<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JANUARY 29, 2000
COMMISSION FILE NUMBER 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 (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
</TABLE>
112 WEST 34TH STREET, NEW YORK, NEW YORK 10120
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 720-3700
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<TABLE>
<CAPTION>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
<S> <C>
COMMON STOCK, PAR VALUE $.01 NEW YORK STOCK EXCHANGE
PREFERRED STOCK PURCHASE RIGHTS NEW YORK STOCK EXCHANGE
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. X
See pages 11 through 14 for Index of Exhibits.
Number of shares of Common Stock outstanding at April 12, 2000:
137,664,702
Aggregate market value of voting stock held by non-affiliates at April
12, 2000: $977,600,638*
* For purposes of this calculation only (a) all directors plus one
executive officer and owners of five percent or more of the Registrant
are deemed to be affiliates of the Registrant and (b) shares deemed to
be "held" by such persons at April 12, 2000, include only outstanding
shares of the Registrant's voting stock with respect to which such
persons had, on such date, voting or investment power.
DOCUMENTS INCORPORATED BY REFERENCE
1. The Registrant's Annual Report to Shareholders (the "Annual Report")
for the fiscal year ended January 29, 2000: Parts I, II and III.
2. The Registrant's definitive Proxy Statement (the "Proxy Statement") to
be filed in connection with the 2000 annual meeting of shareholders:
Part III.
<PAGE> 2
TABLE OF CONTENTS
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PAGE
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PART I
<S> <C> <C>
Item 1. Business 1
Item 2. Properties 4
Item 3. Legal Proceedings 4
Item 4. Submission of Matters to a Vote of Security Holders 4
PART II
Item 5. Market for the Registrant's Common Equity
and Related Stockholder Matters 5
Item 6. Selected Financial Data 5
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 5
Item 7A. Quantitative and Qualitative Disclosures about Market Risk 6
Item 8. Consolidated Financial Statements and Supplementary Data 7
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 7
PART III
Item 10. Directors and Executive Officers of the Registrant 7
Item 11. Executive Compensation 7
Item 12. Security Ownership of Certain Beneficial Owners and Management 7
Item 13. Certain Relationships and Related Transactions 7
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 8
</TABLE>
<PAGE> 3
PART I
ITEM 1. BUSINESS
GENERAL
Venator Group, Inc. (the "Registrant"), incorporated under the laws of
the State of New York in 1989, is a leading global retailer operating 4,874
primarily mall-based stores in North America, Europe, Asia and Australia. Since
the Registrant's establishment in 1879, the Registrant has evolved from a
company with a strong heritage in general merchandise retailing into a specialty
retailer, principally of athletic footwear and apparel. The Registrant operates
in two business segments, the Global Athletic Group and the Northern Group. The
Global Athletic Group operates retail stores, whose formats include Foot Locker,
Lady Foot Locker, Kids Foot Locker and Champs Sports, and also includes the
Registrant's Footlocker.com subsidiary, which sells directly to customers
through its affiliates. The Northern Group consists of four apparel formats:
Northern Reflections, Northern Traditions, Northern Getaway and Northern
Elements. The remaining businesses included in the "All Other" category were
either disposed or held for disposal as of January 29, 2000. The following table
indicates the sales and percent of total sales generated by each of the
businesses in 1999:
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<CAPTION>
Business Sales Percent of Total Sales
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($ in millions)
<S> <C> <C>
Global Athletic Group:
Retail Stores $ 3,705 80%
Direct to Customers 195 4
--------- ---
3,900 84
Northern Group 407 9
All Other 340 7
--------- ---
Total $ 4,647 100%
========= ===
</TABLE>
The financial information concerning industry segments required by Item
101(b) of Regulation S-K is set forth on page 35 of the Registrant's Annual
Report to Shareholders ("Annual Report") for the fiscal year ended January 29,
2000 and is incorporated herein by reference.
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<CAPTION>
AT JANUARY 30, CLOSED/ AT JANUARY 29,
STORE PROFILE 1999 OPENED DISPOSED 2000
- ------------- ---- ------ -------- ----
<S> <C> <C> <C> <C>
Foot Locker 2,132 67 205 1,994
Lady Foot Locker 694 29 33 690
Kids Foot Locker 369 41 7 403
Foot Locker Outlets -- 80 73 7
Champs Sports 669 11 64 616
Colorado 61 9 70 --
----- ----- ----- -----
TOTAL GLOBAL ATHLETIC GROUP 3,925 237 452 3,710
----- ----- ----- -----
Northern Reflections 582 1 12 571
Northern Getaway 194 3 14 183
Northern Elements 102 5 7 100
Northern Traditions 62 7 2 67
----- ----- ----- -----
TOTAL NORTHERN GROUP 940 16 35 921
----- ----- ----- -----
Afterthoughts 773 16 789 --
The San Francisco Music Box Company 168 -- 6 162
Weekend Edition 109 -- 109 --
Randy River 67 2 9 60
Food Services 20 3 2 21
----- ----- ----- -----
TOTAL ALL OTHER 1,137 21 915 243
----- ----- ----- -----
TOTAL CONTINUING OPERATIONS 6,002 274 1,402 4,874
----- ----- ----- -----
Specialty Footwear 314 -- 314 --
International General Merchandise 151 -- 151 --
----- ----- ----- -----
TOTAL DISCONTINUED OPERATIONS 465 -- 465 --
----- ----- ----- -----
TOTAL 6,467 274 1,867 4,874
===== ===== ===== =====
</TABLE>
The service marks and trademarks appearing on this page and elsewhere in this
report (except for Burger King and NFL) are owned by Venator Group, Inc. or its
subsidiaries.
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<PAGE> 4
Global Athletic Group
The Global Athletic Group, the Registrant's largest and most profitable
business, operates 3,710 stores in North America, Europe, Asia and Australia
under the Foot Locker, Lady Foot Locker, Kids Foot Locker, and Champs Sports
formats. In addition to retail stores, the Global Athletic Group includes the
Registrant's Footlocker.com subsidiary, which sells, through its affiliates, to
customers via catalogs and Internet websites. In 1999, the Registrant disposed
of the Colorado format in the U.S. and Australia and the Foot Locker Outlets in
the U.S. The Registrant believes that its portfolio strategy is unique in the
athletic industry, with specialized retail formats and Internet websites
targeted specifically to the men's, women's and children's segments of the
market, allowing the Registrant to tailor their merchandise and service
offerings more effectively to its target customers.
The following is a brief description of the Global Athletic Group's key
operating businesses:
Retail Stores
Foot Locker - Foot Locker is a leading global athletic
footwear and apparel retailer. Its stores offer the latest in
athletic-inspired technical and performance products, manufactured
primarily by the leading athletic brands. Foot Locker offers products
for a wide variety of activities including running, basketball, hiking,
tennis, aerobics, fitness, baseball, football and soccer. Its 1,994
stores are located in 14 countries including 1,507 in the United States
and Puerto Rico, 135 in Canada, 289 in Europe, 58 in Australia and 5 in
Asia. The domestic stores have an average of 2,300 selling square feet
and the international stores have an average of 1,400 selling square
feet.
Lady Foot Locker - Lady Foot Locker is a leading U.S. retailer
of athletic footwear, apparel and accessories for women. Its stores
carry all major athletic footwear and apparel brands, as well as casual
wear and an assortment of proprietary merchandise designed for a
variety of activities, including running, basketball, walking and
fitness. Its 690 stores are located in the United States and Puerto
Rico and have an average of 1,300 selling square feet.
Kids Foot Locker - Kids Foot Locker is a national children's
athletic retailer that offers the largest selection of brand-name
athletic footwear, apparel and accessories for infants, boys and girls,
primarily on an exclusive basis. Its stores feature an entertaining
environment geared to both parents and children. Its 403 stores are
located in the United States and Puerto Rico and have an average of
1,400 selling square feet.
Champs Sports - Champs Sports is, after Foot Locker, the
second largest mall-based sporting goods retailer, selling both branded
and private label sporting goods. Its product categories include
athletic footwear, apparel and accessories, and a focused assortment of
equipment. This combination allows Champs Sports to differentiate
itself from other mall-based stores by presenting complete product
assortments in a select number of sporting activities. Its 616 stores
are located throughout the United States and Canada. The Champs Sports
stores have an average of 4,000 selling square feet.
Direct to Customers
Footlocker.com - In 1999, the Registrant changed the name of
its eVenator, Inc. subsidiary to Footlocker.com, Inc., which sells,
through its affiliates, directly to customers through catalogs and its
Internet websites. Eastbay, Inc. ("Eastbay"), one of its affiliates, is
one of the largest direct marketers of athletic footwear, apparel,
equipment and licensed private-label merchandise in the United States
and provides the Registrant's six full-service e-commerce sites access
to an integrated fulfillment and distribution system. The Registrant
has an agreement in place with the National Football League as its
official catalog and e-commerce retailer, which includes managing the
NFL catalog and e-commerce businesses. Footlocker.com designs,
merchandises and fulfills the NFL's official catalog ("NFL Shop") and
the e-commerce site linked to www.NFL.com.
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<PAGE> 5
Northern Group
The Northern Group operates 921 stores in the United States
and Canada that offer exclusively private label casual apparel for
women (Northern Reflections), children (Northern Getaway), and men
(Northern Elements), in addition to women's private label coordinates
for dressy, non-formal occasions (Northern Traditions). In 1999, the
Registrant disposed of the Northern Getaway and Northern Elements
formats in the U.S. The Northern Group's stores have an average of
1,900 selling square feet.
All Other
The Registrant's remaining businesses are in the "All Other"
category, including Afterthoughts, The San Francisco Music Box
Company, Weekend Edition, Randy River and Burger King formats. All
businesses in this category were either disposed or held for disposal
as of January 29, 2000.
INFORMATION REGARDING BUSINESS SEGMENTS AND GEOGRAPHIC AREAS
For information regarding sales, operating results and identifiable
assets of the Registrant by business segment and by geographic area as required
by Item 101(d) of Regulation S-K, refer to footnote 7 to the Consolidated
Financial Statements on page 35 of the Annual Report. For additional information
on format descriptions, refer to Management's Discussion and Analysis of
Financial Condition and Results of Operations on pages 21 and 22 of the Annual
Report, which is incorporated herein by reference.
EMPLOYEES
The Registrant and its consolidated subsidiaries had 15,968 full-time
and 31,067 part-time employees at January 29, 2000. The Registrant considers
employee relations to be satisfactory.
SEASONALITY
The Registrant's retail businesses are seasonal in nature.
