FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For The Quarterly Period Ended March 31, 2001
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Commission File Number 1-11681
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FOOTSTAR, INC.
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(Exact Name of Registrant as specified in its charter)
Delaware 22-3439443
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(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
933 MacArthur Boulevard, Mahwah, New Jersey 07430
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(Address of principal executive offices) (Zip Code)
(201) 934-2000
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No __
Number of shares outstanding of the issuer's Common Stock:
Class Outstanding as of March 31, 2001
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Common Stock, $.01 par value 19,887,868
INDEX
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Page No.
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Part I. - Financial Information
Item 1. Financial Statements
Consolidated Condensed Statements of Operations -
Three Months Ended March 31, 2001 and April 1, 2000 3
Consolidated Condensed Balance Sheets -
March 31, 2001 and December 30, 2000 4
Consolidated Condensed Statements of Cash Flows -
For Three Months Ended March 31, 2001 and April 1, 2000 5
Notes to Consolidated Condensed Financial Statements 6-10
Independent Auditors' Review Report 11
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12-16
Item 3. Quantitative and Qualitative Disclosures about Market Risk 17
Part II. - Other Information
Item 6. Exhibits and Reports on Form 8-K 18
2
FOOTSTAR, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
(in millions, except per share data)
Three Months Ended
-------------------------
March 31, April 1,
2001 2000
--------- --------
Net sales $517.2 $439.7
Cost of sales 370.1 312.7
------ ------
Gross profit 147.1 127.0
Store operating, selling, general and
administrative expenses 134.4 107.0
Depreciation and amortization 11.9 9.5
------ ------
Operating profit 0.8 10.5
Interest expense, net 3.3 0.5
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(Loss) income before income taxes and
minority interests (2.5) 10.0
Income tax (benefit) provision (0.8) 3.1
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(Loss) income before minority interests (1.7) 6.9
Minority interests in net income 2.4 4.1
------ ------
Net (loss) income $ (4.1) $ 2.8
====== ======
Weighted average shares outstanding:
Basic: 20.1 20.1
====== ======
Diluted: 20.1 20.3
====== ======
Earnings per share
Basic: $(0.20) $ 0.14
====== ======
Diluted: $(0.20) $ 0.14
====== ======
See accompanying notes to consolidated condensed financial statements.
3
FOOTSTAR, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED CONDENSED BALANCE SHEETS
($ in millions, except for share data)
March 31, December 30,
2001 2000
(Unaudited) (Audited)
----------- ---------
ASSETS
Current Assets:
Cash and cash equivalents $ 17.8 $ 14.3
Accounts receivable, net 55.6 54.2
Inventories 513.6 360.6
Prepaid expenses and other current assets 39.6 28.1
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Total current assets 626.6 457.2
Property and equipment, net 262.1 261.7
Goodwill, deferred charges and other non-
current assets 89.4 54.8
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Total assets $978.1 $ 773.7
====== =======
LIABILITIES and SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $158.0 $ 86.9
Accrued expenses 130.9 136.7
Income taxes payable 3.8 9.1
Notes payable 91.7 74.0
------ -------
Total current liabilities 384.4 306.7
Long-term debt 120.0 --
Other long-term liabilities 66.6 61.0
Minority interests in subsidiaries 84.0 81.6
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Total liabilities $655.0 $ 449.3
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Shareholders' Equity:
Common stock $.0l par value: 100,000,000
shares authorized, 30,636,884 shares issued 0.3 0.3
Additional paid-in capital 346.2 342.1
Accumulated other comprehensive income (0.1) (0.1)
Treasury stock: 10,749,016 and 10,782,106
shares at cost (311.7) (312.6)
Unearned compensation (7.6) (5.4)
Retained earnings 296.0 300.1
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Total shareholders' equity 323.1 324.4
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Total liabilities and shareholders' equity $978.1 $ 773.7
====== =======
See accompanying notes to consolidated condensed financial statements.
