed to have been attained or any restrictions outstanding at
the time of a Change in Control shall lapse.
<PAGE> 15
For purposes of this paragraph 9(f), a Change in Control of Woolworth shall
occur upon the happening of the earliest to occur 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 Exchange Act) (a "Person") (other than
Woolworth or its subsidiaries) for shares of Stock pursuant to which
purchases are made of securities representing at least twenty percent (20%)
of the total combined voting power of Woolworth's then issued and
outstanding voting securities; (B) the merger or consolidation of Woolworth
with, or the sale or disposition of all or substantially all of the assets
of Woolworth to, any Person other than (a) a merger or consolidation which
would result in the voting securities of Woolworth 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 Woolworth 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 Woolworth (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 Exchange Act), 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 Exchange
Act), in the aggregate, of securities of Woolworth representing twenty
percent (20%) or more of the total combined voting power of Woolworth's
then issued and outstanding voting securities by any Person acting in
concert as of the date of the Plan; 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 Woolworth of any plan or
proposal for the complete liquidation or dissolution of Woolworth or for
the sale of all or substantially all of the assets of Woolworth; 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 Woolworth's
shareholders 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.
(g) Participant Rights. No Participant shall have any claim to be granted
any Award under the Plan, and there is no obligation for uniformity of treatment
for Participants. Except as provided specifically herein, a Participant or a
transferee of an Award shall have no rights as a shareholder with respect to any
shares covered by any Award until the date of the issuance of a Stock
certificate to him for such shares.
(h) Unfunded Status of Awards. The Plan is intended to constitute an
"unfunded" plan for incentive and deferred compensation. With respect to any
payments not yet made to a Participant pursuant to an Award, nothing contained
in the Plan or any Award shall give any such Participant any rights that are
greater than those of a general creditor of the Company.
(i) No Fractional Shares. Except with respect to fractional shares
resulting from any adjustment in Awards pursuant to Section 5, no fractional
shares of Stock shall be issued or delivered pursuant to the Plan or any Award.
(j) Legend. The Committee may require each person purchasing shares
pursuant to a Stock Option or other Award under the Plan to represent to and
agree with the Company in writing that the Participant is acquiring the shares
without a view to distribution thereof. In
<PAGE> 16
addition to any legend required by this Plan, the certificates for such shares
may include any legend which the Committee deems appropriate to reflect any
restrictions on Transfer.
All certificates for shares of Stock delivered under the Plan shall be
subject to such stop transfer orders and other restrictions as the Committee may
deem advisable under the rules, regulations and other requirements of the
Securities and Exchange Commission, any stock exchange upon which the Stock is
then listed or any national securities association system upon whose system the
Stock is then quoted, any applicable Federal or state securities law, and any
applicable corporate law, and the Committee may cause a legend or legends to be
put on any such certificates to make appropriate reference to such restrictions.
(k) Other Plans. Nothing contained in this Plan shall prevent the Board
from adopting other or additional compensation arrangements, subject to
shareholder approval if such approval is required; and such arrangements may be
either generally applicable or applicable only in specific cases.
(l) Listing and Other Conditions.
(1) As long as the Stock is listed on a national securities exchange
or system sponsored by a national securities association, the issue of any
shares of Stock pursuant to an Option or other Award shall be conditioned
upon such shares being listed on such exchange or system. The Company shall
have no obligation to issue such shares unless and until such shares are so
listed, and the right to exercise any Option or other Award with respect to
such shares shall be suspended until such listing has been effected.
(2) If at any time counsel to the Company shall be of the opinion that
any sale or delivery of shares of Stock pursuant to an Option or other
Award is or may in the circumstances be unlawful or result in the
imposition of excise taxes under the statutes, rules or regulations of any
applicable jurisdiction, the Company shall have no obligation to make such
sale or delivery, or to make any application or to effect or to maintain
any qualification or registration under the Securities Act of 1933, as
amended, or otherwise with respect to shares of Stock or Awards, and the
right to exercise any Option or other Award shall be suspended until, in
the opinion of said counsel, such sale or delivery shall be lawful or will
not result in the imposition of excise taxes.