Historically, the greatest proportion of sales and net income is generated in
the fourth quarter and the lowest 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 increased fourth quarter sales.
COMPETITION
The retailing business is highly competitive. Competition is based upon
such factors as price, quality, selection of merchandise, reputation, store
location, advertising and customer service.
MERCHANDISE PURCHASES
The Registrant and its consolidated subsidiaries purchase merchandise
and supplies from thousands of vendors worldwide. The Registrant purchased
approximately 54 percent of its 1999 merchandise from one major vendor. The
Registrant considers vendor relations to be satisfactory and maintains a minimal
amount of backlog orders in its retailing operations.
The Registrant's policy is to maintain sufficient quantities of
inventory on hand in its retail stores and distribution centers so that it can
offer customers a full selection of current merchandise. The Registrant
emphasizes turnover and takes markdowns where required to keep merchandise fresh
and current with trends.
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<PAGE> 6
ITEM 2. PROPERTIES
The properties of the Registrant and its consolidated subsidiaries
consist of land, leased and owned stores, factories and administrative and
distribution facilities. Total selling area at the end of the year was
approximately 10.13 million square feet, of which approximately 8.15 million
square feet pertained to the Global Athletic Group segment and approximately
1.73 million square feet to the Northern Group segment. These properties are
primarily located in the United States, Canada and Europe.
During the year, the Registrant operated six distribution centers, of
which two were owned and four were leased, occupying an aggregate of 2.53
million square feet. The Registrant expects to operate four distribution centers
in 2000 to service its ongoing operations, two of which are located in the
United States, and one in both Canada and Europe. Each of the distribution
centers serves major regions. The Registrant also has two additional
distribution centers that were leased and sublet, occupying 0.6 million square
feet.
Refer to footnote 11 on page 36 of the Annual Report for additional
information regarding the Registrant's and its consolidated subsidiaries'
properties.
ITEM 3. 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 material effect on the Registrant's consolidated
financial position, liquidity, or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during
the fourth quarter of the year ended January 29, 2000.
EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to Executive Officers of the Registrant, as of
April 12, 2000, is set forth below:
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Chairman of the Board and Chief Executive Officer Dale W. Hilpert
President and Chief Operating Officer and Director Matthew D. Serra
Senior Vice President, General Counsel and Secretary Gary M. Bahler
Senior Vice President--Real Estate Jeffrey L. Berk
Senior Vice President and Chief Information Officer Samuel R. Gaston
Senior Vice President--Human Resources Dennis M. Lee
Senior Vice President and Chief Financial Officer Bruce L. Hartman
Vice President and Treasurer John H. Cannon
Vice President and Chief Accounting Officer Robert W. McHugh
</TABLE>
Dale W. Hilpert, age 57, has served as Chairman of the Board since
April 12, 2000 and as Chief Executive Officer since August 16, 1999. Mr. Hilpert
served as President and Chief Operating Officer from May 1995 to August 1999. He
previously served as Chairman and Chief Executive Officer of Payless ShoeSource,
a division of the May Department Stores Company from January 1985 to April 1995.
Matthew D. Serra, age 55, has served as President since April 12, 2000
and as Chief Operating Officer since February 2000. He served as President of
Foot Locker Worldwide from September 1998 to February 2000. He previously served
as Chairman and Chief Executive Officer of Sterns, a division of Federated
Department Stores, Inc., from March 1993 to September 1998.
-4-
<PAGE> 7
Gary M. Bahler, age 48, has served as Senior Vice President since
August 1998, General Counsel since February 1993 and Secretary since February
1990. He served as Vice President from February 1993 to August 1998.
Jeffrey L. Berk, age 44, has served as Senior Vice President-Real
Estate since February 2000 and President of Venator Group Realty, North America
from January 1997 to February 2000. He previously served as Vice President-Real
Estate for Barnes & Noble, Inc. since 1994.
Samuel R. Gaston, age 58, has served as Senior Vice President and Chief
Information Officer since November 1998. Mr. Gaston served as Executive Vice
President and Chief Financial Officer of Fabric-Centers of America, Inc., a
retail fabric chain, from August 1996 to October 1997. He previously served as
Executive Vice President and Chief Financial Officer of the Woman's Apparel
Group of The Limited, Inc.
Dennis M. Lee, age 50, has served as Senior Vice President-Human
Resources since July 1999. He previously served as Executive Vice
President-Human Resources and Merchandise Distribution and Replenishment of
Caldor Corp. ("Caldor"), a retail company, from October 1995 to January 1999. He
also served as Senior Vice President-Human Resources of Caldor from 1988 to
1995.
Bruce L. Hartman, age 46, has served as Senior Vice President and Chief
Financial Officer since February 1999. Mr. Hartman served as Vice
President-Corporate Shared Services from September 1998 to February 1999 and as
Vice President and Controller from November 1996 to September 1998. He served as
the Chief Financial Officer of various divisions of the May Department Stores
Company from March 1993 to October 1996.
John H. Cannon, age 58, has served as Vice President and Treasurer
since October 1983.
Robert W. McHugh, age 41, has served as Vice President and Chief
Accounting Officer since January 2000 and Vice President-Taxation from November
1997 to January 2000. He previously served as a partner at KPMG LLP from July
1990 to October 1997.
There are no family relationships among the executive officers or
directors of the Registrant.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Information related to the market for the Registrant's common stock on
pages 42 to 44 of the Annual Report under the sections captioned "Shareholder
Rights Plan," "Stock Plans," "Restricted Stock" and "Shareholder Information and
Market Prices (Unaudited)" is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
The Five Year Summary of Selected Financial Data on page 45 of the
Annual Report is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results
of Operations on pages 18 through 24 of the Annual Report is incorporated herein
by reference.
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<PAGE> 8
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Derivatives
Derivative financial instruments are used by the Registrant to
manage its market risk exposure to interest rates and foreign currency
exchange rate fluctuations. The Registrant, as a matter of policy, does
not hold derivative financial instruments for trading or speculative
purposes.
Interest Rates
The Registrant's major exposure to market risk is changes in
interest rates, primarily in the U.S. There is no cash flow exposure to
rate changes for long-term debt obligations, which are fixed rate
liabilities, denominated in U.S. dollars. Short-term debt obligations
reflect variable interest rate borrowings under the Registrant's
revolving credit agreement. Interest rate swaps have been utilized by
the Registrant to minimize its exposure to interest rate fluctuations.
There were no swap agreements in effect at January 29, 2000 or January
30, 1999. The table below presents the fair value of principal cash
flows and related weighted-average interest rates by maturity dates of
the Registrant's debt obligations.
<TABLE>
<CAPTION>
JANUARY 30,
(IN MILLIONS) 2000 2001 2002 2003 2004 THEREAFTER TOTAL 1999
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Short-term debt $ 71 - - - - - $ 71 $ 250
Variable rate
Weighted-average interest rate 8.36%
Long-term debt $ 100 47 36 - - 128 $ 311 $ 454
Fixed rate
Weighted-average interest rate 7.94% 8.09% 8.31% 8.50% 8.50% 8.50%
</TABLE>
Foreign Currency Exchange Rates
The Registrant's international operations purchase significant
levels of inventory primarily in U.S. dollars. In order to minimize the
impact of foreign currency fluctuations on its results of operations,
the Registrant hedges these purchases through forward foreign currency
exchange contracts. The Registrant also enters into forward contracts
to reduce its exposure to currency fluctuations on intercompany
transactions. All instruments mature within twelve months. Foreign
currency exchange gains and losses did not have a material impact on
the Registrant's results of operations in 1999.
The table below presents the notional amounts and
weighted-average exchange rates of foreign exchange forward contracts
outstanding at January 29, 2000.
<TABLE>
<CAPTION>
CONTRACT VALUE WEIGHTED-AVERAGE
(US IN MILLIONS) EXCHANGE RATE
INVENTORY
<S> <C> <C>
Receive $US/ Pay $Australian $ 10 0.6692
Receive $US/ Pay euro 10 0.9973
Receive $Canadian/Pay $US 48 0.6826
----
$ 68
====
INTERCOMPANY
Receive $US/Pay $Canadian $ 17 0.6859
Receive $Canadian/Pay $US 8 0.6906
Receive German mark /Pay $US 18 0.5595
Receive $US/Pay British pound 10 1.6389
Receive $US/Pay Netherlands guilder 7 0.4595
Receive $Taiwanese/Pay $US 5 0.0328
Receive $US/Pay euro 2 1.0355
----
$ 67
====
</TABLE>
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<PAGE> 9
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
a) Consolidated Financial Statements
The following, included in the Annual Report, are incorporated
herein by reference:
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<CAPTION>
Page (s) in
Annual Report
-------------
<S> <C>
Independent Auditors' Report 25
Consolidated Statements of Operations - Years ended January 29, 2000,
January 30, 1999 and January 31, 1998 26
Consolidated Statements of Comprehensive Income (Loss) - Years ended
January 29, 2000, January 30, 1999 and January 31, 1998 26
Consolidated Balance Sheets - As of January 29, 2000 and January 30, 1999 27
Consolidated Statements of Shareholders' Equity - Years ended January 29, 2000,
January 30, 1999 and January 31, 1998 28
Consolidated Statements of Cash Flows - Years ended January 29, 2000,
January 30, 1999 and January 31, 1998 29
Notes to Consolidated Financial Statements 30-44
</TABLE>
b) Supplementary Data
Quarterly Results on page 44 of the Annual Report is incorporated
herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There were no disagreements between the Registrant and its independent
accountants on matters of accounting principles or practices.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) Directors of the Registrant
Information relative to directors of the Registrant is set
forth under the section captioned "Election of Directors" in the Proxy
Statement and is incorporated herein by reference.
(b) Executive Officers of the Registrant
Information with respect to executive officers of the
Registrant is set forth immediately following Item 4 in Part I hereof
on pages 4 and 5.
(c) Information with respect to compliance with Section 16(a) of the
Securities Exchange Act of 1934 is set forth under the section
captioned "Section 16(a) Beneficial Ownership Reporting Compliance" in
the Proxy Statement and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information set forth in the Proxy Statement, beginning with the
section captioned "Directors Compensation and Benefits" through and including
the section captioned "Compensation Committee Interlocks and Insider
Participation" is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information set forth in the Proxy Statement, under the section
captioned "Beneficial Ownership of the Company's Stock" is incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information set forth in the Proxy Statement, under the section
captioned "Transactions with Management and Others" is incorporated herein by
reference.
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<PAGE> 10
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) Financial Statements
The list of financial statements required by this item is set
forth in Item 8 "Consolidated Financial Statements and Supplementary
Data" in this Annual Report on Form 10-K and is incorporated herein by
reference.
