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 July 4, 1998
Commission File Number 1-11681
FOOTSTAR, INC.
(Exact Name of Registrant as specified in its charter)
Delaware 22-3439443
(State or other Jurisdiction of (I.R.S. Employer Identification Number)
Incorporation or Organization)
933 MacArthur Boulevard, Mahwah, New
Jersey 07430 (Address of principal
executive offices) (Zip Code)
(201) 934-2000
(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 July 4, 1998
----- ------------------------------
Common Stock, $.01 par value 24,536,262
1
<PAGE>
INDEX
Part I. - Financial Information Page No.
--------
Consolidated Condensed Statements of Operations -
Three and Six Months Ended July 4, 1998 and June 28, 1997 3
Consolidated Condensed Balance Sheets -
July 4, 1998 and January 3, 1998 4
Consolidated Condensed Statements of Cash Flows -
For Six Months Ended July 4, 1998 and June 28, 1997 5
Notes to Consolidated Condensed Financial Statements 6 - 8
Management's Discussion and Analysis of
Financial Condition and Results of Operations 9 - 14
Review by Independent Auditors 15
Exhibit 1 - Independent Auditors' Review Report 16
Part II. - Other Information
Item 4 - Submission of Matters to a Vote of Security Holders 17
Item 6 - Exhibits and Reports on Form 8-K 18
2
<PAGE>
FOOTSTAR, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
($ in millions, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------------------- --------------------------------------
July 4, 1998 June 28, 1997 July 4, 1998 June 28, 1997
---------------- -------------- ----------------- ---------------
<S> <C> <C> <C> <C>
Net sales $462.6 $426.0 $863.5 $802.9
Cost of sales 312.9 289.4 599.1 559.9
------ ------ ------ ------
Gross profit 149.7 136.6 264.4 243.0
Store operating, selling, general and
administrative expenses 94.6 89.2 192.8 180.6
Depreciation and amortization 8.3 7.8 16.6 15.4
------ ------ ------ ------
Operating profit 46.8 39.6 55.0 47.0
Interest income, net (0.6) 0.2 0.2 1.6
------ ------ ------ ------
Income before income taxes and minority
interests 46.2 39.8 55.2 48.6
Provision for income taxes 14.6 13.0 17.6 16.0
------ ------ ------ ------
Income before minority interests 31.6 26.8 37.6 32.6
Minority interests in net income 14.2 11.7 14.9 12.5
====== ====== ====== ======
Net income $17.4 $15.1 $22.7 $20.1
====== ====== ====== ======
Weighted average shares outstanding:
Basic 24.6 30.3 25.7 30.4
====== ====== ====== ======
Diluted 25.1 30.4 26.0 30.5
====== ====== ====== ======
Earnings per share:
Basic $ 0.71 $ 0.50 $ 0.89 $ 0.66
====== ====== ====== ======
Diluted $ 0.69 $ 0.50 $ 0.87 $ 0.66
====== ====== ====== ======
</TABLE>
See accompanying notes to consolidated condensed financial statements.
3
<PAGE>
FOOTSTAR, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED CONDENSED BALANCE SHEETS
($ in millions, except for share data)
July 4, January 3,
1998 1998
(Unaudited) (Audited)
----------- ---------
ASSETS
Current Assets:
Cash and cash equivalents $ 11.9 $ 152.2
Accounts receivable, net 51.9 43.9
Inventories 330.9 284.5
Prepaid expenses and other current assets 45.4 48.4
-------- --------
Total current assets 440.1 529.0
Property and equipment, net 221.2 201.9
Goodwill, net 27.1 27.5
Deferred charges and other non-current assets 11.4 12.6
-------- --------
Total assets $ 699.8 $ 771.0
======== ========
LIABILITIES and SHAREHOLDERS' EQUITY Current
Current Liabilities:
Accounts payable $ 100.0 $ 95.4
Accrued expenses 113.6 126.6
Income taxes payable 21.6 21.9
Notes payable 49.0 --
-------- --------
Total current liabilities 284.2 243.9
Other long-term liabilities 58.1 59.5
Minority interests in subsidiaries 43.7 65.1
-------- --------
Total liabilities 386.0 368.5
-------- --------
Shareholders' equity:
Common stock $.0l par value: 100,000,000
shares authorized, 30,586,262 and 30,558,107
shares issued 0.3 0.3
Additional paid-in capital 334.7 333.6
Accumulated other comprehensive income (loss) (0.2) (0.4)
Treasury Stock: 6,050,000 and 2,685,900
shares at cost (179.2) (66.3)
Unearned compensation (4.6) (5.1)
Retained earnings 162.8 140.4
-------- --------
Total shareholders' equity 313.8 402.5
-------- --------
Total liabilities and shareholders' equity $ 699.8 $ 771.0
======== ========
See accompanying notes to consolidated condensed financial statements.
