<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
F O R M 10 - Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 29, 2000
Commission file no. 1-10299
VENATOR GROUP, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
New York 13-3513936
(State or other jurisdiction of incorporation (I.R.S. Employer Identification No.)
or organization)
112 W. 34th Street, New York, New York 10120
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number: (212) 720-3700
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO [ ]
Number of shares of Common Stock outstanding at May 26, 2000: 137,646,206
<PAGE> 2
VENATOR GROUP, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets 1
Condensed Consolidated Statements
of Operations 2
Condensed Consolidated Statements
of Comprehensive Income 3
Condensed Consolidated Statements
of Cash Flows 4
Notes to Condensed Consolidated
Financial Statements 5-9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-13
Part II. Other Information
Item 1. Legal Proceedings 14
Item 6. Exhibits and Reports on Form 8-K 14
Signature 15
Index to Exhibits 16-18
</TABLE>
<PAGE> 3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
VENATOR GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions, except shares)
<TABLE>
<CAPTION>
April 29, May 1, January 29,
2000 1999* 2000
---- ----- ----
(Unaudited) (Unaudited) (Audited)
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents .................... $ 54 $ 13 $ 162
Restricted cash .............................. 90 -- --
Merchandise inventories ...................... 766 889 739
Assets held for disposal ..................... 47 -- 61
Net assets of discontinued operations ........ 13 101 13
Other current assets ......................... 122 205 114
------- ------- -------
1,092 1,208 1,089
Property and equipment, net .................... 782 984 809
Deferred taxes ................................. 315 357 317
Goodwill, net .................................. 149 169 151
Other assets ................................... 145 91 149
------- ------- -------
$ 2,483 $ 2,809 $ 2,515
======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Short-term debt .............................. $ 101 $ 274 $ 71
Accounts payable ............................. 249 276 233
Accrued liabilities .......................... 218 218 254
Current portion of repositioning
and restructuring reserves ................. 68 9 88
Current portion of reserve for
discontinued operations .................... 23 126 25
Current portion of long-term debt and
obligations under capital leases ........... 94 7 106
------- ------- -------
753 910 777
Long-term debt and obligations
under capital leases ......................... 312 513 312
Other liabilities .............................. 276 343 287
Shareholders' equity
Common stock and paid-in capital: 137,841,865;
137,303,156 and 137,542,104 shares,
respectively ................................ 341 332 337
Retained earnings ............................ 960 894 945
Accumulated other comprehensive loss ......... (157) (183) (142)
Less: Treasury stock at cost: 261,667;
59,350 and 100,000 shares, respectively ..... (2) -- (1)
------- ------- -------
Total shareholders' equity ..................... 1,142 1,043 1,139
------- ------- -------
$ 2,483 $ 2,809 $ 2,515
======= ======= =======
</TABLE>
See Accompanying Notes to Condensed Consolidated Financial Statements.
* 1999 quarterly information has been restated to reflect the change in method
for calculating the market-related value of pension plan assets.
-1-
<PAGE> 4
VENATOR GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in millions, except per share amounts)
<TABLE>
<CAPTION>
Thirteen weeks ended
April 29, May 1,
2000 1999*
---- -----
<S> <C> <C>
Sales ........................................... $ 1,108 $ 1,079
Costs and Expenses
Cost of sales ................................. 787 791
Selling, general and administrative expenses .. 258 256
Depreciation and amortization ................. 40 45
Interest expense, net ......................... 9 11
Other income .................................. (10) (6)
------- -------
1,084 1,097
------- -------
Income (loss) from continuing operations
before income taxes ........................ 24 (18)
Income tax expense (benefit) .................... 9 (7)
------- -------
Income (loss) from continuing operations ........ 15 (11)
Cumulative effect of accounting change,
net of income tax expense of $6 .............. -- 8
------- -------
Net income (loss) ............................... $ 15 $ (3)
======= =======
Basic earnings per share:
Income (loss) from continuing operations ..... $ 0.11 $ (0.08)
Cumulative effect of accounting change ....... -- 0.06
------- -------
Net income (loss) ............................ $ 0.11 $ (0.02)
======= =======
Weighted-average common shares outstanding ...... 137.6 136.7
Diluted earnings per share:
Income (loss) from continuing operations ..... $ 0.11 $ (0.08)
Cumulative effect of accounting change ....... -- 0.06
------- -------
Net income (loss) ............................ $ 0.11 $ (0.02)
======= =======
Weighted-average common shares outstanding
assuming dilution ............................ 138.5 136.7
</TABLE>
See Accompanying Notes to Condensed Consolidated Financial Statements.
* 1999 quarterly information has been restated to reflect the change in method
for calculating the market-related value of pension plan assets.