(a)(3) and (c) Exhibits
An index of the exhibits which are required by this item and
which are included or incorporated herein by reference in this report
appears on pages 11 through 14. Those exhibits, which are included in
this Annual Report on Form 10-K, immediately follow the index.
(b) Reports on Form 8-K
The Registrant filed a report on Form 8-K dated November
18,1999 (date of earliest event reported) reporting sales and earnings
for the third quarter ended October 30, 1999.
-8-
<PAGE> 11
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
VENATOR GROUP, INC.
By: /s/ DALE W. HILPERT
--------------------
Dale W. Hilpert
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below on April 12, 2000, by the following persons on behalf of
the Registrant and in the capacities indicated.
/s/ DALE W. HILPERT /s/ BRUCE L. HARTMAN
-------------------- ---------------------
Dale W. Hilpert Bruce L. Hartman
Chairman of the Board and Senior Vice President and
Chief Executive Officer Chief Financial Officer
/s/ MATTHEW D. SERRA /s/ ROBERT W. MCHUGH
--------------------- ---------------------
Matthew D. Serra Robert W. McHugh
President and Vice President and
Chief Operating Officer Chief Accounting Officer
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<PAGE> 12
/s/ J. CARTER BACOT /s/ MARGARET P. MACKIMM
-------------------- ------------------------
J. Carter Bacot Margaret P. MacKimm
Director Director
/s/ PURDY CRAWFORD /s/ JOHN J. MACKOWSKI
-------------------- ------------------------
Purdy Crawford John J. Mackowski
Director Director
/s/ PHILIP H. GEIER JR. /s/ JAMES E. PRESTON
-------------------- ------------------------
Philip H. Geier Jr. James E. Preston
Director Director
/s/ JAROBIN GILBERT JR. /s/ CHRISTOPHER A. SINCLAIR
-------------------- ------------------------
Jarobin Gilbert Jr. Christopher A. Sinclair
Director Director
/s/ ALLAN Z. LOREN
--------------------
Allan Z. Loren
Director
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<PAGE> 13
VENATOR GROUP, INC
INDEX OF EXHIBITS REQUIRED
BY ITEM 14 OF FORM 10-K
AND FURNISHED IN ACCORDANCE
WITH ITEM 601 OF REGULATION S-K
EXHIBIT NO.
IN ITEM 601 OF
REGULATION S-K DESCRIPTION
- -------------- -----------
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 (a) 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, 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).
4.3 Indenture dated as of October 10, 1991 (incorporated
herein by reference to Exhibit 4.1 to the
Registration Statement on Form S-3 (Registration No.
33-43334) previously filed with the SEC).
4.4 Forms of Medium-Term Notes (Fixed Rate and Floating
Rate) (incorporated herein by reference to Exhibits
4.4 and 4.5 to the Registration Statement on Form S-3
(Registration No. 33-43334) previously filed with the
SEC).
4.5 Form of 8 1/2% Debentures due 2022 (incorporated
herein by reference to Exhibit 4 to the 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).
-11-
<PAGE> 14
EXHIBIT NO.
IN ITEM 601 OF
REGULATION S-K DESCRIPTION
-------------- -----------
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 1986 Venator Group Stock Option Plan (incorporated
herein by reference to Exhibit 10(b) to the
Registrant's Annual Report on Form 10-K for the year
ended January 28, 1995, filed by the Registrant with
the SEC on April 24, 1995 (the "1994 10-K")).
10.2 Amendment to the 1986 Venator Group Stock Option Plan
(incorporated herein by reference to Exhibit 10(a) to
the Registrant's Annual Report on Form 10-K for the
year ended January 27, 1996, filed by the Registrant
on April 26, 1996 (the "1995 10-K")).
10.3 Venator Group 1995 Stock Option and Award Plan
(incorporated herein by reference to Exhibit 10(p) to
the 1994 10-K).
10.4 Venator Group 1998 Stock Option and Award Plan
(incorporated herein by reference to Exhibit 10.4 to
the Registrant's Annual Report on Form 10-K for the
year ended January 31, 1998 (the "1997 10-K").
10.5 Executive Supplemental Retirement Plan (incorporated
herein by reference to Exhibit 10(d) to the
Registration Statement on Form 8-B filed by the
Registrant with the SEC on August 7, 1989
(Registration No. 1-10299) (the "8-B Registration
Statement")).
10.6 Amendments to the Executive Supplemental Retirement
Plan (incorporated herein by reference to Exhibit
10(c)(i) to the 1994 10-K).
10.7 Amendment to the Executive Supplemental Retirement
Plan (incorporated herein by reference to Exhibit
10(d)(ii) to the 1995 10-K).
10.8 Supplemental Executive Retirement Plan (incorporated
herein by reference to Exhibit 10(e) to the 1995
10-K).
10.9 Long-Term Incentive Compensation Plan, as amended and
restated (incorporated herein by reference to Exhibit
10(f) to the 1995 10-K).
10.10 Annual Incentive Compensation Plan, as amended and
restated (incorporated herein by reference to Exhibit
10(g) to the 1995 10-K).
10.11 Form of indemnification agreement, as amended
(incorporated herein by reference to Exhibit 10(g) to
the 8-B Registration Statement).
10.12 Venator Group Voluntary Deferred Compensation Plan
(incorporated herein by reference to Exhibit 10(i) to
the 1995 10-K).
-12-
<PAGE> 15
EXHIBIT NO.
IN ITEM 601 OF
REGULATION S-K DESCRIPTION
- -------------- -----------
10.13 Trust Agreement dated as of November 12, 1987,
between F.W. Woolworth Co. and The Bank of New York,
as amended and assumed by the Registrant
(incorporated herein by reference to Exhibit 10(j) to
the 8-B Registration Statement).
10.14 Venator Group Directors' Retirement Plan, as amended
(incorporated herein by reference to Exhibit 10(k) to
the 8-B Registration Statement).
10.15 Amendments to the Venator Group Directors' Retirement
Plan (incorporated herein by reference to Exhibit
10(c) to the Registrant's Quarterly Report on Form
10-Q for the period ended October 28, 1995, filed
with the SEC on December 11, 1995 (the "October 28,
1995 10-Q")).
10.16 Employment Agreement with Roger N. Farah dated as of
August 16, 1999 (incorporated herein by reference to
Exhibit 10.1 to the Registrant's Quarterly Report on
Form 10-Q for the period ended October 30, 1999,
filed with the SEC on December 14, 1999 (the "October
30, 1999 10-Q")).
10.17 Restricted Stock Agreement with Roger N. Farah dated
as of January 9, 1995 (incorporated herein by
reference to Exhibit 10(m) to the 1994 10-K).
10.18 Restricted Stock Agreement with Roger N. Farah dated
as of April 26, 1999 (incorporated herein by
reference to Exhibit 10.17(a) to the Registrant's
Annual Report on Form 10-K for the fiscal year ended
January 30, 1999, filed with the SEC on April 30,
1999 (the "1998 10-K")).
10.19 Employment Agreement with Dale W. Hilpert dated as of
August 16, 1999 (incorporated herein by reference to
Exhibit 10.2 to the October 30, 1999 10-Q).
10.20 Agreement with M. Jeffrey Branman dated February 11,
2000.
10.21 Agreement with John E. DeWolf III dated February 10,
2000.
10.22 Venator Group Executive Severance Pay Plan
(incorporated herein by reference to Exhibit 10.1 to
the Registrant's Quarterly Report on Form 10-Q for
the period ended October 31, 1998 (the "October 31,
1998 10-Q").
10.23 Form of Senior Executive Employment Agreement.
10.24 Form of Executive Employment Agreement.
10.25 Venator Group, Inc. Directors' Stock Plan
(incorporated herein by reference to Exhibit 10(b) to
the Registrant's October 28, 1995 10-Q).
10.26 Venator Group, Inc. Excess Cash Balance Plan
(incorporated herein by reference to Exhibit 10(c) to
the 1995 10-K).
10.27 Agreement with S. Ronald Gaston dated November 10,
1998 (incorporated herein by reference to Exhibit
10.5 to the October 31, 1998 10-Q).
10.28 Form of Restricted Stock Agreement (incorporated
herein by reference to Exhibit 10.30 to the 1998
10-K).
10.29 Amendment No. 3 dated as of March 19, 1999 to the
Credit Agreement dated as of April 9, 1997
(incorporated herein by reference to Exhibit 10.31 to
the 1998 10-K).
-13-
<PAGE> 16
EXHIBIT NO.
IN ITEM 601 OF
REGULATION S-K DESCRIPTION
- -------------- -----------
10.30 Amendment No. 4 dated as of March 19, 1999 to the
Credit Agreement dated as of April 9, 1997
(incorporated herein by reference to Exhibit 10.32 to
the 1998 10-K).
10.31 Amended and Restated Credit Agreement dated as of
April 9, 1997 and amended and restated as of March
19, 1999 (incorporated herein by reference to Exhibit
10.33 to the 1998 10-K).
10.32 Second Amended and Restated Credit Agreement dated as
of April 9, 1997 and amended and restated as of March
19, 1999 (incorporated herein by reference to Exhibit
10.34 to the 1998 10-K).
10.33 Letter of Credit Agreement dated as of March 19, 1999
(incorporated herein by reference to Exhibit 10.35 to
the 1998 10-K).
10.34 Form of Notice of Non-renewal of Severance
Agreements.
10.35 Special Real Estate Bonus Program.
11 *
12 Computation of Ratio of Earnings to Fixed Charges.
13 1999 Annual Report to Shareholders.
15 *
16 *
17 *
18 Letter on change in accounting principle.
19 *
20 *
21 Subsidiaries of the Registrant.
22 *
23 Consent of Independent Auditors.
24 *
25 *
26 *
27 Financial Data Schedule, which is submitted
electronically to the SEC for information only and
not filed.
99 *
* Not applicable
-14-
<PAGE> 17
Exhibits filed with Form 10-K:
Exhibits No.
- ------------
10.20 Agreement with M. Jeffrey Branman dated February 11,
2000.
10.21 Agreement with John E. DeWolf dated February 10,
2000.
10.23 Form of Senior Executive Employment Agreement.
10.24 Form of Executive Employment Agreement.
10.34 Form of Notice of Non-renewal of Severance
Agreements.
10.35 Special Real Estate Bonus Program.
12 Computation of Ratio of Earnings to Fixed Charges.
13 1999 Annual Report to Shareholders.
18 Letter on change in accounting principle.
21 Subsidiaries of the Registrant.
23 Consent of Independent Auditors.
27 1999 Financial Data Schedule.