4
FOOTSTAR, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
($ in millions)
Three Months Ended
---------------------
March 31, April 1,
2001 2000
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Net cash used in operating activities $(66.3) $(22.9)
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Cash flows used in investing activities:
Acquisition of J. Baker (59.0) --
Acquisition of Just For Feet, net of cash
acquired -- (64.2)
Additions to property and equipment (8.7) (2.7)
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Net cash used in investing activities (67.7) (66.9)
------ ------
Cash flows provided by (used in) financing
activities:
Treasury stock acquired -- (13.1)
Treasury stock issued 1.0 --
Payment on stock incentive plans (0.5) (0.3)
Net proceeds from notes payable 137.7 120.0
Payments on capital lease (0.1) --
Payment on mortgage note (0.2) --
Other (0.4) (1.2)
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Net cash provided by financing activities 137.5 105.4
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Net increase in cash and cash equivalents 3.5 15.6
Cash and cash equivalents, beginning of period 14.3 31.8
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Cash and cash equivalents, end of period $ 17.8 $ 47.4
====== ======
See accompanying notes to consolidated condensed financial statements.
5
FOOTSTAR, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
($ in millions, except per share data)
1. Basis of Presentation
In the opinion of Footstar, Inc. (the "Company"), the accompanying unaudited
consolidated condensed financial statements contain all adjustments (consisting
of only normal recurring accruals) necessary to present fairly the financial
position of the Company as of March 31, 2001 and December 30, 2000 and the
results of operations for the three-month periods ended March 31, 2001 and April
1, 2000, respectively, and cash flows for the three months ended March 31, 2001
and April 1, 2000, respectively. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates. Because of the seasonality of the specialty retailing
business, operating results of the Company on a quarterly basis may not be
indicative of operating results for the full year or any other period. The
consolidated financial statements of the Company should be read in conjunction
with the consolidated financial statements of the Company included in the
Company's 2000 Annual Report on Form 10-K.
2. Acquisition of J. Baker
Effective as of February 4, 2001, the Company completed the acquisition of the
footwear assets of J. Baker, Inc. and its subsidiaries. On the day of
acquisition, the business operated 1,163 licensed footwear departments under 13
agreements with retail chains including Ames, Roses, Stein Mart and Spiegel.
Assets purchased by the Company included inventory, store fixtures, intellectual
property and license agreements. The cash consideration paid for the assets was
approximately $59.0 million.
The acquisition has been accounted for under the purchase method of accounting
for business combinations. Accordingly, the consolidated financial statements
include the results of operations of J. Baker from the acquisition date. The
results of operations generated from the assets acquired are reported as part of
the Company's Meldisco segment. Based on purchase price allocations, the excess
of the purchase price over the fair market value of the net assets acquired
amounting to approximately $15.2 million was recorded as goodwill and is being
amortized over 15 years. Additional adjustments to the purchase price allocation
may result from the completion of an appraisal of the acquired assets, which is
currently in progress.
6
FOOTSTAR, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
($ in millions, except per share data)
3. Acquisition of Just For Feet
On March 7, 2000 the Company acquired certain assets of Just For Feet, Inc. and
its subsidiaries, which had filed for Chapter 11 bankruptcy protection on
November 4, 1999. Just For Feet is the leading operator of large-format
superstores which specialize in brand-name athletic and outdoor footwear and
apparel. The assets purchased by the Company included 3 Just For Feet
superstores, 76 Just For Feet superstore leases, 23 specialty store leases, the
Just For Feet name, the Internet business and the corporate headquarters
building located in Birmingham, Alabama. The net cash consideration paid for the
assets was $64.2 million.
The acquisition has been accounted for under the purchase method of accounting
for business combinations. Accordingly, the consolidated financial statements
include the results of operations of Just For Feet from the acquisition date.
The results of operations generated from the assets acquired have been added to
those of Footaction and reported as Footstar's athletic segment. The purchase
price was allocated to the acquired assets and liabilities assumed, tangible and
intangible. The acquired assets and liabilities assumed were predominantly
inventories, fixed assets and lease obligations. Based on purchase price
allocations, the excess of the fair market value of the net assets acquired over
the purchase price amounting to approximately $32.4 million was deducted from
the book values of the non-current, non-monetary assets acquired.