-2-
<PAGE> 5
VENATOR GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(in millions)
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<CAPTION>
Thirteen weeks ended
--------------------
April 29, May 1,
2000 1999*
---- -----
<S> <C> <C>
Net income (loss) ..................................... $ 15 $ (3)
Other comprehensive income (loss), net of tax
Foreign currency translation adjustments arising
during the period, net of deferred tax (benefit)
expense of $(9) and $3, respectively ............. (15) 4
---- -----
Comprehensive income .................................. $ - $ 1
==== ====
</TABLE>
See Accompanying Notes to Condensed Consolidated Financial Statements.
* 1999 quarterly information has been restated to reflect the change in method
for calculating the market-related value of pension plan assets.
-3-
<PAGE> 6
VENATOR GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in millions)
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<CAPTION>
Thirteen weeks ended
April 29, May 1,
2000 1999*
---- -----
<S> <C> <C>
From Operating Activities:
Net income (loss) .................................................................... $ 15 $ (3)
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities of continuing operations:
Cumulative effect of accounting change, net of tax .................................. -- (8)
Depreciation and amortization ....................................................... 40 45
Gains on sales of assets and investments ............................................ (6) --
Gains on sales of real estate ....................................................... (4) (6)
Deferred income taxes ............................................................... (1) (14)
Change in assets and liabilities:
Merchandise inventories ........................................................... (32) (51)
Accounts payable and other accruals ............................................... (17) (25)
Repositioning and restructuring reserves .......................................... (20) (4)
Other, net ........................................................................ 7 (61)
----- -----
Net cash used in operating activities of continuing operations ....................... (18) (127)
----- -----
From Investing Activities:
Proceeds from sales of real estate ................................................... 2 7
Capital expenditures ................................................................. (18) (54)
----- -----
Net cash used in investing activities of continuing operations ....................... (16) (47)
----- -----
From Financing Activities:
Cash restricted for repayment of long-term debt ...................................... (90) --
Increase in short-term debt .......................................................... 30 24
Reduction in long-term debt and capital lease obligations ............................ (13) (2)
Issuance of common stock ............................................................. 2 4
----- -----
Net cash (used in) provided by financing activities of continuing operations ......... (71) 26
----- -----
Net Cash used in Discontinued Operations ............................................... (4) (29)
Effect of exchange rate fluctuations on Cash and Cash Equivalents ...................... 1 (3)
----- -----
Net change in Cash and Cash Equivalents ................................................ (108) (180)
Cash and Cash Equivalents at beginning of year ......................................... 162 193
----- -----
Cash and Cash Equivalents at end of interim period ..................................... $ 54 $ 13
===== =====
Cash paid during the period:
Interest ............................................................................. $ 2 $ 5
Income taxes ......................................................................... $ 16 $ 14
</TABLE>
See Accompanying Notes to Condensed Consolidated Financial Statements.
* 1999 quarterly information has been restated to reflect the change in method
for calculating the market-related value of pension plan assets.
-4-
<PAGE> 7
VENATOR GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
should be read in conjunction with the Notes to Consolidated Financial
Statements contained in the Registrant's Form 10-K for the year ended January
29, 2000, as filed with the Securities and Exchange Commission (the "SEC") on
April 21, 2000. Certain items included in these statements are based on
management's estimates. In the opinion of management, all material adjustments,
which are of a normal recurring nature, necessary for a fair presentation of the
results for the interim periods have been included. The results for the thirteen
weeks ended April 29, 2000 are not necessarily indicative of the results
expected for the year.
Cumulative Effect of Change in Accounting Principle
In the fourth quarter of 1999, the Registrant adopted a preferred method
for calculating the market-related value of its U.S. pension plan assets used in
determining annual pension expense. The change was accounted for as if it had
occurred at the beginning of the first quarter of 1999 and accordingly,
quarterly information presented for 1999 has been restated to reflect this
change. The impact of this change resulted in a non-cash benefit in 1999 of
approximately $14 million before-tax, or $0.06 per diluted share, representing
the cumulative effect of the accounting change related to years prior to 1999.
The change resulted in lower pension expense in 1999 of $4.5 million before-tax,
or $0.02 per diluted share as follows: $0.8 million in each of the first and
second quarters, $1.8 million in the third quarter and $1.1 million in the
fourth quarter.
1999 Restructuring
During the second quarter of 1999, the Registrant recorded a restructuring
charge of $64 million before-tax or $39 million after-tax, in connection with
its plan to sell or liquidate eight non-core businesses: The San Francisco Music
Box Company, Randy River Canada, Foot Locker Outlets, Colorado, Team Edition,
Going To The Game!, Weekend Edition and Burger King franchises. Major components
of the charge included $24 million for leasehold and real estate disposition
costs, $19 million for fixed asset and other asset impairments, $12 million for
inventory markdowns and $9 million for other exit costs. The inventory markdowns
of $12 million were included in cost of sales while the remaining $52 million
restructuring charge was included in operating expenses. The Registrant recorded
an additional charge to the reserve of $3 million in the third quarter of 1999
relating to fixed asset and real estate disposition costs and a reduction of $4
million in the fourth quarter of 1999 relating to better than anticipated real
estate disposition costs. In the first quarter of 2000 the Registrant recorded
an additional charge of $5 million related to the disposal of the remaining
businesses. Disposition activity of approximately $5 million charged to the
reserve included $3 million in leasehold and real estate disposition costs, $1
million for the loss on disposal of Randy River Canada and $1 million in
severance and other costs. The $24 million reserve balance at April 29, 2000
reflects estimated lease costs of $14 million and other disposition costs of $10
million, which will be substantially utilized in 2000.