<PAGE> 1
EXHIBIT 10.20
February 11, 2000
Mr. M. Jeffrey Branman
- ----------------------
- ----------------------
Dear Jeff:
This letter sets forth our understanding and agreement with respect to
your resignation as Senior Vice President - Corporate Development of Venator
Group, Inc. (the "Company") and sets forth the arrangements to which we have
agreed.
1. Termination of Employment. Your employment with the Company shall
continue until February 29, 2000 (the "Termination Date"). You shall resign as
Senior Vice President - Corporate Development of the Company effective as of
January 29, 2000, and as Chief Executive Officer of Footlocker.com/Eastbay
effective as of February 29, 2000. You shall execute and deliver a letter of
resignation in the form annexed hereto as Exhibit A.
2. Payments. Provided you continue to be employed by the Company on the
Termination Date and have satisfactorily performed your responsibilities through
such date, including cooperating in the transfer of your responsibilities, the
Company shall make the following payments to you:
(a) On the Termination Date, the amount of $430,000, which
represents 50 percent of the severance benefit payable to you.
(b) On February 28, 2001, provided you have not violated the
provisions of Section 6, the amount of $430,000, plus interest for the period
from the Termination Date to the date on which such payment is made, calculated
at the prime rate of interest as stated in The Wall Street Journal on the
Termination Date.
(c) On the Termination Date, the additional amount of
$1,440,000 in lieu of any special incentive bonus or any other discretionary
bonus to which you might otherwise be entitled.
(d) On the Termination Date, in accordance with the Company's
normal policies and practices, (i) salary and reimbursement of any business
expenses related to the period prior to the Termination Date and (ii) an amount
in lieu of any accrued but unused vacation as of the Termination Date.
<PAGE> 2
(e) You shall be eligible to receive a payment for the 1999
fiscal year under the Company's Annual Incentive Compensation Plan applicable to
senior corporate executives in accordance with the terms of such plan. Such
payment, if any, would be made on or before April 30, 2000.
(f) You shall be eligible to receive payments under the
Long-Term Incentive Compensation Plan for the Performance Periods ending January
29, 2000 pursuant to the provisions of that plan. Such payment, if any, would be
made on or before April 30, 2000. You shall not be eligible to receive payments
under the Long-Term Incentive Compensation Plan for any other period.
(g) All amounts payable to you hereunder shall be subject to
appropriate withholding for federal, state, and local income taxes.
3. Stock Option and Stock Purchase Plans.
(a) All unexercised stock options granted to you prior to the
date hereof, and not exercised or cancelled on or before the Termination Date,
pursuant to the provisions of the 1995 Stock Option and Award Plan or the 1998
Stock Option and Award Plan (the "Option Plans"), shall remain exercisable in
accordance with the relevant provisions of the Option Plans. Your "effective
date of termination" for purposes of the Option Plans shall be the Termination
Date and your termination shall, for the purposes of such plans, be treated as
your voluntary resignation from the Company.
(b) Your right to participate in the 1994 Venator Group
Employees Stock Purchase Plan shall be in accordance with the terms of such plan
and shall cease as of the Termination Date.
4. Pension Benefits. You are not vested in the Venator Group Retirement
Plan and the Excess Cash Balance Plan, and you shall not be entitled to any
payments or other benefits from such plans or from the Supplemental Executive
Retirement Plan.
5. Other Benefits.
(a) You shall be entitled, to the extent permitted under legal
and underwriting requirements, if any, to participate during the one-year period
following the Termination Date in any group medical, dental, or life insurance
plan you participated in prior to your Termination Date under substantially
similar terms and conditions as an active employee, provided that your
participation in such group medical, dental and life insurance benefits shall
correspondingly cease at such time as
2
<PAGE> 3
you become eligible for a future employer's medical, dental and/or life
insurance coverage (or would become eligible if you did not waive coverage).
Your entitlement to elect continuation coverage under the Company's group health
plans pursuant to COBRA shall commence on the earlier of the date participation
in such plans ceases or the end of such one-year period. Notwithstanding the
foregoing, you may not continue to participate in such plans on a pre-tax or tax
favored basis. Your participation in any group disability or voluntary
accidental death and dismemberment plans for active employees of the Company
shall cease on the Termination Date.
(b) The Company shall provide to you, at its expense, until
the earlier of six months following the Termination Date or such time as you
shall have secured other full-time employment, the services of an outplacement
consultant.
6. Confidentiality and Competition.
(a) You will not communicate or disclose to any unauthorized
person, or use for your own account, without the prior written consent of the
Chief Executive Officer of the Company, any proprietary processes, or other
confidential information of the Company or any subsidiary concerning their
business or affairs, accounts or customers, it being understood, however, that
the obligations of this Section 6(a) shall not apply to the extent that the
aforesaid matters (a) are disclosed in circumstances in which you are legally
required to do so or (b) become generally known to and available for use by the
public other than by your wrongful act or omission.
(b) You shall not, without the prior written consent of the
Chief Executive Officer of the Company, for the one-year period following your
Termination Date engage in Competition. As used herein, "Competition" shall mean
the (i) participating, directly or indirectly, as an individual proprietor,
stockholder, officer, employee, director, joint venturer, investor, lender, or
in any capacity whatsoever (within the United States of America, or in any
country where any of your former employing members of the Control Group does
business) in a business in competition with any business conducted by any member
of the Control Group for which you worked at any time, provided, however, that
such participation shall not include (A) the mere ownership of not more than 1
percent of the total outstanding stock of a publicly held company; (B) the
performance of services for any enterprise to the extent such services are not
performed, directly or indirectly, for a business in which any of your employing
members of the Control Group is engaged; or (C) any activity engaged in with the
prior written approval of the Chief Executive Officer of the Company; or (ii)
intentional recruiting, soliciting or inducing, of any employee or employees of
the Control Group to terminate their employment with, or otherwise cease their
relationship with the former employing members of the Control Group where such
employee or employees do in fact so terminate their employment.
3
<PAGE> 4
(i) As used in herein, "Control Group" shall mean the
Company and its Affiliates. "Affiliate" shall mean the Company and any entity
affiliated with the Company within the meaning of Section 414(b) of the Internal
Revenue Code of 1986, as amended and as hereafter amended from time to time
("Code") with respect to a controlled group of corporations, Code Section 414(c)
with respect to trades or businesses under common control with the Company, Code
Section 414(m) with respect to affiliated service groups and any other entity
required to be aggregated with the Company under Section 414(o) of the Code. No
entity shall be treated as an Affiliate for any period during which it is not
part of the controlled group, under common control or otherwise required to be
aggregated under Code Section 414.
(ii) Notwithstanding the above provisions on
Competition, you shall not be considered to have engaged in Competition during
the one-year period following your Termination Date solely as a result of your
providing investment banking advice or services to a business in competition
with any business conducted by any member of the Control Group; provided,
however, that such investment banking services or advice do not involve (i)
representing or assisting any person or group of persons for the purpose of
seeking control of or influencing the management, business, or policies of, the
Company or (ii) any transaction to which the Company, or any subsidiary or
affiliate of the Company, is a party and where you are personally providing
investment banking advice or services to the counter-party with respect to its
transaction with the Company. Notwithstanding the provisions of the preceding
sentence, nothing herein shall prohibit a firm with which you are affiliated
from providing such advice or services provided that you personally adhere to
the provisions of this paragraph.
(iii) If any restriction set forth with regard to
Competition is found by any court of competent jurisdiction or an arbitrator to
be unenforceable because it extends for too long a period of time or over too
great a range of activities or in too broad a geographic area, it shall be
interpreted to extend over the maximum period of time, range of activities, or
geographic area as to which it may be enforceable.
(c) If you engage in such wrongful conduct or otherwise
violate the provisions of Section 6 of this agreement, you will forfeit your
entitlement to any rights granted by this letter agreement (except as otherwise
provided under applicable law) and the Company shall not have any further
obligation under this letter agreement.
7. Release from Claims. In consideration of all of the foregoing, you,
for yourself and for your heirs, executors, administrators, successors, and
assigns, hereby agree to release and forever discharge the Company and its
subsidiaries and affiliates,
4
<PAGE> 5
and their respective officers and directors, from any and all actions, causes of
action, claims, demands, and liabilities of whatsoever nature arising out of, or
in connection with, your employment with the Company and any of its subsidiaries
and affiliates, or otherwise, whether arising before or after the date hereof.
The foregoing shall include, but not be limited to, any claim of employment
discrimination under the Age Discrimination in Employment Act of 1967, the New
York State Human Rights Law, or any other federal or state labor relations law,
equal employment opportunity law, or civil rights law, regulation or order.
Federal law requires that we advise you to consult with an attorney of your
choice (at your own cost). In addition, federal law also provides that you have
21 days from the date of this letter to consider your decision to agree to the
terms of this agreement, including any release of the Company and its
subsidiaries, from liability as provided in this paragraph. Furthermore, you
have the right to change your mind at any time within one week after signing. In
addition, you hereby acknowledge that you have been given full opportunity to
review this letter, including sufficient opportunity for appropriate review with
any advisors selected by you. The foregoing shall not constitute a release of
any and all claims you may have against the Company for breach of any of the
provisions of this letter agreement.
You understand and agree that the payments and benefits
provided for in this agreement shall be in lieu of any and all amounts that
would be payable to you, and that no other amounts will be paid to you for any
reason whatsoever.
8. Assignment. Neither this letter agreement, nor any of the rights
arising hereunder, may be assigned by you. You agree to execute such additional
documents as the Company may require to carry out this letter agreement.
9. Prior Agreements. The severance agreement between you and the
Company dated as of May 5, 1999, and the supplemental letter agreement dated
April 24, 1997 and amended as of May 5, 1999, are hereby terminated without
further obligation by either party to the other, and shall be of no further
force and effect.
10. Miscellaneous.
(a) This letter agreement represents our total understanding
and agreement with regard to the subject matter hereof, and supersedes any
previous discussions or writings. This letter agreement may not be amended or
modified, and no term or provision hereof may be waived or discharged, unless
agreed to in writing by you and the Company. The invalidity or unenforceability
of any provision of this letter agreement shall not affect the validity or
enforceability of any other provision hereof.
5
<PAGE> 6
(b) The section headings herein are for convenience of
reference only and shall not affect or be utilized in the construction or
interpretation of this agreement.
(c) This letter agreement may be executed in counterparts,
each of which, when so executed, shall be deemed an original and all of which,
when taken together, shall constitute one and the same agreement.
(d) The offer of the Company contained in this letter
agreement shall terminate and be of no further force and effect at 12:01 A.M.