(3) Upon termination of any period of suspension under this Section,
any Award affected by such suspension which shall not then have expired or
terminated shall be reinstated as to all shares available before such
suspension and as to shares which would otherwise have become available
during the period of such suspension, but no such suspension shall extend
the term of any Option.
(m) Governing Law. The Plan and all determinations made and actions taken
pursuant hereto shall be governed by the laws of the State of New York without
giving effect to the conflict of laws principles thereof.
(n) Effective Date. The Plan shall take effect upon its adoption by the
Board, but the Plan (and any grants of Awards made prior to the shareholder
approval mentioned herein) shall be subject to the requisite approval of the
shareholders of the Company. In the absence of such approval, such Awards shall
be null and void.
(o) Death/Beneficiary. The Committee may in its sole discretion require
the transferee of a Participant to supply it with written notice of the
Participant's death or Disability and to supply it with a copy of the will (in
the case of the Participant's death) or such other evidence as the Committee
deems necessary to establish the validity of the Transfer of an Option. The
Committee may also require that the agreement of the transferee to be bound by
all of the terms and conditions of the Plan. A Participant may file with the
Committee a written designation of a beneficiary on such form as may be
prescribed by the Committee and may, from time
<PAGE> 17
to time, amend or revoke such designation. If no designated beneficiary survives
the Participant, the executor or administrator of the Participant's estate shall
be deemed to be the grantee's beneficiary.
(p) Interpretation. The Plan is designed and intended to comply with Rule
16b-3 promulgated under the Exchange Act and, to the extent applicable, with
Section 162(m) of the Code, and all provisions hereof shall be construed in a
manner to so comply.
(q) Severability of Provisions. If any provision of the Plan shall be held
invalid or unenforceable, such invalidity or unenforceability shall not affect
any other provisions hereof, and the Plan shall be construed and enforced as if
such provisions had not been included.
(r) Headings and Captions. The headings and captions herein are provided
for reference and convenience only, shall not be considered part of the Plan,
and shall not be employed in the construction of the Plan.
<PAGE> 1
Exhibit 10.29
[WOOLWORTH LOGO] WOOLWORTH BUILDING
233 BROADWAY
NEW YORK, NEW YORK
10279-0003
TEL 212-553-2178
FAX 212-553-2073
JOHN F. GILLESPIE
SENIOR VICE PRESIDENT
HUMAN RESOURCES REVISED
July 25, 1997
Mr. Reid Johnson
9166 Brechenridge Lane
Eden Prairie, Minnesota 55347-3442
Dear Reid:
This will confirm your recent discussions with Dale Hilpert regarding our
offer of employment that was extended to you to join Woolworth Corporation as
Senior Vice President and Chief Financial Officer.
Your compensation package will consist of the following:
Annual Base Salary: $425,000, payable monthly
Annual Bonus Plan: Target - 50%
Fiscal Year Guarantee: $200,000
(Payable in 4/98)
Cash Sign-on Bonus: $100,000
Sign-on Stock Options: 50,000 shares
April, 1998 Stock Grant: 43,000 shares, thereafter you will be
eligible to participate in the annual
share option grant program at a level
determined by the Compensation Committee
of the Board of Directors commensurate
with your position in the organization.
Long-Term Incentive Plan: Prorated participation in the 1996-1998
and 1997-1999 periods, based on date of
employment.
<PAGE> 2
2
Life Insurance: Company-paid 1x base salary.
Medical: $5,000 reimbursement - no gross-up.
Vacation: Four (4) weeks, plus 13 Company-paid
holidays and two (2) personal days.
Severance: In accordance with Senior Executive Severance
Agreement (a revised copy of which is
enclosed).
Financial Planning: Company-paid up to $10,000 for the first year;
$6,000 thereafter.
Temporary Living In accordance with the Woolworth Corporation
Expenses: Policy for Homeowners. Thirty (30) day
extensions will be considered upon request.
Company will pay storage costs for up to one (1) year.
Pat Peck will be in touch with you regarding the directed offer for $1
million for your Minnesota home. We have agreed that you may continue to
reside in your home after it has been purchased by HFS until it is sold.
