SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported) November 17, 2000
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FOOTSTAR, INC.
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(Exact Name of Registrant as Specified in Charter)
Delaware 1-11681 22-3439443
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(State or Other Jurisdiction (Commission (I.R.S. Employer
of Incorporation) File Number) Identification No.)
933 MacArthur Boulevard, Mahwah, New Jersey 07430
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (201) 934-2000
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INFORMATION TO BE INCLUDED IN THE REPORT
Item 5. Other Events.
Footstar to Acquire Footwear Assets and License Agreements of J. Baker, Inc.
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On November 17, 2000, Footstar, Inc. ("Footstar" or the "Company")
announced that it has entered into an agreement to acquire the footwear assets
and related license agreements of J. Baker, Inc., the footwear and apparel
retailer, for a total purchase price of $57.8 million, subject to customary
closing conditions and regulatory approvals. The purchase price is subject to an
adjustment based on inventory count and inventory aging as of the closing date.
The Company also outlined its financial expectations for the acquisition and for
its performance in 2001.
The transaction, which the Company currently expects to be accretive to
2001 earnings by approximately $0.10 per diluted share, provides Footstar with
new growth opportunities in its Meldisco division that are expected to
accelerate the Company's long-term growth rate. With this acquisition, Meldisco
becomes the major operator of licensed footwear departments across the country,
and Footstar reinforces its position as one of the nation's largest and most
successful footwear companies.
Transaction Overview
J. Baker currently operates 1,318 footwear departments under 16 license
agreements with retail chains throughout the country. These footwear departments
are located in 43 states, with the heaviest concentration in the northeast and
midwest regions. Under the terms of the agreement, Footstar will acquire the
assets used in J. Baker's licensed footwear businesses, including all inventory,
store furniture and fixtures, intellectual property and license agreements.
J. Baker operates three footwear businesses: Core, Budget and Better.
The Core business sells discount footwear in 616 stores under agreements with
Ames, Bradlees, Ann & Hope, Biggs, Shoppers World, Auchan, Playtogs,
NorthCountry and Forman Mills. The Budget business sells lower-priced basic and
seasonal footwear and operates 493 departments under agreements with Allied,
Roses, Maxway, Super 10, Super Saver and Express Roses. The Better business
offers higher-end footwear, including name brands, in 209 footwear departments
under agreements with Stein Mart, Speigel, Today's Man, and Gottschalks.
The assets to be acquired by Footstar, including approximately $140
million of retail inventory, are expected to generate approximately $280 million
in additional annual sales for Meldisco, which comes on top of the approximately
$1.3 billion in sales that analysts currently expect for Footstar's Meldisco
division in 2001. Footstar's current expectations assume the J. Baker businesses
will operate at a 2% to 3% operating margin in 2001. The Company believes there
is significant potential to increase the operating margin performance to between
7% and 9% over time, as the Company leverages its shared operating model,
including its global sourcing organization, state-of-the-art distribution
capabilities and existing infrastructure, to improve the operating efficiency of
the assets it is acquiring. Footstar's Meldisco division has a proven track
record operating licensed footwear departments and currently delivers operating
margins of close to 11%.
The Company plans to finance the acquisition through bank borrowings
under its existing credit facility. The transaction is expected to close on
February 3, 2001. Footstar intends to operate the new businesses through its
Footstar Retail Services group, which operates all of the non-Kmart related
businesses in the Company's Meldisco division. Financial results for the new
businesses will be reported as part of the Meldisco segment.
Current Outlook
The Company recently expressed comfort with current analysts' earnings
estimates for 2001 of $3.52 per share without the effect of this acquisition.
Footstar currently expects the acquisition to add approximately $0.10 to diluted
earnings per share in 2001, including the effects of all transition expenses,
and approximately $0.25 in 2002.
Footstar's earnings targets for 2001 are based on the above-stated
sales and margin expectations for the newly acquired businesses, plus certain
assumptions for its existing businesses. The Company's athletic segment is
currently expected to generate a comparable store sales increase in the high
single digit range for 2001. Sales for the Just For Feet division will be
included in the comparable store sales calculation beginning in May 2001.