New York City time on the twenty-second day following the delivery of this
letter to you, unless you have signed and returned the letter to us, unaltered,
before such date and time.
11. Governing Law. This letter agreement shall be governed by, and
construed under, the laws of the State of New York applicable to contracts made
between residents of such state and to be wholly performed in such state.
If this letter agreement correctly sets forth our agreement, please
execute the duplicate copy of this letter agreement enclosed for that purpose,
and deliver it to us, at which time this letter agreement shall serve as a
binding and enforceable agreement between us.
Very truly yours,
VENATOR GROUP, INC.
By:/s/ Dennis M. Lee
--------------------------------
Senior Vice President
Agreed:
/s/ M. Jeffrey Branman
- -----------------------------
M. Jeffrey Branman
Witnessed:
/s/ Sheilagh M. Clarke
- -----------------------------
February 16, 2000
6
<PAGE> 7
EXHIBIT A
___________________, 2000
Board of Directors
Venator Group, Inc.
233 Broadway
New York, NY 10279
Gentlemen and Ladies:
I hereby resign my position as Senior Vice President - Corporate
Development of Venator Group, Inc. (the "Company") and from any other position I
may hold with the Company, effective as of January 29, 2000. I understand that
my employment will continue through February 29, 2000.
I hereby further resign as Chief Executive Officer of
Footlocker.com/Eastbay, a subsidiary of the Company, and from any other position
I may hold with any subsidiary or affiliate of the Company, effective as of
February 29, 2000.
Yours truly,
7
<PAGE> 1
EXHIBIT 10.21
February 10, 2000
Mr. John E. DeWolf III
- ----------------------
- ----------------------
Dear John:
This letter sets forth our understanding and agreement with respect to
your resignation as Senior Vice President - Real Estate of Venator Group, Inc.
(the "Company"), and sets forth the arrangements to which we have agreed.
1. Termination of Employment. Your employment with the Company shall
continue through February 29, 2000 (the "Termination Date"). You shall resign as
Senior Vice President - Real Estate of the Company and from all other positions
you may hold with the Company or any of its subsidiaries or affiliates as of
January 29, 2000, and you shall execute and deliver a letter of resignation in
the form annexed hereto as Exhibit A as of such date.
2. Payments. Provided you continue to be employed by the Company on the
Termination Date and have satisfactorily performed your responsibilities through
January 29, 2000, including cooperating in the transfer of your responsibilities
to your successor, the Company shall make the following payments to you:
(a) On the Termination Date, the amount of $420,000, which
represents the amount payable to you pursuant to the provisions of the Company's
applicable severance plan.
(b) On the Termination Date, in accordance with the Company's
normal policies and practices, (i) salary and reimbursement of any business
expenses related to the period prior to the Termination Date and (ii) an amount
in lieu of any accrued but unused vacation as of January 29, 2000.
(c) You shall be eligible to receive a payment under the
Company's Annual Incentive Compensation Plan for the 1999 fiscal year in
accordance with the terms of such plan. Such payment, if any, would be made on
or before April 30, 2000.
<PAGE> 2
(d) You shall be eligible to receive payments under the
Company's Long-Term Incentive Compensation Plan for the Performance Periods
ending January 29, 2000 pursuant to the provisions of that plan. Such payments,
if any, would be made on or before April 30, 2000.
(e) All amounts payable to you hereunder shall be subject to
appropriate withholding for federal, state, and local income taxes.
3. Stock Option and Stock Purchase Plans.
(a) All unexercised stock options granted to you prior to the
date hereof, and not exercised or cancelled on or before the Termination Date,
pursuant to the provisions of the Venator Group 1995 and 1998 Stock Option and
Award Plans (the "Option Plans"), shall remain exercisable in accordance with
the relevant provisions of the Option Plans. Your "effective date of
termination" for purposes of the Option Plans shall be the Termination Date and
your termination shall, for the purposes of such plans, be treated as your
resignation from your position with the Company.
(b) Your right to participate in the 1994 Venator Group
Employees Stock Purchase Plan shall be in accordance with the terms of such plan
and shall cease as of the Termination Date.
4. Pension Benefits. You are not vested in the Venator Group Retirement
Plan and the Excess Cash Balance Plan, and you shall not be entitled to any
payments or other benefits from such plans or from the Supplemental Executive
Retirement Plan.
5. Other Benefits.
(a) You agree that you will not accrue any vacation for the
period of January 30, 2000 to your Termination Date.
(b) You shall be entitled, to the extent permitted under legal
and underwriting requirements, if any, to participate during the one-year period
following the Termination Date in any group medical, dental, or life insurance
plan you participated in prior to your Termination Date under substantially
similar terms and conditions as an active employee, provided that your
participation in such group medical, dental and life insurance benefits shall
correspondingly cease at such time as you become eligible for a future
employer's medical, dental and/or life insurance coverage (or would become
eligible if you did not waive coverage). Your entitlement to elect continuation
coverage under the Company's group health plans pursuant to COBRA shall commence
on the earlier of the date participation in such plans ceases
2
<PAGE> 3
or the end of such one-year period. Notwithstanding the foregoing, you may not
continue to participate in such plans on a pre-tax or tax favored basis. Your
participation in any group disability or voluntary accidental death and
dismemberment plans for active employees of the Company shall cease on the
Termination Date.
6. Confidentiality and Competition.
(a) You will not communicate or disclose to any unauthorized
person, or use for your own account, without the prior written consent of the
Chief Executive Officer of the Company, nonpublic information of any kind
concerning the Company or any of its subsidiaries or affiliates, including, but
not limited to, nonpublic information concerning finances, financial plans,
accounting methods, strategic plans, operations, personnel, organizational
structure, methods of distribution, suppliers, customers, client relationships,
marketing strategies, real estate strategies or the like ("Confidential
Information"). You shall not, between the date hereof and the Termination Date,
remove any Confidential Information from the offices of the Company and you
shall, on or before the Termination Date, return all Confidential Information in
your possession, in whatever form, to the Company. The existence of this
agreement and the terms hereof shall be considered to be Confidential
Information. It is understood, however, that the obligations set forth in this
paragraph shall not apply to the extent that the aforesaid matters (a) are
disclosed in circumstances in which you are legally required to do so or (b)
become generally known to and available for use by the public other than by your
wrongful act or omission.
(b) You shall not, without the prior written consent of the
Chief Executive Officer of the Company, for the one-year period following your
Termination Date engage in Competition. As used herein, "Competition" shall mean
the (i) participating, directly or indirectly, as an individual proprietor,
stockholder, officer, employee, director, joint venturer, investor, lender, or
in any capacity whatsoever (within the United States of America, or in any
country where the Company, including its subsidiaries and affiliates, does
business) in (A) a business in competition with the retail, catalog, or on-line
sale of athletic footwear, athletic apparel and sporting goods conducted by the
Company and its subsidiaries and affiliates (the "Athletic Business"), or (B) a
business that in the prior fiscal year supplied product for the Athletic
Business to the Company or any of its subsidiaries or affiliates having a value
of $20 million or more at cost to the Company or any of its subsidiaries or
affiliates; provided, however, that such participation shall not include (X) the
mere ownership of not more than 1 percent of the total outstanding stock of a
publicly held company; (Y) the performance of services for any enterprise to the
extent such services are not performed, directly or indirectly, for a business
in competition with the Athletic Business or for a business which supplies
product to the
3
<PAGE> 4
Company or its subsidiaries or affiliates for the Athletic Business; or (Z) any
activity engaged in with the prior written approval of the Chief Executive
Officer of the Company; or (ii) intentional recruiting, soliciting or inducing,
of any employee or employees of the Company or its subsidiaries or affiliates to
terminate their employment with, or otherwise cease their relationship with the
Company or its subsidiaries or affiliates where such employee or employees do in
fact so terminate their employment. If any restriction set forth with regard to
Competition is found by any court of competent jurisdiction or an arbitrator to
be unenforceable because it extends for too long a period of time or over too
great a range of activities or in too broad a geographic area, it shall be
interpreted to extend over the maximum period of time, range of activities, or
geographic area as to which it may be enforceable.
(c) If you engage in such wrongful conduct or otherwise violate the
provisions of this Section 6, you will forfeit your entitlement to any rights
granted by this letter agreement (except as otherwise provided under applicable
law) and the Company shall not have any further obligation under this letter
agreement. In addition, you agree that the Company shall have such other rights,
including but not limited to injunctive relief, as may be provided under
applicable law. You acknowledge that a violation by you of the provisions of
this Section 6 would cause irreparable injury to the Company for which there
would be no adequate remedy at law.
7. Release from Claims. In consideration of all of the foregoing, you,
for yourself and for your heirs, executors, administrators, successors, and
assigns, hereby agree to release and forever discharge the Company and its
subsidiaries and affiliates, and their respective officers and directors, from
any and all actions, causes of action, claims, demands, and liabilities of
whatsoever nature arising out of, or in connection with, your employment with
the Company and any of its subsidiaries and affiliates, or otherwise, whether
arising before or after the date hereof. The foregoing shall include, but not be
limited to, any claim of employment discrimination under the Age Discrimination
in Employment Act of 1967, the New York State Human Rights Law, or any other
federal or state labor relations law, equal employment opportunity law, or civil
rights law, regulation or order. Federal law requires that we advise you to
consult with an attorney of your choice (at your own cost). In addition, federal
law also provides that you have 21 days from the date of this letter to consider
your decision to agree to the terms of this agreement, including any release of
the Company and its subsidiaries, from liability as provided in this paragraph.
Furthermore, you have the right to change your mind at any time within one week
after signing. In addition, you hereby acknowledge that you have been given full
opportunity to review this letter, including sufficient opportunity for
appropriate review with any advisors selected by you. The foregoing shall not
constitute a release of any and all claims you may have against the Company for
breach of any of the provisions of this letter agreement.
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You understand and agree that the payments and benefits
provided for in this agreement shall be in lieu of any and all amounts that
would be payable to you, and that no other amounts will be paid to you for any
reason whatsoever.
8. Assignment. Neither this letter agreement, nor any of the rights
arising hereunder, may be assigned by you. You agree to execute such additional
documents as the Company may require to carry out this letter agreement.
9. Prior Agreement. The severance agreement entered into between the
Company and you dated as of May 5, 1999 is hereby terminated without any further
obligation of the parties thereto and shall be of no further force and effect.
10. Consulting Agreement. You agree to enter into a consulting
agreement with the Company covering your services on certain real estate
projects, which agreement shall be substantially in the form attached hereto.