HFS will require that you pay interest and taxes during that period of
time.
Start Date: September 8, 1997
We are very enthusiastic about your joining our dynamic and professional
team. We know you will grow, personally and professionally, in our exciting
environment and industry.
If the foregoing covers all the details of this appointment, please
confirm your acceptance by signing and faxing a copy of this letter to me by
Tuesday, July 29, 1997, then returning the enclosed original signed copy of
this letter. If you have any questions, please feel free to contact me directly.
<PAGE> 3
3
We look forward to your joining us.
Very truly yours,
/s/ Reid Johnson /s/ John F. Gillespie
---------------------- ------------------------
Reid Johnson John F. Gillespie
7/29/97 7/25/97
---------------------- ------------------------
Date Date
Enclosure
cc: Dale Hilpert
Pat Peck
Connie Williams
<PAGE> 1
Exhibit 10.35
EXECUTION COPY
AMENDMENT NO. 2 TO CREDIT AGREEMENT
AMENDMENT No. 2 dated as of April 13, 1998 to the Credit Agreement
dated as of April 9, 1997, as heretofore amended (the "Credit Agreement") among
WOOLWORTH CORPORATION, the BANKS party thereto, the CO-AGENTS party thereto,
NATIONSBANK, N.A., as Documentation Agent, and THE BANK OF NEW YORK, as LC
Agent, Administrative Agent and Swingline Bank.
WITNESSETH:
WHEREAS, the parties hereto desire to amend the definition of "EBIT" in
the Credit Agreement to eliminate a proviso which requires that, if any
extraordinary non-cash loss or any non-recurring non-cash loss includes a
provision for cash payments to be made in future periods, such cash payments
must be deducted in calculating EBIT for the periods in which they are actually
paid;
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. Defined Terms; References. Unless otherwise specifically
defined herein, each term used herein which is defined in the Credit Agreement
has the meaning assigned to such term in the Credit Agreement. Each reference
to "hereof", "hereunder", "herein" and "hereby" and each other similar
reference and each reference to "this Agreement" and each other similar
reference contained in the Credit Agreement shall, after this Amendment becomes
effective, refer to the Credit Agreement as amended hereby.
SECTION 2. Amendment of Definition of EBIT. The definition of "EBIT" is
amended by deleting the proviso at the end of said definition so that said
definition will read in full as follows:
"EBIT" means, for any period, the sum of (i) the consolidated
net income of the Borrower and its Consolidated Subsidiaries for such period
plus (ii) to the extent deducted in determining such consolidated net income,
the sum of (A) Interest Expense, (B) income taxes, (C) the after-tax effect of
any extraordinary non-cash losses (or minus the after-tax effect of any
extraordinary non-cash gains), (D) the before-tax effect of any non-recurring
non-cash losses that are not classified as extraordinary losses (or minus the
before-tax effect of any non-recurring non-cash gains that are not
<PAGE> 2
classified as extraordinary gains) and (E) any pre-tax loss (or minus
any pre-tax gain) on the sale of any ownership or leasehold interest in
real property.
SECTION 3. Governing Law. This Amendment shall be governed by and
construed in accordance with the laws of the State of New York.
SECTION 4. Counterparts. This Amendment may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if
the signatures thereto and hereto were upon the same instrument.
SECTION 5. Effectiveness. This Amendment shall become effective as of
the date hereof when the Administrative Agent shall have received from each of
the Borrower and the Required Banks a counterpart hereof signed by such party
or facsimile or other written confirmation (in form satisfactory to the
Administrative Agent) that such party has signed a counterpart hereof.
2
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed as of the date first above written.
WOOLWORTH CORPORATION
By: /s/ John H. Cannon
____________________________________
Title: Vice President - Treasurer
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By: /s/ Douglas Mahler
____________________________________
Title: Vice President
NATIONSBANK, N.A.