In the fourth quarter of 1999, the Registrant announced a further
restructuring plan and recorded a charge of $92 million before-tax or $56
million after-tax. The Registrant planned to close 358 under-performing stores
in the United States and Canada (including the entire Northern Getaway and
Northern Elements formats in the United States) and its Foot Locker stores in
Asia, to reduce sales support and corporate staff by over 30 percent and to
close its distribution center in Maumelle, Arkansas.
As of January 29, 2000, 72 stores included in the accelerated
store-closing program had been closed. During the first quarter of 2000, 215
under-performing stores were closed and the remaining 71 stores are expected to
close during the balance of the year. Real estate disposition costs charged to
the reserve during the first quarter of 2000 amounted to approximately $4
million. The reserve balance of $34 million at April 29, 2000 represents
leasehold and real estate disposition costs of $33 million and $1 million in
severance costs to eliminate approximately 3,100 store positions. Approximately
2,500 positions have been eliminated in the United States and Canada as of
April 29, 2000. All remaining Foot Locker stores in Asia were closed during the
first quarter of 2000 and real estate and severance costs of $1 million were
charged to the reserve. The reserve balance of $2 million at April 29, 2000
primarily reflects real estate disposition costs.
-5-
<PAGE> 8
In connection with the reduction of sales support and corporate staff,
approximately 340 of the 400 positions have been eliminated and the related
severance costs reduced the reserve from $14 million at January 29, 2000 to $5
million at April 29, 2000. The Registrant has entered into an agreement to
sublease its Maumelle distribution center earlier than anticipated and to sell
the associated fixed assets, which had been fully impaired in the fourth
quarter of 1999, for proceeds of approximately $3 million. The Registrant
recorded a reduction to the reserve of $5 million in connection with the
agreement and accordingly, there was no reserve balance as of April 29, 2000.
The anticipated proceeds from the sale of the fixed assets will be used to pay
the costs related to severance payments of $1 million to eliminate
approximately 200 positions and real estate and other costs of $2 million.
Included in the consolidated results of operations are sales of $36
million and $76 million, and operating losses of $12 million and $24 million for
the thirteen weeks ended April 29, 2000 and May 1, 1999, respectively, for the
above non-core businesses and under-performing stores.
Inventory, fixed assets and other long-lived assets of all businesses to
be exited have been valued at the lower of cost or net realizable value. These
assets, totaling $47 million and $61 million have been reclassified as assets
held for disposal in the Condensed Consolidated Balance Sheets as of April 29,
2000 and January 29, 2000, respectively.
Long-Term Debt
The Registrant purchased $100 million of the $200 million 7.0 percent
debentures, which are due June 1, 2000, at various dates throughout January
2000. As of May 18, 2000, the Registrant purchased an additional $13 million of
the 7.0 percent debentures and set aside funds for the repayment of the
remaining $87 million due on June 1, 2000. As of April 29, 2000, $90 million
restricted cash related to the funds set aside for the repayment of the
remaining debentures.
Other Income
Other income of $10 million for the first quarter of 2000 included
corporate real estate gains of $4 million related to property sales and a $6
million gain associated with the recent demutualization of the Metropolitan Life
Insurance Company. In the first quarter of 1999 other income reflected corporate
real estate gains of $6 million.
Segment Information
Sales and operating results for the Registrant's reportable segments for
the thirteen weeks ended April 29, 2000 and May 1, 1999, respectively, are
presented below. Operating results reflect income (loss) from continuing
operations before income taxes, excluding corporate expense, corporate gains and
net interest expense.
<TABLE>
<CAPTION>
Sales:
(in millions) Thirteen weeks ended
------------- --------------------------
April 29, May 1,
2000 1999
---- ----
<S> <C> <C>
Global Athletic Group:
Retail stores ......................... $ 963 $ 883
Direct to Customer .................... 57 48
------ ------
1,020 931
Northern Group ........................... 70 69
All Other (1) ............................ 18 79
------ ------
$1,108 $1,079
====== ======
</TABLE>
(1) All formats presented as "All Other" were either disposed or held for
disposal at April 29, 2000. First quarter 2000 does not include
Afterthoughts, Weekend Edition and Randy River Canada, which were sold
in the fourth quarter of 1999.