11. Miscellaneous.
(a) This letter agreement represents our total understanding
and agreement with regard to the subject matter hereof, and supersedes any
previous discussions or writings. This letter agreement may not be amended or
modified, and no term or provision hereof may be waived or discharged, unless
agreed to in writing by you and the Company. The invalidity or unenforceability
of any provision of this letter agreement shall not affect the validity or
enforceability of any other provision hereof.
(b) The section headings herein are for convenience of
reference only and shall not affect or be utilized in the construction or
interpretation of this agreement.
(c) This letter agreement may be executed in counterparts,
each of which, when so executed, shall be deemed an original and all of which,
when taken together, shall constitute one and the same agreement.
(d) The offer of the Company contained in this letter
agreement shall terminate and be of no further force and effect at 12:01 A.M.
New York City time on the twenty-second day following the delivery of this
letter to you, unless you have signed and returned the letter to us, unaltered,
before such date and time.
12. Governing Law. This letter agreement shall be governed by, and
construed under, the laws of the State of New York applicable to contracts made
between residents of such state and to be wholly performed in such state.
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<PAGE> 6
If this letter agreement correctly sets forth our agreement, please
execute the duplicate copy of this letter agreement enclosed for that purpose,
and deliver it to us, at which time this letter agreement shall serve as a
binding and enforceable agreement between us.
Very truly yours,
VENATOR GROUP, INC.
By:/s/ Dennis M. Lee
--------------------------------
Senior Vice President
Agreed:
/s/ John E. DeWolf III
- -----------------------------
John E. DeWolf III
Witnessed:
/s/ Joanne Giallanza
- -----------------------------
February 10, 2000
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EXHIBIT A
January _____________, 2000
Board of Directors
Venator Group, Inc.
233 Broadway
New York, NY 10279
Gentlemen and Ladies:
I hereby resign my position as Senior Vice President - Real Estate of
Venator Group, Inc., and from any other position as an officer or director that
I may hold with Venator Group, Inc. or with any subsidiary or affiliate thereof,
effective as of January 29, 2000. I understand that my employment with the
Company will continue through February 29, 2000.
Yours truly,
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<PAGE> 8
CONSULTING AGREEMENT
This Consulting Agreement, dated as of March 1, 2000, by and between
Venator Group, Inc., a New York corporation (the "Company"), with an address at
233 Broadway, New York, New York 10279, and John E. DeWolf III (the
"Consultant").
In consideration of the premises and the mutual covenants, terms and
conditions set forth herein, and for other good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged, the parties hereto agree
as follows:
1. Consulting Services. The Company hereby retains the Consultant to
provide real estate consulting services on the General Projects and the
Philadelphia Project described in Schedule A hereto (the "Services"). In that
regard, Consultant shall provide such specific Services not inconsistent with
the description set forth in Schedule A as may, from time to time, be requested
by the Chief Executive Officer of the Company.
2. Term. The term of this agreement shall commence on March 1, 2000 and
shall continue through June 30, 2000, unless sooner terminated as provided in
Section 3 hereof.
3. Termination.
(a) Subject to the following, this Agreement shall terminate
automatically on June 30, 2000, and the Company shall have no further obligation
hereunder from and after such date except as otherwise set forth herein.
(b) The Company may terminate this agreement immediately upon
written notice to the Consultant upon the occurrence of any of the events
identified in subsections (i) or (ii) below:
(i) the unreasonably willful failure of the
Consultant substantially to perform his duties hereunder, or
(ii) the willful engagement by the Consultant in
conduct which is, in the sole opinion of the Chief Executive Officer of the
Company, in any way adverse to the Company, its subsidiaries, or affiliates,
including, but not limited to engaging in acts proscribed by Section 9 hereof.
(c) This agreement will automatically terminate in the event
of the death or disability of the Consultant.
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(d) The Consultant may terminate this agreement at any time
upon 30 days prior written notice to the Company.
4. Consulting Fee.
(a) The Company shall pay to the Consultant the fee of $40,000
per month as payment for the Services the Consultant is to provide pursuant to
this agreement. Such fee shall be payable within five business days after the
last day of each month. No federal or state tax deductions shall be withheld
from such fee.
(b) In addition to the fees payable pursuant to the provisions
of Section 4(a), the Company shall pay to the Consultant the additional amount
of $140,000 if, on or before June 30, 2000, the Company has either closed on, or
executed a binding contract for, the sale of the property described in Schedule
A under the heading "Philadelphia Project" for an amount no less than the sale
price and the nonrefundable deposit set out in such schedule. Payment, if any,
to the Consultant under this Section 4(b) shall be payable within 5 business
days of the closing date of such project, but no payment shall be made to the
Consultant if the closing on such property occurs after July 29, 2000.
(c) Payment for a portion of any period will be prorated.
5. Reimbursement of Expenses. Upon receipt of appropriate
documentation, the Company shall promptly reimburse Consultant for all travel
and other business expenses incurred by him for travel undertaken at the request
of the Company in the performance of the Services hereunder, subject to the
Company's travel and reimbursement policies applicable to its management
employees.
6. Independent Contractor Relationship. The relationship between the
Company and Consultant is an independent contractor relationship and nothing
herein shall create an employer-employee relationship between the Company and
Consultant. Consultant shall have no authority to act on behalf of the Company
or to obligate the Company to any third party in any way except as expressly
authorized in writing by a duly authorized officer of the Company.
7. Intellectual Property Ownership. All materials and any inventions
(whether or not patentable), works of authorship, programming (including but not
limited to source code), trade secrets, ideas, concepts and trade or service
marks (collectively, "inventions"), created, conceived, or prepared by or
furnished to Consultant in the performance of the Services hereunder, shall
belong exclusively to the Company. This agreement shall be deemed a transfer of
any and all rights including copyright, trademark and patent rights, and any
other intellectual property rights with respect to such inventions. Consultant
agrees to execute any documents
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<PAGE> 10
required by the Company to perfect its ownership rights to any such rights. In
addition, upon request, Consultant shall turn over to the Company all originals
(including source code) and all copies of any such materials and inventions in
Consultant's possession. Consultant hereby waives any and all rights to any
material or inventions generated pursuant to this agreement or conceived or
developed in the performance of the Services hereunder. Consultant agrees that
the Company may make any use of such material and inventions, whether
foreseeable or unforeseeable at the time of execution of this agreement.
8. Compliance with Law. Consultant shall comply with all applicable
federal, state and local laws, ordinances, regulations and codes in the
performance of the Services hereunder, including the procurement of permits and
certificates where required. Consultant shall indemnify and hold the Company
harmless from and against any loss, damages or expense arising from his failure
to so comply.
9. Confidential Information and Competition.
(a) Without the prior written consent of the Chief Executive
Officer of the Company, Consultant will not disclose (except to the extent
necessary for the proper performance of the Services) or use for the
Consultant's personal benefit any information acquired during the course of
providing the Services hereunder respecting the Company or any of its
subsidiaries or affiliates, including, but not limited to, trade secrets, real
estate strategies, or information designated by the Company as confidential. Any
documents, reports, working papers, programs, or other such items, whether
written or recorded on magnetic tape, diskette, or any other medium prepared by
Consultant in connection with the performance of the Services, shall be the
exclusive property of the Company, and Consultant acknowledges and agrees that
all tangible and intangible information revealed, obtained, or developed
hereunder shall be considered confidential or proprietary information which
shall not be disclosed to any third party, without the prior written consent of
the Company.
(b) The Consultant shall not, without the prior written
consent of the Chief Executive Officer of the Company, engage in Competition
during the term of this agreement. As used herein, "Competition" shall mean the
(i) participating, directly or indirectly, as an individual proprietor,
stockholder, officer, employee, director, joint venturer, investor, lender, or
in any capacity whatsoever (within the United States of America, or in any
country where the Company, including its subsidiaries and affiliates, does
business) in (A) a business in competition with the retail, catalog, or on-line
sale of athletic footwear, athletic apparel and sporting goods conducted by the
Company and its subsidiaries and affiliates (the "Athletic Business"), or (B) a
business that in the prior fiscal year supplied product for the Athletic
Business to the Company or any of its subsidiaries or affiliates having a value
of $20 million or
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more at cost to the Company or any of its subsidiaries or affiliates; provided,
however, that such participation shall not include (X) the mere ownership of not
more than 1 percent of the total outstanding stock of a publicly held company;
(Y) the performance of services for any enterprise to the extent such services
are not performed, directly or indirectly, for a business in competition with
the Athletic Business or for a business which supplies product to the Company or
its subsidiaries or affiliates for the Athletic Business; or (Z) any activity
engaged in with the prior written approval of the Chief Executive Officer of the
Company; or (ii) intentional recruiting, soliciting or inducing, of any employee
or employees of the Company or its subsidiaries or affiliates to terminate their
employment with, or otherwise cease their relationship with the Company or its
subsidiaries or affiliates where such employee or employees do in fact so
terminate their employment. If any restriction set forth with regard to
Competition is found by any court of competent jurisdiction or an arbitrator to
be unenforceable because it extends for too long a period of time or over too
great a range of activities or in too broad a geographic area, it shall be
interpreted to extend over the maximum period of time, range of activities, or
geographic area as to which it may be enforceable.
(c) The Consultant agrees that any breach of the terms of
Sections 9(a) or 9(b) would result in irreparable injury and damage to the
Company for which the Company would have no adequate remedy at law; the
Consultant therefore agrees that in the event of a breach or threatened breach
by the Consultant of the provisions of Sections 9(a) or 9(b), the Company shall
be entitled to an immediate injunction and restraining order to prevent such
breach or threatened breach or continued breach by the Consultant. The terms of
this paragraph shall not prevent the Company from pursuing any other available
remedies for any breach or threatened breach hereof, including but not limited
to the recovery of damages from the Consultant and the termination of this
agreement pursuant to Section 3(b)(ii) hereof.
10. Notices. Any notice to either party hereunder shall be in writing,
and shall be deemed to be sufficiently given to or served on such party, for all
purposes, if the same shall be personally delivered to such party, or sent to
such party by certified mail, postage prepaid, at, in the case of the Company,
the address of such party first given above and, in the case of the Consultant,
his principal residence address as shown in the records of the Company. Notice
to the Company shall be addressed to the General Counsel. Either party hereto
may change the address to which notices are to be sent to such party hereunder
by written notice of such new address given to the other party hereto. Notices
shall be deemed given when received if delivered personally or three days after
mailing if mailed as aforesaid.
11. Applicable Law. This agreement shall be governed by and construed
in accordance with the laws of the State of New York, without reference to its
principles of conflicts of laws.