By: /s/ Marcus A. Boyer
____________________________________
Title: Vice President
THE BANK OF NEW YORK
By: /s/ Howard F. Bascom
____________________________________
Title: Vice President
THE BANK OF NOVA SCOTIA
By: /s/ J. Alan Edwards
____________________________________
Title: Authorized Signatory
<PAGE> 4
BANK OF TOKYO-MITSBUSISHI TRUST
COMPANY
By: /s/ Noami Saffa
____________________________________
Title: Assistant Vice President
TORONTO DOMINION (NEW YORK), INC.
By: /s/ Jorge A. Garcia
____________________________________
Title: Vice President
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By: /s/ Jody A. Pritchard
____________________________________
Title: Vice President
COMMERZANK AG, NEW YORK AND/OR
GRAND CAYMAN BRANCHES
By: /s/ Subash R. Viswanathan
____________________________________
Title: Vice President
By: /s/ A. Oliver Welsch-Lehmann
____________________________________
Title: Assistant Treasurer
CREDIT LYONNAIS NEW YORK BRANCH
By: /s/ Vladimir Labun
____________________________________
Title: First Vice President-Manager
<PAGE> 5
DEUTSCHE BANK AG, NEW YORK
AND/OR CAYMAN ISLAND BRANCH
By: /s/ Stephan A. Wiedemann
____________________________________
Title: Director
By: /s/ Joel D. Makowsky
____________________________________
Title: Assistant Vice President
KEYBANK NATIONAL ASSOCIATION
By: /s/ Karen A. Lee
____________________________________
Title: Vice President
WELLS FARGO BANK, N.A.
By: /s/ Catherine M. Wallace
____________________________________
Title: Vice President
By: /s/ Donald A. Hartmann
____________________________________
Title: Senior Vice President
UNION BANK OF CALIFORNIA, N.A.
By: /s/ Terry Rocha
____________________________________
Title: Vice President
<PAGE> 1
EXHIBIT 12
WOOLWORTH CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Unaudited)
($ in millions)
<TABLE>
<CAPTION>
Fiscal Fiscal Fiscal Fiscal Fiscal
Year Year Year Year Year
ended ended ended ended ended
Jan. 31, Jan. 25, Jan. 27, Jan. 28, Jan. 29,
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
NET EARNINGS
<S> <C> <C> <C> <C> <C>
Net income (loss) from continuing
operations $213 $193 $(98) $ 38 $(226)
Income tax expense (benefit) 125 127 (35) 42 (118)
Interest expense, excluding capitalized
interest 48 63 108 93 71
Portion of rents deemed representative
of the interest factor (1/3) 204 211 207 194 192
---- ---- ---- ---- -----
$590 $594 $182 $367 $ (81)
==== ==== ==== ==== =====
FIXED CHARGES
Gross interest expense $ 48 $ 63 $108 $ 93 $ 71
Portion of rents deemed representative
of the interest factor (1/3) 204 211 207 194 192
---- ---- ---- ---- -----
$252 $274 $315 $287 $ 263
==== ==== ==== ==== =====
RATIO OF EARNINGS TO FIXED
CHARGES 2.3 2.2 0.6 1.3 --
==== ==== ==== ==== =====
</TABLE>
Earnings were not adequate to cover fixed charges by $133 million and $344
million for the fiscal years ended January 27, 1996 and January 29, 1994,
respectively.
<PAGE> 1
Exhibit 21
WOOLWORTH CORPORATION AND SUBSIDIARIES (1)
April 1, 1998
<TABLE>
<CAPTION>
State or Other
Name Jurisdiction of Incorporation
- ---- -----------------------------
<S> <C>
Woolworth Corporation New York
After Thoughts, Inc. Delaware
Foot Locker Asia, Inc. Delaware
Foot Locker Asia Limited Hong Kong
Foot Locker Australia, Inc. Delaware
Foot Locker Austria GmbH Austria
Foot Locker Belgium N.V Belgium
Foot Locker China, Inc. Delaware
Foot Locker Europe B.V. Netherlands
Foot Locker France S.A. France
Faust S.A.R.L. France
Florentin Freres-Primaprix S.A. France
Les Nouveautes du Centre S.A.R.L. France
Foot Locker Germany GmbH Germany
Foot Locker Italy S.r.l. Italy
Foot Locker Japan, Inc. Delaware
Foot Locker Japan K.K. Japan
Foot Locker Netherlands B.V. Netherlands
Foot Locker Singapore Pte. Ltd. Singapore
Foot Locker Spain S.L. Spain
Foot Locker (Thailand) Co., Ltd. Thailand
Foot Locker U.K. Limited U.K.