-6-
<PAGE> 9
<TABLE>
<CAPTION>
Operating Results:
(in millions) Thirteen weeks ended
------------- --------------------------
April 29, May 1,
2000 1999 (1)
---- --------
<S> <C> <C>
Global Athletic Group:
Retail Stores ................................ 65 16
Direct to Customer............................ (3) 4
---- ----
62 20
Northern Group .................................. (14) (17)
All Other (2) .................................. (9) --
---- ----
Operating profit ............................ 39 3
Corporate expense (3) ....................... 6 10
Interest expense, net ....................... 9 11
---- ----
Income (loss) from continuing operations
before income taxes .......................... $ 24 $(18)
==== ====
</TABLE>
(1) 1999 quarterly information has been restated to reflect the change in
method for calculating the market-related value of pension plan assets.
(2) All formats presented as "All Other" were either disposed or held for
disposal at April 29, 2000. First quarter 2000 includes a restructuring
charge of $5 million and does not include operations of Afterthoughts,
Weekend Edition and Randy River Canada, which were sold in the fourth
quarter of 1999.
(3) First quarter 2000 includes a $5 million reduction of the 1999
restructuring charge.
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. A reconciliation of
weighted-average common shares outstanding to weighted-average common shares
outstanding assuming dilution follows:
<TABLE>
<CAPTION>
Thirteen weeks ended
----------------------
(in millions) April 29, May 1,
2000 1999
------ ------
<S> <C> <C>
Weighted-average common shares outstanding ....... 137.6 136.7
Incremental common shares issuable ............... 0.9 --
------ ------
Weighted-average common shares outstanding
assuming dilution ................................ 138.5 136.7
====== ======
</TABLE>
Incremental common shares were not included in the computation for the
thirteen weeks ended May 1, 1999, since their inclusion in periods when the
Registrant reported a loss from continuing operations would be antidilutive.
Options to purchase 6.6 million shares of common stock with an exercise price
greater than the average market price which were outstanding at April 29, 2000,
were not included in the computation of diluted earnings per share.
Accumulated Other Comprehensive Loss
Accumulated other comprehensive loss comprised foreign currency
translation adjustments of $155 million, $140 million, and $140 million, and
minimum pension liability adjustments of $2 million, $43 million and $2 million
at April 29, 2000, May 1, 1999, and January 29, 2000, respectively.
-7-
<PAGE> 10
Discontinued Operations
In the third quarter of 1998, the Registrant announced that it was exiting
its International General Merchandise segment. Disposition activity of
approximately $3 million charged to the reserve for the first quarter of 2000
primarily reflected lease payments. Of the remaining reserve balance of $7
million at April 29, 2000, $2 million is required to satisfy lease obligations
within twelve months and the remaining $5 million thereafter.
The Registrant also announced in the third quarter of 1998 that it was
exiting its Specialty Footwear segment. Net disposition activity of
approximately $3 million charged to the reserve for the first quarter of 2000
primarily reflected lease payments. The reserve balance of $25 million at April
29, 2000 primarily represents leasehold obligations, $9 million of which is
expected to be utilized within twelve months and the remaining $16 million
thereafter.
In 1997, the Registrant announced that it was exiting its Domestic General
Merchandise segment. Net disposition activity of approximately $1 million
charged to the reserve for the first quarter of 2000 included payments for
leasehold and real estate disposition costs. The reserve balance of $22 million
at April 29, 2000 is included in current liabilities ($12 million) and other
liabilities ($10 million) and consists principally of real estate disposition
costs.
The following is a summary of the net assets of discontinued operations:
<TABLE>
<CAPTION>
(in millions) April 29, May 1, January 29,
2000 1999 2000
---- ---- ----
<S> <C> <C> <C>
International General Merchandise
Assets ........................................ $ 5 $ 46 $ 5
Liabilities ................................... 2 9 2
---- ---- ----
Net assets of discontinued operations ......... $ 3 $ 37 $ 3
---- ---- ----
Specialty Footwear
Assets ........................................ $ 4 $ 58 $ 5
Liabilities ................................... 1 8 2
---- ---- ----
Net assets of discontinued operations ......... $ 3 $ 50 $ 3
---- ---- ----
Domestic General Merchandise
Assets ........................................ $ 11 $ 21 $ 12
Liabilities ................................... 4 7 5
---- ---- ----
Net assets of discontinued operations ......... $ 7 $ 14 $ 7
---- ---- ----
Total net assets of discontinued operations ... $ 13 $101 $ 13
==== ==== ====
</TABLE>
The assets primarily include fixed assets and deferred tax assets.
Liabilities primarily reflect accounts payable and other accrued liabilities.
Reclassifications
Certain balances in prior periods have been reclassified to conform to the
presentation adopted in the current period.