Unaudited Just For Feet pro forma net sales and Footstar pro forma consolidated
net sales for the three-month period ended April 1, 2000, assuming Just For Feet
assets were acquired as of January 2, 2000 are as follows:
Pro Forma
Three Months Ended
April 1, 2000
------------------
Just For Feet net sales $ 72.5
Footstar consolidated net sales 494.9
Pro forma net income and earnings per share data have not been disclosed since
the Company is unable to avoid the use of forward-looking information and
assumptions in order to meaningfully present the effect of the acquisition on
the Company's operations. The Just For Feet historical results for the
three-month period ended April 1, 2000, include the effects of transactions and
estimates which are related either directly or indirectly, to Just For Feet
Inc.'s liquidation proceedings under Chapter 7. As
7
FOOTSTAR, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
($ in millions, except share and per share data)
such, the Company cannot accurately determine the operating results that would
have resulted had the liquidation process not been initiated and had the assets
been acquired by the Company effective January 2, 2000.
The pro forma sales results for the three-month period ended April 1, 2000
include actual Footstar results beginning March 7, 2000. They also include the
results of Just For Feet, Inc. from January 2, 2000 to March 6, 2000. For the
same reasons expressed above, the pro forma sales are not necessarily indicative
of the results of the Company had the Just For Feet, Inc. assets been acquired
effective January 2, 2000, and they are not necessarily indicative of sales in
future periods.
4. Segment Information
Statement of Financial Accounting Standards No. 131, Disclosures about Segments
of an Enterprise and Related Information ("SFAS No. 131"), requires that public
business enterprises report selected information about operating segments in
interim financial reports issued to shareholders. Under SFAS No. 131 the newly
acquired J. Baker licensed footwear departments and the Meldisco licensed
footwear departments represent operating segments that have been aggregated into
the reporting segment called "Meldisco" for financial reporting purposes. The
assets of the two athletic footwear and apparel chains, Footaction and Just For
Feet have been aggregated into the reporting segment called "athletic" for
reporting purposes.
Three Months Ended March 31, 2001
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Meldisco(1) Athletic(2) Corporate Total
----------------------------------------------
Net sales $276.6 $240.6 $ -- $517.2
Operating profit (loss) 7.5 (5.3) (1.4) 0.8
Three Months Ended April 1, 2000
----------------------------------------------
Meldisco Athletic(2) Corporate Total
----------------------------------------------
Net sales $274.1 $165.6 $ -- $439.7
Operating profit (loss) 12.8 (0.1) (2.2) 10.5
(1) The newly acquired J. Baker licensed footwear departments have been
combined with and reported as the Meldisco segment.
(2) Footaction and Just For Feet have been combined and reported as a group
called the athletic segment.
8
FOOTSTAR, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
($ in millions, except per share data)
5. Comprehensive Income
Statement of Financial Accounting Standards No. 130, Reporting Comprehensive
Income ("SFAS No.130") requires that items defined as other comprehensive
income, such as foreign currency translation adjustments, be separately
classified in the financial statements and that the accumulated balance of other
comprehensive income be reported separately from retained earnings and
additional paid-in capital in the equity section of the balance sheet.
Comprehensive income for the three-month periods ended March 31, 2001 and April
1, 2000 was $(4.1) million and $2.8 million, respectively and contains no other
components of comprehensive income other than net income (loss).
6. Earnings per Share
The table below shows calculated earnings per share in accordance with SFAS No.
128.
Three Months Ended
-------------------------
March 31, April 1,
2001 2000
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Numerator for Basic and Diluted EPS -
Net (loss) income $(4.1) $2.8
=========== ===========
Denominator:
Shares outstanding at beginning of period 19,854,778 20,123,983
Weighted average deferred compensation shares
earned not issued 284,572 213,307
Weighted average shares
issued / (repurchased) 9,933 (221,512)
----------- -----------
Denominator for Basic EPS -Weighted average
common shares outstanding 20,149,283 20,115,778
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Dilutive effect of stock options -- 197,728
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Denominator for Diluted EPS- Adjusted weighted
average common shares outstanding 20,149,283 20,313,506
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Basic EPS $(0.20) $0.14
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Diluted EPS $(0.20) $0.14
=========== ===========
9
FOOTSTAR, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
($ in millions, except per share data)
7. Purchase of Treasury Stock
During the first quarter ended March 31, 2001, the Company did not repurchase
any of its stock. From May 1997, when the first share repurchase program was
approved by the Company's Board of Directors, through March 31, 2001, the
Company had repurchased a total of 11,218,200 shares at an average price of
$28.99 per share, for an aggregate purchase amount of $325.3 million. As of
March 31, 2001 the Company has approximately 1,491,800 shares that may be
repurchased under its fifth share repurchase program. Treasury shares may be
issued in connection with employee stock benefit plans and for other corporate
purposes. Shares issued out of treasury for the Company's stock incentive plans
during the three months ended March 31, 2001 totaled 33,090 shares. From March
2000, when the Company first started issuing shares out of treasury, through
March 31, 2001 the Company had issued 469,184 shares from treasury stock.