Freedom Sportsline Limited U.K.
FWW Realty Europe Limited U.K.
Kids Mart, Inc. (2) Florida
Kids Mart Inc. Delaware
Kinney New Zealand Limited New Zealand
Little Folk Shop Inc. Delaware
Northern Reflections Inc. Delaware
Randy River, Inc. Delaware
The Richman Brothers Company Ohio
Custom Cut, Inc. Delaware
RX Place, Inc. Delaware
The San Francisco Music Box Company California
Specialty Times, Inc. Delaware
Team Edition Apparel, Inc. Florida
F. W. Woolworth Co. New York
Afterthoughts Boutiques, Inc. Delaware
Barclay Park and Church Advertising Inc. Delaware
Checklot Service Center, Inc. Delaware
Eastbay, Inc. Wisconsin
Frame Scene, Inc. Delaware
Herald Square Stationers, Inc. Delaware
Lamston 37-33/45 Seventy-Fourth Street Corp. New York
</TABLE>
(1) The name of each subsidiary company is indented under the name of its
parent company and, unless otherwise noted in a footnote, each such
subsidiary company is 100% owned by its parent. Directors' qualifying
shares, if any, are deemed to be beneficially owned by a subsidiary's
parent company. All subsidiaries wholly owned, directly or indirectly,
by Woolworth Corporation are consolidated with Woolworth Corporation
for accounting and financial reporting purposes.
<PAGE> 2
Exhibit 21
[WOOLWORTH CORPORATION -- (CONT.)]
[F. W. WOOLWORTH CO. -- (CONT.)]
<TABLE>
<S> <C>
Lamston 1279 Third Avenue Corp. New York
Lamston 69-73/5 Grand Avenue Corp. New York
Red Grille of Hawaii, Inc. Delaware
Red Grille of Louisiana, Inc. Delaware
Trade Center Realty, Inc. Delaware
Woolco Fashionwear Corp. Delaware
Woolco Inc. Delaware
340 Supply Co. Pennsylvania
Rosedale Accessory Lady, Inc. Minnesota
Accessory Lady, Inc. Texas
Atlanta Southlake Accessory Lady, Inc. Georgia
Beachwood Accessory Lady, Inc. Ohio
Brea Accessory Lady, Inc. California
Bridgewater Commons Accessory Lady, Inc. New Jersey
Buckland Hills Accessory Lady, Inc. Connecticut
Cherry Hill Accessory Lady, Inc. New Jersey
Chesterfield Accessory Lady, Inc. Virginia
Chicago Accessory Lady, Inc. Illinois
Copley Place Accessory Lady, Inc. Massachusetts
Colonie Center Accessory Lady, Inc. New York
Crabtree Mall Accessory Lady, Inc. North Carolina
Dadeland Center Accessory Lady, Inc. Florida
Delamo Accessory Lady, Inc. California
Fashion Valley Accessory Lady, Inc. California
Four Seasons Accessory Lady, Inc. North Carolina
Fox Valley Accessory Lady, Inc. Illinois
Garden State Accessory Lady, Inc. New Jersey
The Gardens Accessory Lady, Inc. Florida
Glendale Accessory Lady, Inc. California
Grand Avenue Accessory Lady, Inc. Wisconsin
Hanes Mall Accessory Lady, Inc. North Carolina
Hawthorne Center (IL.) Accessory Lady, Inc. Illinois
Lakeside Accessory Lady, Inc. Louisiana
Mainplace Accessory Lady, Inc. California
Mall Del Norte Accessory Lady, Inc. Texas
McAllen Accessory Lady, Inc. Texas
McLean Accessory Lady, Inc. Virginia
Menlo Park Accessory Lady, Inc. New Jersey
Montclair Accessory Lady, Inc. California
Montgomery Accessory Lady, Inc. Maryland
Northbrook Accessory Lady, Inc. Illinois
North County Fair Accessory Lady, Inc. California
Northridge Accessory Lady, Inc. California
Oakbrook Center Accessory Lady, Inc. Illinois
The Oaks Accessory Lady, Inc. California
Orlando Accessory Lady, Inc. Florida
Paradise Valley Accessory Lady, Inc. Arizona
Palm Beach Mall Accessory Lady, Inc. Florida
Paramus Park Accessory Lady, Inc. New Jersey
The Parks Accessory Lady, Inc. Texas
</TABLE>
<PAGE> 3
Exhibit 21
[WOOLWORTH CORPORATION -- (CONT.)]