Recent Accounting Pronouncements
In March 2000, the Financial Accounting Standards Board ("FASB") issued
Financial Interpretation No. 44, "Accounting for Certain Transactions Involving
Stock Compensation, an Interpretation of APB Opinion 25, Accounting for Stock
Issued to Employees," ("FIN No. 44"). FIN No. 44 provides further guidance
related to accounting for stock-based compensation, in particular to changes in
stock-based awards after the grant date, and will be effective for the
Registrant in the second quarter of 2000. The Registrant does not expect FIN No.
44 to have a significant impact on its consolidated financial statements.
-8-
<PAGE> 11
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB
No. 101"), which interprets generally accepted accounting principles related to
revenue recognition in financial statements. The Registrant will change its
method of accounting for sales under its layaway program and will record the
cumulative effect, if any, of that change in the second quarter of 2000. The
Registrant does not expect SAB No. 101 to have a significant impact on its
consolidated financial statements.
In June 1998, the FASB issued Statement of Financial Accounting
Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and
Hedging Activities" ("SFAS No. 133"), which establishes accounting and
reporting standards for derivative instruments and hedging activities. In
June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of FASB
Statement No. 133, an Amendment of FASB Statement No. 133," which defers the
implementation of SFAS No. 133 by one year. The Registrant will adopt SFAS
No. 133 in 2001 and is in the process of evaluating SFAS No. 133 to determine
its impact on the consolidated financial statements.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
References included herein to businesses disposed and held for disposal
relate to Afterthoughts, The San Francisco Music Box Company, Foot Locker
Outlets, Colorado, Team Edition, Going To The Game!, Randy River Canada, Weekend
Edition, Burger King franchises, Foot Locker Asia, Northern Elements U.S. and
Northern Getaway U.S.
RESULTS OF OPERATIONS
Sales of $1,108 million for the first quarter of 2000 increased 2.7
percent from sales of $1,079 million for the first quarter of 1999, which
included a 10.5 percent increase attributable to sales of ongoing formats,
offset by a decrease of 7.8 percent related to businesses disposed and held for
disposal. Excluding the effect of foreign currency fluctuations and sales from
businesses disposed and held for disposal, sales increased 12.5 percent as
compared with the corresponding prior-year period, reflecting an increase of
13.4 percent in comparable-store sales.
Gross margin, as a percentage of sales, increased by approximately 230
basis points to 29.0 percent in the first quarter of 2000 as compared with 26.7
percent in the corresponding prior-year period. The increase primarily reflects
reduced occupancy costs in 2000 as a result of the disposal of businesses in
1999, and to a lesser extent, a reduction in markdown activity.
Selling, general and administrative expenses ("SG&A") of $258 million
decreased by approximately 40 basis points, as a percentage of sales, to 23.3
percent in the first quarter of 2000 as compared with 23.7 percent in the
corresponding prior-year period. This decline reflects the reduced and more
efficient store-base in the first quarter of 2000 as compared with a year
earlier, offset, in part, by increased store compensation and initiative costs
in 2000 that were successful in driving sales. For the first quarter of 2000,
SG&A also included Internet costs of approximately $7 million primarily related
to website development.
The $5 million decrease in depreciation and amortization to $40 million
for the thirteen weeks ended April 29, 2000, reflects the reduction in
depreciable assets as a result of the disposal of businesses in 1999 and more
focused capital expenditure programs in 2000 and 1999, as compared with prior
years.
Interest expense decreased by $4 million for the thirteen weeks ended
April 29, 2000, as compared with the corresponding prior-year period. This
decrease reflects reduced short-term interest expense related to lower average
short-term borrowing levels, offset in part by higher short-term interest rates,
and reduced long-term interest expense resulting from the early retirement of
$112 million of the $200 million 7.0 percent debentures due in June 2000.
Interest income was $2 million for the first quarter of 2000, as compared with
$4 million in the corresponding prior-year period, $3 million of which related
to income tax refunds.
Other income of $10 million for the first quarter of 2000 included
corporate real estate gains of $4 million related to property sales and a $6
million gain associated with the recent demutualization of the Metropolitan Life
Insurance Company. This compared with $6 million recorded in the first quarter
of 1999 reflecting corporate real estate gains.
-9-
<PAGE> 12
The Registrant reported net income for the thirteen weeks ended April 29,
2000 of $15 million or $0.11 per diluted share. For the thirteen weeks ended May
1, 1999, the Registrant reported a net loss of $3 million or $0.02 per diluted
share, which included income from the cumulative effect of an accounting change
of $8 million after-tax, or $0.06 per diluted share.
STORE COUNT
The following table summarizes store count by segment, after
reclassification for businesses disposed and held for disposal. During the
thirteen weeks ended April 29, 2000, the Registrant remodeled or relocated 23
stores. 215 of the 303 stores closed during the quarter related to the 1999
accelerated store-closing program. An additional 71 under-performing stores
related to the program will be closed during the balance of the year, of which
65 are included in the Global Athletic Group at April 29, 2000.