4
<PAGE>
FOOTSTAR, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
($ in millions)
Six Months Ended
-----------------------------
July 4, 1998 June 28, 1997
------------ -------------
Net cash used in operating activities $ (4.8) $ (18.2)
-------- --------
Cash flows used in investing activities:
Additions to property and equipment (35.3) (34.9)
-------- --------
Cash flows used in financing activities:
Dividends paid to minority interests (36.3) (35.9)
Decrease in book overdrafts -- (6.3)
Treasury stock acquired (112.9) (33.9)
Proceeds from notes payable 49.0 --
Other -- 1.2
-------- --------
Net cash used in financing activities (100.2) (74.9)
-------- --------
Net decrease in cash and cash equivalents (140.3) (128.0)
Cash and cash equivalents at beginning
of period 152.2 164.6
-------- --------
Cash and cash equivalents at end of period $ 11.9 $ 36.6
======== ========
See accompanying notes to consolidated condensed financial statements.
5
<PAGE>
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 July 4, 1998 and the results of operations for the
three and six-month periods ended July 4, 1998 and June 28, 1997 and cash flows
for the six months ended July 4, 1998 and June 28, 1997. 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.
The consolidated condensed financial statements of the Company should be read in
conjunction with the financial statements of the Company included in the
Company's 1997 Annual Report on Form 10-K. Certain reclassifications have been
made to the 1997 consolidated condensed financial statements to conform to the
1998 presentation.
2. Accounting Pronouncements
The Company adopted Statement of Financial Accounting Standards No. 130,
Reporting Comprehensive Income ("SFAS No.130") effective January 4, 1998. 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. The components of
comprehensive income for the three and six months ended July 4, 1998 and June
28, 1997 are as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
-------------------------------------------------------------------------
July 4, 1998 June 28, 1997 July 4, 1998 June 28, 1997
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
Comprehensive Income:
Net income $ 17.4 $ 15.1 $ 22.7 $ 20.1
Other comprehensive income (loss) -
Foreign currency adjustment -- -- 0.2 (0.2)
------ ------ ------ ------
Comprehensive income $ 17.4 $ 15.1 $ 22.9 $ 19.9
====== ====== ====== ======
</TABLE>
6
<PAGE>
FOOTSTAR, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
($ in millions, except per share data)
3. Earnings per Share
The table below shows calculated earnings per share in accordance with SFAS No.
128.
Three Months Ended Six Months Ended
July 4, 1998 July 4, 1998
------------------ ----------------
Basic EPS Computation
Numerator:
Net Income $ 17.4 $ 22.7
========== ==========
Denominator:
Shares outstanding at
beginning of year 27,872,207 27,872,207
Weighted average shares
repurchased 3,267,152 2,206,778
---------- ----------
Weighted average common
shares outstanding 24,605,055 25,665,429
========== ==========
Basic EPS $ 0.71 $ 0.89
========== ==========
Diluted EPS computation
Numerator:
Net Income $ 17.4 $ 22.7
========== ==========
Denominator:
Shares outstanding at
beginning of year 27,872,207 27,872,207
Weighted average shares
repurchased 3,267,152 2,206,778
---------- ----------
Weighted average common
shares outstanding 24,605,055 25,665,429
Dilutive effect of
stock options 474,561 344,156
---------- ----------
Total shares 25,079,616 26,009,585
========== ==========
Diluted EPS $ 0.69 $ 0.87
========== ==========
4. Purchase of Treasury Stock
During the second quarter, ended July 4, 1998, the Company purchased 724,500
shares of its stock in the open market at an average price of $40.21 per share
for an aggregate purchase amount of $29.1 million. As of July 4, 1998, the
Company had purchased a total of 6,050,000 shares at an average price of $29.61
for an aggregate purchase amount of $179.2 million. The treasury shares may be
issued in connection with employee stock incentives or for other corporate
purposes.
7
<PAGE>
FOOTSTAR, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
($ in millions, except per share data)
5. Supplemental Cash Flow Information
Six Months Ended
-------------------------------------
July 4, 1998 June 28, 1997
------------------ ----------------
Cash paid for income taxes $19.7 $4.7
Cash paid for interest $ 1.6 $0.9
8
<PAGE>
FOOTSTAR, INC. AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Condensed
Consolidated Financial Statements of the Company and notes thereto appearing
elsewhere in this report.