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<PAGE> 12
12. Arbitration. Any controversy or claim arising out of or relating to
this agreement, or the breach thereof, shall be settled by arbitration in the
City of New York, in accordance with the rules of the American Arbitration
Association (the "AAA"). The decision of the arbitrator(s) shall be final and
binding on the parties hereto, and judgment upon the award rendered by the
arbitrator(s) may be entered in any court having jurisdiction thereof. The costs
assessed by the AAA for arbitration shall be borne equally by both parties.
13. Interpretation. If any provision of this agreement shall be
declared invalid or unenforceable, the remainder of this agreement shall not be
affected thereby, but rather is to be enforced to the greatest extent permitted
by law. Headings in this agreement are inserted for convenience of reference
only and are not to be considered in the construction of the provisions hereof.
14. Miscellaneous.
(a) Consultant shall not use the name of the Company or any of
its subsidiaries or affiliates in any sales or marketing publication or
advertisement without the prior written consent of the Company.
(b) Consultant shall not assign or transfer his interests or
obligations under this agreement without the prior written consent of the
Company.
(c) This agreement constitutes the entire agreement between
the parties with respect to the subject matter hereof and may not be amended or
modified except in writing, signed by both parties.
IN WITNESS WHEREOF, the parties have executed this agreement as of the
date first above written.
VENATOR GROUP, INC.
By:
Senior Vice President
By:
John E. DeWolf III
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SCHEDULE A
The Services shall consist of real estate consulting services with
respect to the projects identified by the Company as follows:
General Projects
- - leasing and designing additional office space at 34th Street, New York,
New York;
- - relocating the European real estate office from London, England, to
Amsterdam, the Netherlands;
- - negotiating with the landlord for a buyout of the tenant interest in
the lease on property located at Fulton Street, New York, and
mitigating the loss with regard to the claim by the landlord for the
alleged failure to operate the Foot Locker location at Jersey Gardens,
New Jersey.
Philadelphia Project
- - the sale of property located at 1026-1044 Market Street, Philadelphia,
Pennsylvania for a sale price of at least $7 million and a
nonrefundable deposit in excess of $200,000.
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EXHIBIT 10.23
SENIOR EXECUTIVE EMPLOYMENT AGREEMENT
AGREEMENT made as of the day of between Venator Group, Inc.
(the "Company"), a New York corporation with its principal office located in New
York, New York, and ("Executive").
W I T N E S S E T H:
WHEREAS, the Company believes that the establishment and maintenance of
a sound and vital management of the Company is essential to the protection and
enhancement of the interests of the Company and its shareholders;
WHEREAS, the Company wishes to provide for the continued employment of
the Executive with the Control Group, and the Executive is willing to commit
himself to continue to serve the Company, on the terms and conditions herein
provided; and
WHEREAS, this Agreement supersedes any employment agreement, severance
plan, policy and/or practice of the Company in effect on the date hereof for the
Executive.
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, the parties hereto hereby agree as follows:
1. Definitions. The following terms shall have the meanings set forth
in this section as follows:
(a) "Affiliate" shall mean the Company and any entity
affiliated with the Company within the meaning of Code Section 414(b) with
respect to a controlled group of corporations, Code Section 414(c) with respect
to trades or businesses under common control with the Company, Code Section
414(m) with respect to affiliated service groups and any other entity required
to be aggregated with the Company under Section 414(o) of the Code. No entity
shall be treated as an Affiliate for any period during which it is not part of
the controlled group, under common control or otherwise required to be
aggregated under Code Section 414.
(b) "Beneficiary" shall mean the individual designated by the
Executive, on a form acceptable by the Committee, to receive benefits payable
under this Agreement in the event of the Executive's death. If no Beneficiary is
designated, the Executive's Beneficiary shall be his spouse, or if the Executive
is not survived by a spouse, the Executive's estate.
<PAGE> 2
(c) "Board" shall mean the Board of Directors of the Company.
(d) "Bonus" shall mean an amount equal to the target bonus
expected to be earned by the Executive under the Company's Annual Incentive
Compensation Plan or such other annual bonus plan or program that may then be
applicable to the Executive in a fiscal year, if the applicable target
performance goal is satisfied.
(e) "Cause" shall mean (with regard to the Executive's
termination of employment with the Control Group): (i) the refusal or willful
failure by the Executive to substantially perform his duties, (ii) with regard
to the Control Group or any of their assets or businesses, the Executive's
dishonesty, willful misconduct, misappropriation, breach of fiduciary duty or
fraud, (iii) the willful breach by the Executive of any material provision of
this Agreement, which breach is not cured within ten (10) business days from the
date of the Company's notice of the occurrence of such breach to the Executive,
or (iv) the Executive's conviction of a felony (other than a traffic violation)
or any other crime involving, in the sole discretion of the Committee, moral
turpitude.
(f) "Change in Control" shall have the meaning set forth in
Appendix A attached hereto.
(g) "Code" shall mean the Internal Revenue Code of 1986, as
amended and as hereafter amended from time to time.
(h) "Committee" shall mean the Compensation Committee of the
Board or an administrative committee appointed by the Compensation Committee.
(i) "Competition" shall mean the (i) participating, directly
or indirectly, as an individual proprietor, stockholder, officer, employee,
director, joint venturer, investor, lender, or in any capacity whatsoever
(within the United States of America, or in any country where any of the
Executive's former employing members of the Control Group does business) in (A)
a business in competition with the retail, catalog, or on-line sale of athletic
footwear, athletic apparel and sporting goods conducted by the Control Group
(the "Athletic Business"), or (B) a business that in the prior fiscal year
supplied product to the Control Group for the Athletic Business having a value
of $20 million or more at cost to the Company or any of its subsidiaries or
affiliates; provided, however, that such participation shall not include (X) the
mere ownership of not more than 1 percent of the total outstanding stock of a
publicly held company; (Y) the performance of services for any enterprise to the
extent such services are not performed, directly or indirectly, for a business
in competition with the Athletic Business or for a business which supplies
product to the Control Group for
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<PAGE> 3
the Athletic Business; or (Z) any activity engaged in with the prior written
approval of the Chief Executive Officer of the Company; or (ii) intentional
recruiting, soliciting or inducing, of any employee or employees of the Control
Group to terminate their employment with, or otherwise cease their relationship
with the former employing members of the Control Group where such employee or
employees do in fact so terminate their employment.
(j) "Control Group" shall mean the Company and its Affiliates.
(k) "Good Reason" shall mean (with respect to an Executive's
termination of employment with the Control Group):
(i) Prior to a Change in Control, a reduction in the
Executive's rate of base salary as payable from time to time, other than a
reduction that occurs in connection with, and in the same percentage as, an
across-the-board reduction over any three-year period in the base salaries of
all executives of the Company of a similar level and where the reduction is less
than 20 percent of the Executive's base salary measured from the beginning of
such three-year period;
(ii) On or after a Change in Control, (A) any
reduction in the Executive's rate of base salary as payable from time to time or
(B) a failure of the Company to continue in effect the benefits applicable to,
or the Company's reduction of the benefits applicable to, the Executive under
any benefit plan or arrangement (including without limitation, any pension, life
insurance, health or disability plan) in which the Executive participates as of
the date of the Change in Control without implementation of a substitute plan(s)
providing materially similar benefits in the aggregate to those discontinued or
reduced, except for a discontinuance of, or reduction under, any such plan or
arrangement that is legally required, and provided that in either such event the
Company provides similar benefits (or the economic effect thereof) to the
Executive in any manner determined by the Company;
(iii) At any time, (A) any material demotion of the
Executive or any material reduction in the Executive's authority or
responsibility, except in each case in connection with the termination of the
Executive's employment for Cause or disability or as a result of the Executive's
death, or temporarily as a result of the Executive's illness or other absence;
(B) a reduction in the Executive's annual bonus classification level other than
in connection with a redesign of the applicable bonus plan that affects all
employees at the Executive's bonus level; or (C) the failure of any successor to
the Company to assume in writing the obligations hereunder.
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<PAGE> 4
(l) "Non-Competition Period" shall mean (i) the period the
Executive is employed by the Control Group and (ii) at any time prior to a
Change in Control, the one (1) year period commencing on the Termination Date if
the Executive's employment is terminated (A) by the Company for any reason (B)
by the Executive for any reason, or (C) by reason of the Company's decision not
to extend the term of this Agreement as provided in Section 2 hereof.
(m) "Salary" shall mean an Executive's base cash compensation
rate for services paid to the Executive by the Company or an Affiliate at the
time of his termination of employment from the Control Group. Salary shall not
include commissions, bonuses, overtime pay, incentive compensation, benefits
paid under any qualified plan, any group medical, dental or other welfare
benefit plan, noncash compensation or any other additional compensation but
shall include amounts reduced pursuant to an Executive's salary reduction
agreement under Sections 125 or 401(k) of the Code (if any) or a nonqualified
elective deferred compensation arrangement to the extent that in each such case
the reduction is to base salary.
(n) "Severance Benefit" shall mean (i) in the case of the
Executive's termination of employment with the Control Group that does not occur
within the 24 month period following a Change in Control and such termination is
a termination of employment by the Company without Cause or by the Executive for
Good Reason, two weeks' Salary plus 1/26 of the Bonus multiplied by the
Executive's Years of Service; provided, however, that the Severance Benefit
shall be no less than 52 weeks' Salary; or (ii) in the case of an Executive's
termination of employment with the Control Group that occurs within the 24 month
period following a Change in Control and such termination is a termination of
employment by the Company without Cause or by the Executive for Good Reason, two
weeks' Salary plus 1/26 of the Bonus multiplied by the Executive's Years of
Service; provided, however, that the Severance Benefit shall be no less than the
Bonus multiplied by two plus 104 weeks' Salary.
(o) "Severance Period" shall mean (i) in the case of the
Executive's termination of employment that does not occur within the 24 month
period following a Change in Control and such termination is a termination of
employment by the Company without Cause or by the Executive for Good Reason, two
weeks' multiplied by the Executive's Years of Service, with a minimum of 52
weeks; or (ii) in the case of an Executive's termination of employment within
the 24 month period following a Change in Control and such termination is a
termination of employment by the Company without Cause or by the Executive for
Good Reason, two weeks multiplied by the Executive's Years of Service, with a
minimum of 104 weeks.
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<PAGE> 5
(p) "Termination Date" shall mean in the case of the
Executive's death, the date of death, or in all other cases, the date specified
in the Notice of Termination; provided, however, that if the Executive's
employment is terminated by the Company due to disability as provided in Section
7(b), the date specified in the Notice of Termination shall be at least thirty
(30) days from the date the Notice of Termination is given to the Executive.