[F. W. WOOLWORTH CO. -- (CONT.)]
[ROSEDALE ACCESSORY LADY, INC. -- (CONT.)]
<TABLE>
<S> <C>
Penn Square Accessory Lady, Inc. Oklahoma
Pentagon City Accessory Lady, Inc. Virginia
Raceway Accessory Lady, Inc. New Jersey
Randhurst Accessory Lady, Inc. Illinois
Regency Square Accessory Lady, Inc. Florida
Ridgedale Accessory Lady, Inc. Minnesota
Riverside Hackensack Accessory Lady, Inc. New Jersey
Roosevelt Field Accessory Lady, Inc. New York
Scottsdale Accessory Lady, Inc. Arizona
Southdale Accessory Lady, Inc. Minnesota
St. Louis Galleria Accessory Lady, Inc. Missouri
Stoneridge Accessory Lady, Inc. California
Stonestown Accessory Lady, Inc. California
Sunrise Boulevard (Fla.) Accessory Lady, Inc. Florida
Sunvalley Accessory Lady, Inc. California
Towson Accessory Lady, Inc. Maryland
Tri-County Accessory Lady, Inc. Ohio
Tysons Corner Accessory Lady, Inc. Virginia
Valley Fair Accessory Lady, Inc. California
Willowbrook Accessory Lady, Inc. New Jersey
Woodman Avenue Accessory Lady, Inc. California
Kinney Shoe Corporation New York
Armel, Inc. Florida
Armel Acquisition, Inc. Florida
Champs of Crossgates, Inc. Florida
Champs of Holyoke, Inc. Florida
Champs Sporting Goods of
Esplanade, Inc. Florida
Champs Sporting Goods, Inc. Tennessee
Champs Sport Shops, Inc. of Maryville Florida
Champs Sport Shops, Inc. of Cutler Ridge Florida
Champs Sport Shops, Inc. of Broward Florida
Champs Sport Shops of Daytona, Inc. Florida
San Del of Jacksonville, Inc. Florida
Champs Sport Shops, Inc. of 163rd Street Florida
San Del, Inc. of Atlanta Florida
Champs Four Seasons, Inc. North Carolina
Joe Chichelo, Inc. Florida
Champs Sport Shops, Inc. Florida
Champs Sport Shops, Inc. of Aventura Florida
Champs Sporting Goods of N.C., Inc. North Carolina
Champs Sport Shops, Inc. of
Miami International Florida
Champs Sporting Goods, Inc. Louisiana
Champs Sport Shops, Inc. of Omni Florida
</TABLE>
<PAGE> 4
Exhibit 21
[WOOLWORTH CORPORATION -- (CONT.)]
[KINNEY SHOE CORPORATION -- (CONT.)]
[ARMEL, INC. -- (CONT.)]
[ARMEL ACQUISITION, INC. -- (CONT.)]