8. Supplemental Cash Flow Information
Three Months Ended
------------------------
March 31, April 1,
2001 2000
--------- --------
Cash paid for income taxes $11.1 $12.2
Cash paid for interest 4.5 0.6
Net cash used in operating activities for the first quarter ended March 31, 2001
was $66.3 million versus $22.9 million for the same period of 2000. The Company
used more cash to fund its operating activities during the first quarter of 2001
than during the first quarter of 2000 primarily to support its larger inventory
levels resulting from its acquisitions of both Just For Feet and J. Baker.
9. Note Payable
Effective May 25, 2000, the Company entered into a new three-year $325 million
revolving credit facility with a syndicate of banks led by Fleet National Bank.
This new facility replaced a $300 million revolving credit facility, which was
due to expire September 18, 2000. As of March 31, 2001, there was $211.7 million
outstanding under the Credit Facility with a weighted average interest rate of
6.7%. As of March 31, 2001, the Company classified $120.0 million of notes
payable outstanding under the credit facility as long-term debt.
10
Independent Auditors' Review Report
The Board of Directors and Shareholders
Footstar, Inc.
We have reviewed the consolidated condensed balance sheet of Footstar, Inc. and
subsidiary companies as of March 31, 2001 and the related consolidated condensed
statements of operations for the three-month periods ended March 31, 2001 and
April 1, 2000, respectively and condensed cash flows for the three-month periods
ended March 31, 2001 and April 1, 2000, respectively. These consolidated
condensed financial statements are the responsibility of the Company's
management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the consolidated condensed financial statements referred to above for
them to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Footstar, Inc. and subsidiary
companies as of December 30, 2000 and the related consolidated statements of
operations, shareholders' equity and comprehensive income, and cash flows for
the year then ended (not presented herein); and in our report dated February 12,
2001, we expressed an unqualified opinion on those consolidated financial
statements. In our opinion, the information set forth in the accompanying
consolidated condensed balance sheet as of December 30, 2000 is fairly stated,
in all material respects, in relation to the consolidated balance sheet from
which it has been derived.
/S/ KPMG LLP
New York, New York
April 20, 2001
11
FOOTSTAR, INC. AND SUBSIDIARY COMPANIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Unaudited)
The following discussion should be read in conjunction with the Consolidated
Condensed Financial Statements of the Company and notes thereto appearing
elsewhere in this report.
General
Three Months Ended
---------------------
March 31, April 1,
($ in millions) 2001 2000
--------- --------
Company:
Net sales $517.2 $439.7
Net sales % change from prior year 17.6% 0.1%
Same store sales % change(1) (4.2%) (3.5%)
Meldisco:
Net sales $276.6 $274.1
Net sales % change from prior year 0.9% 0.2%
Same store sales % change (8.8%) (0.4%)
% of consolidated net sales 53.5% 62.3%
Athletic:
Net sales $240.6 $165.6
Net sales % change from prior year 45.3% 0.0%
Same store sales % change(1) 4.3% (8.7%)
% of consolidated net sales 46.5% 37.7%
note: (1) Same store sales do not include Just For Feet sales or J. Baker
sales since the acquired stores have not been operated by the
Company for twelve months.
Consolidated net sales for the first quarter ended March 31, 2001 were $517.2
million, an increase of 17.6% from net sales of $439.7 million for the same
period of 2000. Same store sales for the three-month period decreased 4.2%
compared to the first quarter of 2000. Meldisco's same store sales decreased
8.8% as a result of significantly colder weather in key Midwest and Northeast
markets during the latter part of the quarter that impacted sales of spring
product. In addition, the division sold fewer boots in the first quarter of 2001
than the prior year, primarily as a result of strong sales in the November to
December 2000 period. Strong sales of men's, women's and kid's Thom McAn product
partially offset the negative impact of the weather on Meldisco's same store
sales. Same store sales in the athletic segment for the three-month period
increased 4.3%, due to strong sales generated in men's footwear, led by sales in
the basketball and outdoor categories, improved sales of women's and kids'
product and the stabilization of the apparel business. Sales were negatively
impacted by the product recall of a key Nike running shoe, the Trunner.