General
Footstar, Inc. (the "Company") became an independent company after the Board of
Directors of Melville Corporation ("Melville") approved the spin-off of its
footwear operations. The spin-off was completed with the distribution (the
"Distribution") on October 12, 1996 to the Melville shareholders of record on
October 2, 1996 of all the shares of the Company.
Three Months Ended
--------------------------
July 4, June 28,
($ in millions) 1998 1997
---------- -----------
Company:
Net Sales $462.6 $426.0
Net sales % change from prior year 8.6% 1.7%
Same store sales % change 3.9% (2.8%)
Meldisco:
Net Sales $316.6 $301.7
Net sales % change from prior year 4.9% (2.3%)
Same store sales % change 4.4% (2.0%)
% of consolidated net sales 68.4% 70.8%
Footaction:
Net Sales $146.0 $124.3
Net sales % change from prior year 17.4% 12.7%
Same store sales % change 2.7% (5.2%)
% of consolidated net sales 31.6% 29.2%
Consolidated net sales for the second quarter ended July 4, 1998, were $462.6
million, an increase of 8.6% from net sales of $426.0 million for the same
period of 1997. Same store sales for the three month period increased 3.9%
compared to the second quarter in 1997. This increase in sales resulted in part
from the shift of Easter to the second quarter in 1998 from the first quarter in
1997 with significant sales increases in both divisions. Footaction posted a
17.4% sales increase over the prior year driven by sales of men's running shoes
and Jordan related product, and a 23.6% increase in average square footage,
including an increase in store count of 47 for a total of 560 stores. Meldisco
ended the quarter with a 4.9% sales increase and a 4.4% gain in same store sales
due in part to the warm weather which drove high sales of sandals, canvas and
beachwear and the Easter shift.
9
<PAGE>
FOOTSTAR, INC. AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Six Months Ended
--------------------------
July 4, June 28,
($ in millions) 1998 1997
---------- -----------
Company:
Net Sales $863.5 $802.9
Net sales % change from prior year 7.5% 6.2%
Same store sales % change 1.7% 1.0%
Meldisco:
Net Sales $552.9 $540.9
Net sales % change from prior year 2.2% 1.0%
Same store sales % change 0.3% 0.8%
% of consolidated net sales 64.0% 67.4%
Footaction:
Net Sales $310.6 $262.0
Net sales % change from prior year 18.5% 18.9%
Same store sales % change 4.9% 1.6%
% of consolidated net sales 36.0% 32.6%
Net sales for the six months ended July 4, 1998, were $863.5 million, an
increase of 7.5% from net sales of $802.9 million for the 1997 comparable
period, while same store sales for the six months increased by 1.7%. Footaction
posted an 18.5% sales increase over the prior year and a 4.9% increase in
comparable store sales. Meldisco showed a 2.2% sales increase and a 0.3% gain in
same store sales over last year's comparable six-month period.
10
<PAGE>
FOOTSTAR, INC. AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Cost of Sales and Expenses
Three Months Ended
--------------------------
July 4, June 28,
(As a percent of net sales) 1998 1997
---------- -----------
Cost of sales 67.6% 67.9%
Store operating, selling, general and
administrative expenses 20.4% 20.9%
Depreciation and amortization 1.8% 1.8%
Six Months Ended
--------------------------
July 4, June 28,
(As a percent of net sales) 1998 1997
---------- -----------
Cost of sales 69.4% 69.7%
Store operating, selling, general and
administrative expenses 22.3% 22.5%
Depreciation and amortization 1.9% 1.9%
Cost of Sales
Cost of sales for the second quarter of 1998, as a percent of net sales,
decreased 30 basis points from the corresponding prior-year period. Meldisco, as
a percent of sales, experienced higher gross margin in the second quarter of
1998 than in the same 1997 period due to higher markup, better buying, lower
inbound freight cost and lower markdowns. Footaction's gross margin, as a
percent of sales, decreased due to a significantly more promotional environment
and reverse leverage on occupancy costs.
Cost of sales for the six months ended July 4, 1998, as a percent of net sales,
also decreased 30 basis points from the comparable 1997 period. This decrease
was due to the improved Meldisco margin which was offset in part by increased
markdowns and higher occupancy costs at Footaction.