<TABLE>
<S> <C>
Champs Sport Shops, Inc. of Nashville Florida
Champs Sport Shops, Inc. of Houston Florida
Champs Sport Shops, Inc. of Fort Lauderdale Florida
Sneakers Inc. of Greensboro North Carolina
Sneakers Inc. of Knoxville Tennessee
Sneakers Inc. of Daytona Beach Florida
Champs of Maryland, Inc. Florida
Champs of Virginia, Inc. Florida
SneaKee Feet of Maryland, Inc. Florida
SneaKee Feet of Montgomery Village, Inc. Florida
SneaKee Feet of North Carolina, Inc. Florida
Runner-Up of Orlando, Inc. Florida
SneaKee Feet of Tampa, Inc. Florida
SneaKee Feet of Washington Outlet Mall, Inc. Florida
SneaKee Feet, Inc. Florida
Champs of Missouri, Inc. Missouri
Champs Sport Shops of Maryland, Inc. Maryland
Champs of Connecticut, Inc. Connecticut
Champs Sport Shops of Massachusetts, Inc. Massachusetts
Champs of Georgia, Inc. Georgia
Champs of New Jersey, Inc. New Jersey
Champs of Oklahoma, Inc. Oklahoma
Champs of Tennessee, Inc. Tennessee
Menlo Trading Company California
Athletic Shoe Factory, Inc. California
Simpson's Ferry Leasing Corp. Delaware
Janess Properties, Inc. Delaware
Kinney Service Corporation Delaware
Kinney Trading Corp. New York
Robby's Sporting Goods, Inc. Florida
Woolworth Realty Corporation New York
Woolworth Specialty Corporation California
Woolworth World Trade Corp. New York
Woolworth Holding S.A. de C.V. Mexico
Foot Locker de Mexico, S.A. de C.V. Mexico
Distribuidora Foot Locker S.A. de C.V. Mexico
Woolworth Canada Inc. Canada
142739 Canada Limited Canada
Woolco Pharmacy (Saskatchewan) Ltd. Canada
Woolworth Overseas Corp. Delaware
</TABLE>
<PAGE> 5
Exhibit 21
[WOOLWORTH CORPORATION -- (CONT.)]
[WOOLWORTH WORLD TRADE CORP. (CONT.)]
<TABLE>
<S> <C>
Kinney Shoes (Australia) Limited Australia
Colorado Adventure Clothing Pty. Ltd. Australia
Mathers Enterprises Limited Australia
Williams The Shoemen Pty. Ltd. Australia
Retail Company of Germany, Inc. Delaware
F. W. Woolworth Co. Ges. mbH Austria
F. W. Woolworth Co. GmbH Germany
Tappiser & Werner GmbH Germany
Krone Grundstucksgesellschaft mbH (3) Germany
LIDOS Verwaltung GMBH & Co.
Vermietungs KG (4) Germany
Meyer Der Schuh Beteiligungs-GmbH
u. Co. KG (5) Germany
Christa Grundstucks-Vermietungsgesellschaft
mbH & Co. Objekt Frankfurt KG (6) Germany
Merkur Einkaufsgesellschaft KAUFRING-
WOOLWORTH mbH (7) Germany
EMPTIO I Beteiligungsgesellschaft GbR (8) Germany
Kaufring AG (9) Germany
Meyer Der Schuh Beteiligungs-gesellschaft mbH Germany
</TABLE>
(2) 1 million shares of Series A Convertible Preferred Stock, par value
$.0001 per share pursuant to a Stock Acquisition Agreement dated May 30, 1996.
(3) 0.29% owned by Retail Company of Germany, Inc.; 99.71% owned by F. W.
Woolworth Co. GmbH.
(4) Krone Grundstucksgesellschaft mbH acquired 99% of the shares as a
limited partner in 1995.
(5) 99% of the capital is owned Krone Grundstucksgesellschaft mbH (limited
partner) and 1% of the capital is owned by Meyer Der Schuh Beteiligungs-GmbH
(unlimited partner).
(6) F. W. Woolworth Co. GmbH owns 99% of the capital of this
subsidiary and 15% of the voting. rights.
(7) 50% owned by F. W. Woolworth Co. GmbH; 50% owned by Kaufring AG.
(8) 50% owned by F. W. Woolworth Co. GmbH; 50% owned by Commerzbank AG.
(9) 25% of the capital is owned by EMPTIO I Beteiligungsgesellschaft GbR.
sublist
<PAGE> 1
EXHIBIT 23
WOOLWORTH CORPORATION
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Woolworth Corporation:
We consent to the incorporation by reference in the 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 of Woolworth
Corporation and subsidiaries of our report dated March 11, 1998, relating to
the consolidated balance sheets of Woolworth Corporation and subsidiaries as
of January 31, 1998 and January 25, 1997 and the related consolidated
statements of operations, shareholders' equity and cash flows for each of the
years in the three-year period ended January 31, 1998, which report appears in
the January 31, 1998 Annual Report on Form 10-K of Woolworth Corporation and
subsidiaries.