12
FOOTSTAR, INC. AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Unaudited)
Cost of Sales and Expenses
Three Months Ended
---------------------
March 31, April 1,
(As a percent of net sales) 2001 2000
--------- --------
Cost of sales 71.6% 71.1%
Store operating, selling, general and
administrative expenses 26.0% 24.3%
Depreciation and amortization 2.3% 2.2%
Cost of Sales
Cost of sales for the first quarter of 2001, as a percent of net sales,
increased 50 basis points from the corresponding prior-year period due to lower
gross margins in the athletic segment as a result of apparel markdowns at Just
For Feet early in the quarter, planned increases in markdowns at Footaction and
poor leverage of store rent expense at Just For Feet. In the Meldisco segment,
margins were flat to last year.
Store Operating, Selling, General and Administrative Expenses
Store operating, selling, general and administrative ("SG&A") expenses, as a
percent of net sales, for the first quarter ended March 31, 2001, increased 170
basis points from the same prior-year period. The increase was primarily due to
the increased expenses in the athletic segment as a result of additional sales
promotion expenses at Just For Feet as well as higher expenses at Meldisco
related to the acquisition of the J. Baker business. The SG&A rate was also
negatively affected by the lower same store sales for the period, which had an
adverse impact on the leverage of fixed costs, particularly at the store level.
13
FOOTSTAR, INC. AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Unaudited)
Operating Profit
Three Months Ended
-------------------------------------
($ in millions) March 31, 2001 April 1, 2000
---------------- -----------------
Meldisco(1) $ 7.5 2.7% $12.8 4.7%
Athletic(1) (5.3) (2.2%) (0.1) (0.1%)
Corporate overhead (1.4) -- (2.2) --
----- -----
Total(1) $ 0.8 0.2% $10.5 2.4%
===== =====
note: (1) percentages represent percent of net sales of the respective entities.
Operating profit, as a percent of net sales, for the first quarter ended March
31, 2001 decreased 220 basis points over the same period of 2000. Meldisco's
operating profit as a percent of net sales decreased by 200 basis points due to
significantly colder weather in key Midwest and Northeast markets during the
latter part of the quarter that impacted sales of spring product. Additionally
operating profit was negatively impacted by transition expenses related to the
acquisition of the J. Baker business totaling approximately $2 million.
Operating profit at the athletic segment for the first quarter ended March 31,
2001 decreased compared to the prior-year period due to the impact of the
Trunner recall at Footaction and markdowns early in the quarter at Just For
Feet to clear fourth quarter apparel inventory.
14
FOOTSTAR, INC. AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Unaudited)
Liquidity and Financial Condition
The Company's quarter-end inventories increased by approximately 39% versus the
same quarter of 2000, primarily as a result of artificially depressed inventory
levels at the end of the first quarter last year in the athletic segment,
reflecting the fact that the Company had just closed on the Just For Feet
acquisition. The remainder of the increase is attributable to the acquisition of
the J. Baker inventories.
In addition to inventories, the majority of the J. Baker acquired assets
represent store fixtures, which have been classified within property and
equipment, net and intellectual property, license agreements and goodwill
classified within goodwill, deferred charges and other noncurrent assets.
As of March 31, 2001, the Company had $91.7 million in borrowings, classified as
notes payable and $384.4 million in borrowings, classified as long-term debt.
Net interest expense for the three months ended March 31, 2001 was $3.3 million
compared to $0.5 million for the same period of 2000. This increase was
primarily a result of the Company's acquisitions, capital expenditures, the
increased inventory levels and the purchase of the Company's headquarters
building.
Effective May 25, 2000, the Company entered into a new $325 million 3-year
revolving credit facility (the "Credit Facility") with a syndicate of banks led
by Fleet National Bank. The Credit Facility contains various operating
covenants, which, among other things, impose certain limitations on the
Company's ability to incur liens, incur indebtedness, merge, consolidate, make
capital expenditures or declare and make dividend payments. Under the Credit
Facility, the Company is required to comply with financial covenants relating to
debt and interest coverage. At the end of the quarter, the Company was in
compliance with these covenants.