<TABLE>
<CAPTION>
January 29, April 29, May 1,
2000 Opened Closed 2000 1999
---- ------ ------ ---- ----
<S> <C> <C> <C> <C> <C>
Global Athletic Group ............ 3,693 5 39 3,659 3,726
Northern Group ................... 836 11 103 744 850
Disposed and held for disposal.... 345 -- 161 184 1,373
----- ----- ----- ----- -----
Total .......................... 4,874 16 303 4,587 5,949
===== ===== ===== ===== =====
</TABLE>
SALES
The following table summarizes sales by segment, after reclassification
for businesses disposed and held for disposal. The disposed and held for
disposal category represents all businesses sold or closed or held for disposal
other than the discontinued segments, and are therefore included in continuing
operations.
<TABLE>
<CAPTION>
Thirteen weeks ended
-------------------------
(in millions) April 29, May 1,
2000 1999
------ ------
<S> <C> <C>
Global Athletic Group:
Retail Stores .......................... $ 962 $ 859
Direct to Customers .................... 57 48
------ ------
1,019 907
Northern Group ............................. 67 66
Disposed and held for disposal ............. 22 106
------ ------
Total sales ................................ $1,108 $1,079
====== ======
</TABLE>
Global Athletic Group sales increased by 12.3 percent as compared with the
corresponding prior-year period, reflecting a comparable-store sales increase of
13.9 percent. Sales from ongoing retail store formats increased 12.0 percent,
reflecting stronger sales performance in all formats, particularly in Europe,
which produced a comparable-store sales increase of 40.5 percent. Both footwear,
particularly the high-end athletic footwear lines, such as Tuned Air running
shoes and the Up Tempo basketball shoes, and private label apparel contributed
to the strong sales performance. Direct to Customers sales increased by 18.8
percent for the thirteen weeks ended April 29, 2000 compared with the
corresponding prior-year period. Catalog sales increased by 6.5 percent to $49
million in the first quarter of 2000 and Internet sales of $8 million, excluding
freight, increased by $6 million, compared with the first quarter of 1999.
Excluding the impact of foreign currency fluctuations, Northern Group
sales were essentially flat as compared with the corresponding prior-year
period, reflecting a comparable-store sales increase of 6.2 percent, offset by
the impact of closing 107 under-performing stores in the United States and
Canada.
-10-
<PAGE> 13
OPERATING RESULTS
Operating results reflect income (loss) from continuing operations before
income taxes, excluding corporate expense, corporate gains and net interest
expense. The following table summarizes operating profit (loss) by segment,
after reclassification for businesses disposed and held for disposal.
<TABLE>
<CAPTION>
Thirteen weeks ended
------------------------
(in millions) April 29, May 1,
2000 1999
---- ----
<S> <C> <C>
Global Athletic Group:
Retail Stores ............................ $ 67 $ 26
Direct to Customers ...................... (3) 4
---- ----
64 30
Northern Group ............................... (11) (13)
Disposed and held for disposal ............... (9) (14)
Restructuring charges ........................ (5) --
---- ----
Total operating profit ....................... $ 39 $ 3
==== ====
</TABLE>
The Global Athletic Group reported operating profit of $64 million for the
thirteen weeks ended April 29, 2000 as compared with $30 million for the first
quarter of the corresponding prior-year period. Operating profit from ongoing
retail stores for the first quarter of 2000 increased by $41 million from the
corresponding prior-year period. This increase reflects improved sales and gross
margin rate performances in all athletic formats, in a somewhat less promotional
environment. Direct to Customers operating results decreased from a profit of $4
million in the first quarter of 1999 to a loss of $3 million in the first
quarter of 2000 due to Internet development and marketing costs of approximately
$7 million.
The Northern Group's operating results for the thirteen weeks ended April
29, 2000 improved by $2 million as compared with the corresponding prior-year
period, resulting primarily from the closure of under-performing stores.
In the first quarter of 2000, the remaining businesses in the 1999
restructuring program incurred operating losses of $9 million and a further
restructuring charge of $5 million was recorded related to their disposition.
SEASONALITY
The Registrant's businesses are seasonal in nature. Historically, the
greatest proportion of sales and net income is generated in the fourth quarter
and the lowest proportions of sales and net income are generated in the first
and second quarters, reflecting seasonal buying patterns. As a result of these
seasonal sales patterns, inventory generally increases in the third quarter in
anticipation of strong fourth quarter sales.
-11-
<PAGE> 14
LIQUIDITY AND CAPITAL RESOURCES
The Registrant's primary sources of cash have been from operations,
borrowings under the revolving credit agreement and proceeds from the sale of
non-strategic assets. The Registrant generally finances real estate with
operating leases. The principal uses of cash have been to finance inventory
requirements, which are generally at their peak during the third and fourth
quarters; capital expenditures related to store openings, store remodeling and
management information systems; and to fund other general working capital
requirements.