11
<PAGE>
FOOTSTAR, INC. AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Store Operating, Selling, General and Administrative Expenses
Store operating, selling, general and administrative expenses ("SG&A"), as a
percent of sales, for the second quarter and six months ended July 4, 1998 were
50 basis points lower and 20 basis points lower, respectively, than the
comparable periods of 1997. Meldisco's SG&A decreased by 70 basis points during
the quarter and 10 basis points during the first six months of 1998 due mainly
to a decrease in occupancy costs. Footaction's expenses decreased by 80 basis
points in the second quarter and 70 basis points during the first half of 1998
due to lower store selling, payroll, and other expenses.
Operating Profit
Three Months Ended
-----------------------------------------------
($ in millions) July 4, 1998 June 28, 1997
----------------- --------------------
Meldisco $40.7 12.8% $33.3 11.0%
Footaction 8.0 5.5% 8.3 6.7%
Corporate overhead (1.9) -- (2.0) --
----- -----
Total $46.8 10.1% $39.6 9.3%
===== =====
Six Months Ended
-----------------------------------------------
($ in millions) July 4, 1998 June 28, 1997
----------------- --------------------
Meldisco $42.5 7.7% $34.9 6.5%
Footaction 16.9 5.4% 16.4 6.3%
Corporate overhead (4.4) -- (4.3) --
----- -----
Total $55.0 6.4% $47.0 5.9%
===== =====
Note: percentages represent percent of net sales of the respective entities.
Operating profit for the second quarter and six month periods ended July 4, 1998
increased 18.2% and 17.0%, respectively, over the same periods of 1997. This
improvement was attributable to the Company's increased sales and improved gross
margin, coupled with its ability to leverage fixed costs.
12
<PAGE>
FOOTSTAR, INC. AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Financial Condition
Current assets at July 4, 1998 were lower as compared to January 3, 1998 due to
a lower cash balance, offset in part by higher inventories required to support
the growth of the Footaction business and increases in the accounts receivable
balances. At July 4, 1998, the Company's cash balance was $11.9 million,
representing a significant reduction from the year-end cash balance of $152.2
million. This reduction was due in part to the Company's execution of its stock
repurchase program. During the six months ended July 4, 1998, the Company
purchased 3,364,100 shares of its own stock for a total purchase amount of
$112.9 million
The increase in current liabilities at July 4, 1998 compared to January 3, 1998
was due to an increase in notes payable along with an increase in accounts
payable, partially offset by a reduction in accrued expenses. As of July 4,
1998, the Company had $49.0 million in unsecured borrowings, classified as notes
payable. The Company has a $300 million unsecured revolving credit facility
("the Credit Facility"). 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 or declare and
make dividend payments. Under the Credit Facility, the Company is required to
comply with financial covenants relating to ratios of cash flow and fixed charge
coverage.
The Company's businesses are seasonal in nature. 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 occurring prior to the peak periods. The Company expects that its
current cash, together with cash generated from operations and the Credit
Facility, will be adequate to fund its operating expenses, working capital
needs, capital expenditures, and projected growth and expansion plans. The
Company's current borrowing capacity is sufficient to take advantage of 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 the Meldisco Subsidiaries.
Capital expenditures for the six months ended July 4, 1998 were $35.3 million
and are in line with the full year capital expenditure plan of $65.0 million.
These expenditures related primarily to the opening, remodeling, relocation or
expansion of Footaction stores, investments in strategic management information
systems and equipment for the Company's distribution systems.
The Company expects to open a fully operational shared Services' Center in the
fourth quarter of 1998. The new center will support our two businesses providing
shared back office support functions, including Accounts Payable, Store
Accounting, Inventory Management, Asset Protection, Payroll Services and certain
Systems' functions, creating increased efficiency with capacity for future
growth. The new facility will be located in Dallas, Texas.
13
<PAGE>
FOOTSTAR, INC. AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company also plans to operate shared distribution functions for the two
businesses, Meldisco and Footaction, from its existing state-of-the-art
distribution center located in Gaffney, South Carolina, beginning in the fourth
quarter of 1998. Footaction's distribution center, located in Dallas, Texas,
will be closed in the fourth quarter of 1998.
The Company has conducted a comprehensive review of its computer systems that
could be affected by the "Year 2000" issue and has developed an implementation
plan to address this issue. A significant aspect of this plan began in 1996 and
included the replacement of financial and operating systems. The Company
presently believes that, with the planned conversions to new software and
modifications to existing software and hardware, the Year 2000 problem will not
pose significiant operational problems for the Company's computer systems as so
modified and converted. The Company will utilize both internal and external
resources to convert to new systems and modify existing systems to be Year 2000
compliant. The Company expects its implementation plan to be completed on a
timely basis.