The Company's businesses are seasonal in nature and therefore impacted by
weather conditions. Peak selling periods coincide with Christmas, the Easter
holiday and the back-to-school selling seasons. Working capital requirements
vary with seasonal business volume and inventory buildups, which occur prior to
the peak periods. The Company expects that its current cash, together with cash
generated from operations and credit facilities, will be sufficient to fund its
expected operating expenses, working capital needs, capital expenditures and
projected growth for the foreseeable future. The Company believes its current
borrowing capacity will allow it to take advantage of new growth and investment
opportunities.
The Company expects that it will retain all available funds for the operation
and expansion of its business, and does not anticipate paying any cash dividends
to shareholders in the foreseeable future. Under its arrangement with Kmart,
Meldisco will distribute annually to Kmart, a portion of profits representing
Kmart's minority interest in Meldisco subsidiaries.
15
FOOTSTAR, INC. AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Unaudited)
Capital expenditures for the three months ended March 31, 2001 were $8.7
million. Total capital expenditures for the entire 2001 fiscal year are
estimated to be approximately $90 million and are expected to be used for
projects that will improve asset productivity into the future including
upgrading the point of sale and back office systems in the athletic segment,
improving the allocation and replenishment applications in both the athletic and
Meldisco segments, and expanding our Mira Loma, California cross-docking
distribution center.
Forward-Looking Statements
This Report on Form 10-Q contains statements, which constitute forward-looking
statements within the meaning of The Private Securities Litigation Reform Act of
1995. These statements appear in a number of places in this Report as well as
the documents incorporated by reference and can be identified by the use of
forward-looking terminology such as "believe," "expect," "estimate," "plans,"
"may," "will," "should," "anticipates" or similar statements, or the negative
thereof or other variations. Such forward-looking statements include, without
limitation, statements relating to revenue projections, cost savings, capital
expenditures, future cash needs, improvements in infrastructure and operating
efficiencies. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements to be materially different from any future results, performance
or achievements expressed or implied by such forward-looking statements. Such
risks and uncertainties include, but are not limited to: uncertainties related
to the integration of new businesses, the ability of the Company to execute its
plans, the continued independence and financial health of the Company's
significant licensors, uncertainties related to consumer demand for footwear,
unseasonable weather, consumer acceptance of the Company's merchandise mix,
retail locations, product availability and the effect of competitive products
and pricing. Consequently, all of the forward-looking statements, internal and
external, are qualified by these cautionary statements, and there can be no
assurance that the actual results, performance or achievements will be realized.
The information contained in this Report including information under the section
captioned "Management's Discussion and Analysis of Financial Condition and
Results of Operations," as well as information contained under the caption "Risk
Factors" in other Company filings with the Securities and Exchange Commission,
identifies important factors that could cause such results, performance or
achievements not to be realized. The Company undertakes no obligation to update
forward-looking statements to reflect events or circumstances after the date
such statements were made.
16
FOOTSTAR, INC. AND SUBSIDIARY COMPANIES
ITEM 3. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
(Unaudited)
Derivatives
The Company is not materially exposed to changes in the underlying values of its
assets or liabilities nor is it materially exposed to changes in the value of
expected foreign currency cash flows. Therefore, the Company has not engaged in
the purchase or sale of any derivative instruments.
Interest Rates
The Company's investment and debt portfolios are primarily seasonal in nature.
The Company, from time to time, undertakes short-term borrowings to finance
working capital, acquisitions and other corporate borrowing requirements. The
Company's peak borrowing periods coincide with peak inventory purchases.
Foreign Exchange
The Company exited Meldisco's European business in 1999. Translating the income
statements of these operations for the effects of foreign currency changes does
not have a material impact on the Company's financial positions. The Company
does not have material exposure to cash flows denominated in foreign currency,
nor have net foreign exchange gains or losses been material to operating results
in the past three reporting periods.
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Part II. - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
a) EXHIBIT INDEX
Exhibit
15 Accountants' Acknowledgment
b) Reports -
Reports on Form 8-K - A report on Form 8-K was filed on February 1, 2001
relating to Regulation FD disclosure.
A report on Form 8-K was filed on February 16, 2001 announcing the
Company's acquisition of the footwear assets and license agreements from
J. Baker, Inc.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FOOTSTAR, INC.
By: /s/ J.M. ROBINSON
---------------------------------
J.M. Robinson
Chairman of the Board,
Chief Executive Officer and President
Date: May 14, 2001
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