Operating activities of continuing operations reduced cash by $18 million
for the thirteen weeks ended April 29, 2000, as compared with a reduction of
$127 million in the corresponding prior-year period. These amounts reflect the
income (loss) from continuing operations reported by the Registrant in those
periods, adjusted for non-cash items and working capital changes. Merchandise
inventories, excluding businesses held for disposal, of $766 million at April
29, 2000 declined by $22 million from $788 million at May 1, 1999. Included in
the cash flow from operations for the thirteen weeks ended April 29, 2000 were
cash payments of $20 million relating to the 1999 restructuring program. Other
operating activities for the thirteen weeks ended May 1, 1999 included the cash
outlay for occupancy costs on May 1, 1999 due to the timing of the quarter end.
Net cash used in investing activities of continuing operations was $16
million and $47 million for the thirteen weeks ended April 29, 2000 and May 1,
1999, respectively. Capital expenditures of $18 million for the first quarter of
2000 primarily related to store remodelings as compared with $54 million for the
corresponding prior-year period. Planned capital expenditures of $110 million
for 2000 include expenditures for new store openings, remodeling of existing
stores, management information systems, logistics and other support facilities.
Proceeds from real estate disposition activities amounted to $2 million in the
first quarter of 2000 as compared with $7 million in the first quarter of 1999.
Financing activities for the Registrant's continuing operations utilized
cash of $71 million for the thirteen weeks ended April 29, 2000 compared to cash
provided by financing activities of $26 million for the corresponding prior-year
period. Outstanding borrowings under the Registrant's revolving credit agreement
were $101 million and $274 million at April 29, 2000 and May 1, 1999,
respectively, and have been classified as short-term debt. The facility
available at April 29, 2000 of $300 million was reduced in accordance with the
provisions of the revolving credit agreement from $350 million on February 15,
2000. During the first quarter of 2000, the Registrant purchased $12 million of
its $200 million 7.0 percent debentures and an additional $1 million on May 10,
2000. On June 1, 2000, the remaining balance of $87 million was repaid with
restricted cash funds set aside on February 15, 2000, as required by the
revolving credit agreement. 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 its
short-term and long-term strategies.
Net cash used in discontinued operations primarily reflects real estate
disposition expenses charged to the Specialty Footwear, International and
Domestic General Merchandise reserves for both periods presented.
-12-
<PAGE> 15
IMPACT OF EUROPEAN MONETARY UNION
The European Union comprises fifteen member states, eleven of which
adopted a common currency, the "euro," effective January 1, 1999. From that date
until January 1, 2002, the transition period, the national currencies will
remain legal tender in the participating countries as denominations of the euro.
Monetary, capital, foreign exchange and interbank markets have converted to the
euro and non-cash transactions are possible in euros. On January 1, 2002, euro
bank notes and coins will be issued and the former national currencies will be
withdrawn from circulation no later than July 1, 2002.
The Registrant has reviewed the impact of the euro conversion on its
information systems, accounting systems, vendor payments and human resources.
Modifications required to be made to the point of sale hardware and software are
expected to be completed throughout 2000 and 2001.
The adoption of a single European currency will lead to greater product
pricing transparency and a more competitive environment. The Registrant will
display the euro equivalent price of merchandise as a customer service during
the transition period, as will many retailers, until the official euro
conversion in 2002. The euro conversion is not expected to have a significant
effect on the Registrant's results of operations or financial condition.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
Management's Discussion and Analysis of Financial Condition 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 Registrant expects or
anticipates will or may occur in the future, including such things as future
capital expenditures, strategic plans, expansion, growth of the Registrant's
business and operations and euro related actions 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 and the ability of the Registrant
to implement, in a timely manner, the programs and actions related to the euro
issue. Any changes in such assumptions or factors could produce significantly
different results.
-13-
<PAGE> 16
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The only legal proceedings pending against the Registrant or its
consolidated subsidiaries consist of ordinary, routine litigation,
including administrative proceedings, incident to the businesses of the
Registrant, as well as litigation incident to the sale and disposition of
businesses that have occurred in the past several years. Management does
not believe that the outcome of such proceedings will have a significant
effect on the Registrant's consolidated financial position, liquidity, or
results of operations.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
An index of the exhibits that are required by this item, and which are
furnished in accordance with Item 601 of Regulation S-K, appears on pages
16 through 18. The exhibits that are in this report immediately follow the
index.
(b) Reports on Form 8-K
The Registrant filed a report on Form 8-K dated February 9, 2000 (date of
earliest event reported) reporting that the Board of Directors elected
Matthew D. Serra as Chief Operating Officer, effective as of this date.
The Registrant filed a report on Form 8-K dated March 8, 2000 (date of
earliest event reported) reporting sales and earnings for the fourth
quarter ended January 29, 2000.