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" or "anticipates" or similar statements or the negative
thereof or other variations thereof. Such forward-looking statements include,
without limitation, statements made as to cost savings, 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. Consequently, all of the forward-looking statements
made herein are qualified by these cautionary statements, and there can be no
assurance that the actual results, performance or achievement will be realized.
The information contained in this Report 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.
14
<PAGE>
REVIEW BY INDEPENDENT AUDITORS
The July 4, 1998 and June 28, 1997 consolidated condensed financial statements
included in this filing on Form 10-Q have been reviewed by KPMG Peat Marwick
LLP, independent auditors in accordance with established professional standards
and procedures for such a limited review.
The report of KPMG Peat Marwick LLP, commenting on their review, is included
herein as Part I - Exhibit 1.
15
<PAGE>
Part 1 - Exhibit 1
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 July 4, 1998 and the related consolidated condensed
statements of operations for the three and six-month periods ended July 4, 1998
and June 28, 1997, respectively and cash flows for the six-month periods ended
July 4, 1998 and June 28, 1997, 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 general 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 January 3, 1998 and the related consolidated statements of
operations, shareholders' equity, and cash flows for the year then ended (not
presented herein); and in our report dated February 12, 1998, 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 January 3, 1998, is fairly stated, in all material respects, in
relation to the consolidated balance sheet from which it has been derived.
/S/KPMG Peat Marwick LLP
New York, New York
July 23, 1998
16
<PAGE>
Part II. - OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security Holders
The Company's Annual Meeting of Stockholders was held on May 12, 1998. The
stockholders elected all of management's nominees for the Board of Directors to
serve until the Annual Meeting of Stockholders in 2001 and ratified the
appointment of KPMG Peat Marwick LLP as the Corporation's auditors for fiscal
1998.
The voting results are as follows:
Election of Directors
Broker
For Withheld Non-Votes
----------------------------------------------
Robert A. Davies, III 22,821,525 238,411 0
Terry R. Lautenbach 22,916,243 143,693 0
Ratification of Auditors Broker
For Withheld Abstain Non-Votes
--------------------------------------------------
23,040,118 5,103 14,715 0
17
<PAGE>
Item 6 - Exhibits and Reports on Form 8-K
a) EXHIBIT INDEX
Exhibit
3.1 Amended and Restated Articles of Incorporation of the
Registrant. Incorporated by reference to Exhibit 3.1 to
Footstar, Inc.'s Form 10/A Information Statement dated
September 26, 1996.
3.2 Amended and Restated by-laws of the Registrant. Incorporated
by reference to Exhibit 3.2 to Footstar, Inc.'s Form 10/A
Information Statement dated September 26, 1996.
15 Accountants' Acknowledgment
27 Financial Data Schedule
b) Reports on Form 8-K - None
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.
(REGISTRANT)
/S/Carlos E. Alberini
-------------------------------
Carlos E. Alberini
Senior Vice President and
Chief Financial Officer
Date: August 17, 1998
18
Exhibit 15
Accountants' Acknowledgment
Footstar, Inc.
Mahwah, New Jersey
Board of Directors:
Re: Registration Statements Numbers 33-20731 and 33-30011 on Form S-8
With respect to the subject registration statement, we acknowledge our awareness
of the use therein of our report dated July 23, 1998 related to our review of
interim financial information.
Pursuant to Rule 436(c) under the Securities Act of 1933, such report is not
considered a part of a registration statement prepared or certified by an
accountant or a report prepared or certified by an accountant within the meaning
of sections 7 and 11 of the Act.
/s/KPMG Peat Marwick LLP
New York, New York
August 17, 1998
19
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-02-1999
<PERIOD-END> JUL-04-1998
<CASH> 11,900
<SECURITIES> 0
<RECEIVABLES> 53,000
<ALLOWANCES> 1,100
<INVENTORY> 330,900
<CURRENT-ASSETS> 440,100
<PP&E> 319,300
<DEPRECIATION> 98,100
<TOTAL-ASSETS> 699,800
<CURRENT-LIABILITIES> 284,200
<BONDS> 0
0
0
<COMMON> 300
<OTHER-SE> 313,500
<TOTAL-LIABILITY-AND-EQUITY> 699,800
<SALES> 863,500
<TOTAL-REVENUES> 863,500
<CGS> 599,100
<TOTAL-COSTS> 599,100
<OTHER-EXPENSES> 209,400
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (200)
<INCOME-PRETAX> 55,200
<INCOME-TAX> 17,600
<INCOME-CONTINUING> 37,600
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 22,700
<EPS-PRIMARY> .89
<EPS-DILUTED> .87
</TABLE>