Operating margins for the athletic segment are expected to be approximately
4.5%.
Meldisco is expected to generate a comparable store sales increase in
the low single digit range in 2001. Sales generated by the newly acquired assets
will be treated as sales of new stores and, therefore, will not be included
within the comparable store sales base for Meldisco until they have been part of
Footstar's operations for twelve months. Operating margins, including earnings
generated by the new businesses, are expected to be approximately 10% in 2001.
These results assume a mid-single digit comparable store sales gain for Footstar
overall, with an operating margin of approximately 7.5%.
Provided the Company is able to achieve the stated sales and margin
levels, earnings per share in 2001 are expected to be in the range of $3.60 to
$3.66.
For the first quarter of 2001, net earnings are expected to be below
last year's level due to the timing of transition expenses related to the J.
Baker acquisition, as well as increased interest expense related to the J. Baker
acquisition and the Just For Feet acquisition completed in March 2000. By
quarter, Footstar expects earnings per share to be in a range of: $0.04 to $0.06
in the first quarter; $1.00 to $1.01 in the second quarter; $1.34 to $1.35 in
the third quarter; and $1.22 to $1.24 in the fourth quarter.
This Current Report and the press release dated November 17, 2000,
particularly the statements in the outlook section, contain forward-looking
statements within the meaning of The Private Securities Litigation Reform Act of
1995 relating to the Company's earnings, sales, operating margins, transition
plans and expenses. All of these statements are based on our current
expectations, assumptions, estimates and projections. The Company assumes no
obligation for updating any such statements to reflect actual results, changes
in assumptions or changes in other factors. These statements involve certain
significant risks and uncertainties including those related to the ability of
the Company to execute its acquisition plans and successfully and profitably
integrate the J. Baker businesses and to achieve expected revenue growth and
profitability in the acquired J. Baker businesses, the ability to increase the
operating margin of such new businesses, the success of the Company's brand
awareness and marketing programs, store traffic, the effect of competitive
products and pricing, and timing and levels of markdowns. These and other
important factors that may cause actual results to differ materially from such
forward-looking statements may be included in the Company's Current Annual
Report on Form 10-K filed with the Securities and Exchange Commission as well as
other periodic reports filed by the Company with the Securities and Exchange
Commission.
J. Baker operates retail businesses in large, under-served niche retail
markets. The Company operates 600 retail stores, three catalog titles and two
commerce-enabled websites selling apparel and accessories for big and tall men
under the Casual Male Big & Tall, Repp Ltd. Big & Tall and B&T Factory Store
trade names. The Company offers rugged workwear and healthcare apparel through
its 70 Work 'n Gear stores, and through its direct marketing and e-commerce
channels. The Company also operates 1,318 licensed footwear departments in
discount, department and specialty stores nationwide through its JBI Footwear
and Morse Shoe divisions.
Footstar, headquartered in Mahwah, New Jersey, is a leading footwear
retailer. As of October 28, 2000, the Company's Footaction division,
headquartered in Irving, Texas, operated 550 mostly mall-based stores in 43
states, Puerto Rico and the U.S. Virgin Islands. The Company's Just For Feet
division, headquartered in Mahwah, New Jersey, operated 89 superstores located
predominantly in the Southern half of the country. Both divisions sell branded
athletic footwear and apparel. The Company's Meldisco division is a leader in
the discount footwear segment, operating 2,473 licensed footwear departments
(2,405 licensed footwear departments, excluding the 72 stores that Kmart
announced for closing) primarily in Kmart stores.
A copy of the press release dated November 17, 2000 is attached hereto
as Exhibit 99.1.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(c) Exhibits.
Exhibit 99.1 Press Release of Footstar, Inc. dated November 17, 2000.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
FOOTSTAR, INC.
MAUREEN RICHARDS
Dated: November 17, 2000 By:
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Name: Maureen Richards
Title: Vice President, General Counsel and
Corporate Secretary
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EXHIBIT INDEX
Exhibit 99.1 Press Release of Footstar, Inc. dated November 17, 2000.