The Registrant filed a report on Form 8-K dated April 12, 2000 (date of
earliest event reported) reporting that the Board of Directors elected
Dale W. Hilpert as Chairman of the Board and Chief Executive Officer,
effective as of this date. Also reported was the resignation of Roger N.
Farah, who had been the Chairman of the Board, and the nomination of David
Y. Schwartz to stand for election to the Board of Directors at the 2000
Annual Meeting.
-14-
<PAGE> 17
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
<TABLE>
<S> <C>
VENATOR GROUP, INC.
(Registrant)
Date: June 12, 2000 /s/ Bruce Hartman
BRUCE HARTMAN
Senior Vice President
and Chief Financial Officer
</TABLE>
-15-
<PAGE> 18
VENATOR GROUP, INC.
INDEX OF EXHIBITS REQUIRED BY ITEM 6(a) OF FORM 10-Q
AND FURNISHED IN ACCORDANCE WITH ITEM 601 OF REGULATION S-K
<TABLE>
<CAPTION>
Exhibit No. in Item 601
of Regulation S-K Description
----------------------- -----------
<S> <C>
1 *
2 *
3(i)(a) Certificate of Incorporation of the
Registrant, as filed by the Department of
State of the State of New York on April 7,
1989 (incorporated herein by reference to
Exhibit 3(i)(a) to the Quarterly Report on
Form 10-Q for the quarterly period ended July
26, 1997, filed by the Registrant with the SEC
on September 4, 1997 (the "July 26, 1997 Form
10-Q")).
3(i)(b) Certificates of Amendment of the Certificate
of Incorporation of the Registrant, as filed
by the Department of State of the State of New
York on (a) July 20, 1989 (b) July 24, 1990
(c) July 9, 1997 (incorporated herein by
reference to Exhibit 3(i)(b) to the July 26,
1997 Form 10-Q) and (d) June 11, 1998
(incorporated herein by reference to Exhibit
4.2(a) of the Registration Statement on Form
S-8 (Registration No. 333-62425) previously
filed with the SEC).
3(ii) By-laws of the Registrant, as amended
(incorporated herein by reference to Exhibit
4.2 of the Registration Statement on Form
S-8 (Registration No. 333-62425) previously
filed with the SEC).
4.1 The rights of holders of the Registrant's
equity securities are defined in the
Registrant's Certificate of Incorporation,
as amended (incorporated herein by reference
to Exhibits 3(i)(a) and 3(i)(b) to the July
26, 1997 Form 10-Q and Exhibit 4.2(a) to the
Registration Statement on Form S-8
(Registration No. 333-62425) previously
filed with the SEC).
4.2 Rights Agreement dated as of March 11, 1998
("Rights Agreement"), between Venator Group,
Inc. 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).
4.2(a) Amendment No. 1 to the Rights Agreement,
dated as of May 28, 1999 (incorporated
herein by reference to Exhibit 4.2(a) to the
Quarterly Report on Form 10-Q for the
quarterly period ended May 1, 1999, filed by
the Registrant with the SEC on June 4,
1999).
</TABLE>
-16-
<PAGE> 19
<TABLE>
<CAPTION>
Exhibit No. in Item 601
of Regulation S-K Description
----------------------- -----------
<S> <C>
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 % Debentures due 2022
(incorporated herein by reference to Exhibit
4 to the Registrant'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 Registrant'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 Registrant's Form 8-K dated July 13,
1995).
5 *
8 *
9 *
10.1 Employment Agreement with Roger N. Farah
dated as of April 12, 2000.
10.2 Amended Employment Agreement with Matthew
D. Serra dated as of February 9, 2000.
11 *
12 Computation of Ratio of Earnings to Fixed
Charges.
13 *
15 Letter re: Unaudited Interim Financial
Statements.
</TABLE>
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<PAGE> 20
<TABLE>
<CAPTION>
Exhibit No. in Item 601
of Regulation S-K Description
----------------------- -----------
<S> <C>
16 *
17 *
18 *
19 *
20 *
21 *
22 *
23 *
24 *
25 *
26 *
27.1 Financial Data Schedule - April 29, 2000
(which is submitted electronically to the
SEC for information only and not filed).
27.2 Restated Financial Data Schedule - May 1,
1999 (which is submitted electronically to
the SEC for information only and not filed).
99 Independent Accountants' Review Report.
</TABLE>
----------
* Not applicable
-18-
<PAGE> 21
Exhibits filed with this Form 10-Q:
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
10.1 Employment Agreement with Roger N. Farah dated as
of April 12, 2000.
10.2 Amended Employment Agreement with Matthew D. Serra
dated as of February 9, 2000.
12 Computation of Ratio of Earnings to Fixed Charges.
15 Letter re: Unaudited Interim Financial Statements.
27.1 Financial Data Schedule - April 29, 2000.
27.2 Restated Financial Data Schedule - May 1, 1999.
99 Independent Accountants' Review Report.
</TABLE>