Our report refers to the adoption of the Financial Accounting Standards
Board's Statement of Financial Accounting Standards No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of," in 1995.
/s/ KPMG Peat Marwick LLP
New York, New York
April 17, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENTS OF INCOME FOR THE TWELVE MONTHS ENDED JANUARY 31, 1998
AND THE CONSOLIDATED BALANCE SHEET AS OF JANUARY 31, 1998 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> JAN-26-1997
<PERIOD-END> JAN-31-1998
<CASH> 116
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 1,159
<CURRENT-ASSETS> 1,459
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 3,182
<CURRENT-LIABILITIES> 756
<BONDS> 535
0
0
<COMMON> 0
<OTHER-SE> 1,271
<TOTAL-LIABILITY-AND-EQUITY> 3,182
<SALES> 6,624
<TOTAL-REVENUES> 6,624
<CGS> 4,568
<TOTAL-COSTS> 4,568
<OTHER-EXPENSES> 139
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 44
<INCOME-PRETAX> 338
<INCOME-TAX> 125
<INCOME-CONTINUING> 213
<DISCONTINUED> (223)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10)
<EPS-PRIMARY> (0.08)<F1>
<EPS-DILUTED> (0.07)
<FN>
<F1>THE AMOUNT IS REPORTED AS EPS BASIC AND NOT FOR EPS PRIMARY.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS RESTATED SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENTS OF INCOME FOR THE TWELVE MONTHS ENDED JANUARY 25, 1997
AND THE CONSOLIDATED BALANCE SHEET AS OF JANUARY 25, 1997 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-25-1997
<PERIOD-START> JAN-28-1996
<PERIOD-END> JAN-25-1997
<CASH> 328
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 1,066
<CURRENT-ASSETS> 1,782
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 3,339
<CURRENT-LIABILITIES> 748
<BONDS> 575
0
0
<COMMON> 0
<OTHER-SE> 1,334
<TOTAL-LIABILITY-AND-EQUITY> 3,339
<SALES> 7,017
<TOTAL-REVENUES> 7,017
<CGS> 4,783
<TOTAL-COSTS> 4,783
<OTHER-EXPENSES> 143
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 59
<INCOME-PRETAX> 320
<INCOME-TAX> 127
<INCOME-CONTINUING> 193
<DISCONTINUED> (24)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 169
<EPS-PRIMARY> 1.26<F1>
<EPS-DILUTED> 1.26
<FN>
<F1>THE AMOUNT IS REPORTED AS EPS BASIC AND NOT FOR EPS PRIMARY.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS RESTATED SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENTS OF INCOME FOR THE TWELVE MONTHS ENDED JANUARY 27, 1996
AND THE CONSOLIDATED BALANCE SHEET AS OF JANUARY 27, 1996 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-27-1996
<PERIOD-START> JAN-26-1995
<PERIOD-END> JAN-27-1996
<CASH> 14
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 1,185
<CURRENT-ASSETS> 1,647
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 3,339
<CURRENT-LIABILITIES> 700
<BONDS> 599
0
0
<COMMON> 0
<OTHER-SE> 1,229
<TOTAL-LIABILITY-AND-EQUITY> 3,339
<SALES> 7,031
<TOTAL-REVENUES> 7,031
<CGS> 4,863
<TOTAL-COSTS> 4,863
<OTHER-EXPENSES> 185
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 104
<INCOME-PRETAX> (133)
<INCOME-TAX> (35)
<INCOME-CONTINUING> (98)
<DISCONTINUED> (66)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (164)
<EPS-PRIMARY> (1.23)<F1>
<EPS-DILUTED> (1.23)
<FN>
<F1>THE AMOUNT IS REPORTED AS EPS BASIC AND NOT FOR EPS PRIMARY.
</FN>
</TABLE>