(q) "Year of Service" shall mean each 12 consecutive month
period commencing on the Executive's date of hire by the Company or an Affiliate
and each anniversary thereof in which the Executive is paid by the Company or an
Affiliate for the performance of full-time services as an Executive. For
purposes of this section, full-time services shall mean that the Employee is
employed for at least 30 hours per week. A Year of Service shall include any
period during which an Employee is not working due to disability, leave of
absence or layoff so long as he is being paid by the Company or an Affiliate
(other than through any employee benefit plan). A Year of Service also shall
include service in any branch of the armed forces of the United States by any
person who is an Executive on the date such service commenced, but only to the
extent required by applicable law.
2. Term. The initial term of this Agreement shall commence on and
shall end on December 31, 2001, unless further extended or sooner terminated as
hereinafter provided. The term shall be automatically renewed for additional
one-year periods unless the Company notifies the Executive prior to December 1,
2001, with regard to the initial term, and any December 1 of any year
thereafter, with regard to renewal terms, that the term shall not be renewed. In
no event, however, shall the term of the Executive's employment extend beyond
the date of the Executive's actual retirement under a retirement plan of the
Company. Notwithstanding anything in this Agreement to the contrary, if the
Company becomes obligated to make any payment to the Executive pursuant to the
terms hereof at or prior to the expiration of this Agreement, then this
Agreement shall remain in effect until all of the Company's obligations
hereunder are fulfilled.
3. Position and Duties. The Executive shall serve as of the
Company and shall have such responsibilities, duties and authority as he may
have as of the effective date of this Agreement (or any position to which he may
be promoted after the effective date of this Agreement) and as may from time to
time be assigned to the Executive by the Chief Executive Officer of the Company
that are consistent with such responsibilities, duties and authority. The
Executive shall devote substantially all of his working time and efforts to the
business and affairs of the Company and its Affiliates.
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<PAGE> 6
4. Place of Performance. In connection with the Executive's employment
by the Company, the Executive shall be based in , except for
required travel on the Company's business.
5. Compensation and Related Matters
(a) Salary. During the period of the Executive's employment
hereunder, the Company or an Affiliate shall pay to the Executive a salary at a
rate not less than the rate in effect as of the effective date of this Agreement
or such higher rate as may from time to time be determined by the Company, such
salary to be paid in accordance with the Company's normal payroll practices.
(b) Expenses. During the term of the Executive's employment
hereunder, the Executive shall be entitled to receive prompt reimbursement for
all reasonable and customary expenses incurred by the Executive in performing
services hereunder, including all expenses of travel and living expenses while
away from home on business or at the request of and in the service of the
Company or an Affiliate, provided that such expenses are incurred and accounted
for in accordance with the polices and procedures established by the Company.
(c) Other Benefits. The Company shall maintain in full force
and effect, and the Executive shall be entitled to continue to participate in,
all of the employee benefit plans and arrangements in effect on the date hereof
in which the Executive participates or plans or arrangements providing the
Executive with at least equivalent benefits thereunder (including without
limitation each retirement plan, supplemental and excess retirement plans,
annual and long-term incentive compensation plans, stock option and purchase
plans, group life insurance and accident plan, medical and dental insurance
plans, and disability plan), and the Company shall not make any changes in such
plans or arrangements that would adversely affect the Executive's rights or
benefits thereunder; provided, however, that such a change may be made,
including termination of such plans or arrangements, to the extent permitted by
the respective plan or arrangement, if it occurs pursuant to a program
applicable to all comparably situated executives of the Company and does not
result in a proportionately greater reduction in the rights of or benefits to
the Executive as compared with any other comparably situated executive of the
Company. The Executive shall be entitled to participate in or receive benefits
under any employee benefit plan or arrangement made available by the Company in
the future to its comparably situated executives and key management employees,
subject to and on a basis consistent with the terms, conditions and overall
administration of such plans and arrangements. Nothing paid to the Executive
under any plan or arrangement presently in effect or made available in the
future shall be deemed to be in lieu of the salary payable to the Executive
pursuant to Section 5(a). Any payments or benefits payable to the Executive
hereunder in respect of any calendar year during
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which the Executive is employed by the Company for less than the entire year
shall, unless otherwise provided in the applicable plan or arrangement, be
prorated in accordance with the number of days in such calendar year during
which he is so employed.
(d) Vacations. The Executive shall be entitled to no less than
the number of vacation days in each calendar year that is determined in
accordance with the Company's vacation policy as in effect on the date hereof.
The Executive shall also be entitled to all paid holidays and personal days
given by the Company to its executives.
6. Offices. Subject to Sections 3 and 4, the Executive agrees to serve
without additional compensation, if elected or appointed thereto, as a director
of the Company and any of its Affiliates and in one or more executive offices of
any of the Company's Affiliates, provided that the Executive is indemnified for
serving in any and all such capacities on a basis no less favorable than is
currently provided by the Company to any other director of the Company or any of
its Affiliates.
7. Termination. The Executive's employment hereunder may be terminated
without any breach of this Agreement only upon the following circumstances:
(a) Death. The Executive's employment hereunder shall
automatically terminate upon his death.
(b) Disability. If, as a result of the Executive's incapacity
due to physical or mental illness as determined by the Company in its sole
discretion, the Executive shall have been absent from his duties hereunder on a
full-time basis for a period of six consecutive months, and within 30 days after
written Notice of Termination is given (which may occur before or after the end
of such six month period) shall not have returned to the performance of his
duties hereunder on a full-time basis, the Company may immediately terminate the
Executive's employment hereunder.
(c) Cause. The Company may terminate the Executive's
employment hereunder for Cause by, at any time at its election within six months
after the Company shall obtain knowledge of the grounds for termination, giving
the Executive notice of its intention to terminate the Executive for cause and
stating the termination date and the grounds for termination.
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(d) Good Reason. The Executive may terminate his employment
hereunder for Good Reason upon 30 days' prior written notice to the Company;
provided, however, that prior to a Change in Control, if the Company corrects
the matter that has given rise to the Good Reason event, and makes the Executive
whole for any loss to the Executive resulting from such Good Reason event, the
Executive may not so terminate his employment.
(e) Without Cause. The Company may terminate the Executive's
employment hereunder without Cause upon 30 days' prior written notice to the
Executive.
(f) Without Good Reason. The Executive may terminate his
employment hereunder without Good Reason upon 30 days' prior written notice to
the Company.
Any termination of the Executive's employment by the Company or by the
Executive (other than termination pursuant to Section 7(a)) shall be
communicated by written Notice of Termination to the other party hereto in
accordance with Section 19. For purposes of this Agreement, a "Notice of
Termination" shall mean a notice which shall indicate the specific termination
provision in this Agreement relied upon and shall set forth in reasonable detail
the facts and circumstances claimed to provide a basis for termination of the
Executive's employment under the provision so indicated.
8. Benefits Upon Termination.
(a) In the event the Executive's employment with the Control
Group is terminated by his death, the Company shall pay any amounts due to the
Executive under Section 5 through the date of his death in accordance with
Section 13.
(b) In the event the Executive's employment with the Control
Group is terminated under Section 7(b), the Company shall pay any amounts due to
the Executive under Section 5 through the date of his termination and shall have
no other obligation to the Executive or his dependents other than amounts due,
if any, under the Company's long-term disability plan, and any benefits offered
by the Company under its then policy to employees who become disabled while
employed by the Company.
(c) In the event Executive's employment with the Control Group
is terminated for Cause, the Company shall pay any amounts due to the Executive
under Section 5 through the Termination Date and shall have no other obligation
to the Executive or his dependents other than any amounts, if any, due to
Executive under its then existing policies to employees whose employment is
terminated for Cause or under the specific terms of any welfare, pension, fringe
benefit or incentive plan.
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Other than as provided in the preceding sentence, in the event the Executive's
employment is terminated for Cause, he shall not be entitled to the continuance
of benefits during the Severance Period provided for in Section 8(g).
(d) In the event the Executive's employment with the Control
Group is terminated by the Company without Cause, or the Executive terminates
employment with the Control Group within 60 days after the occurrence of a Good
Reason event with regard to the Executive, or the Company provides the Executive
with the notice provided for in Section 2 that the term of this Agreement shall
not be extended beyond its then-current termination date (other than in
connection with a program applicable to all similarly situated executives by
which the Company enters into a new employment or severance agreement with
Executive to become effective upon the termination of this Agreement and
providing benefits to Executive substantially similar to, or better than, those
provided herein), the Company shall pay any amounts due to the Executive under
Section 5 through the date of his termination and shall pay the Executive a
Severance Benefit as set forth below.
(i) The Executive shall receive 50 percent of his
Severance Benefit in the form of a lump sum cash payment as soon as
administratively feasible following his Termination Date, provided, however,
that interest shall be payable beginning on the tenth day following the
Termination Date at the prime rate of interest as stated in The Wall Street
Journal.
(ii) The Executive shall receive the remaining 50
percent of his Severance Benefit in the form of a lump sum cash payment as soon
as administratively feasible following the one year anniversary of the
Executive's Termination Date, subject to Section 8(e), provided, however, that
interest shall be payable beginning on the tenth day following the Termination
Date at the prime rate of interest as stated in The Wall Street Journal.
Notwithstanding the foregoing, if a Change in Control occurs prior to the
Executive's receipt of the remaining 50 percent of his Severance Benefit, the
Executive shall receive such remaining 50 percent within 10 days following the
Change in Control (and, if not paid within such 10 day period, with interest
payable beginning on the tenth day following the Change in Control at the prime
rate of interest as stated in The Wall Street Journal).
(e) The Executive shall only be entitled to the portion of his
Severance Benefit described in Section 8(d)(ii) if the Executive has not engaged
in Competition during the one year period following his Termination Date and has
not violated the provisions of Section 9(b). The Executive shall forfeit the
portion of the Severance Benefit described in 8(d)(ii) in the event the
Executive engages in Competition during such period or violates the provisions
of Section 9(b).
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(f) Notwithstanding anything to the contrary contained herein,
if, within 24 months following a Change in Control, the Executive's employment
with the Control Group is terminated without Cause or if the Executive
terminates employment with the Control Group within sixty (60) days after the
occurrence of a Good Reason event with regard to the Executive, (i) the
Executive shall receive 100 percent of his Severance Benefit in the form of a
lump sum cash payment within 10 days following his Termination Date (and, if not
paid within such 10 day period, with interest payable beginning on the tenth day
following the Termination Date at the prime rate of interest as stated in The
Wall Street Journal), and (ii) the restriction on Competition contained in
Section 9(a) shall not apply.
(g) Except as otherwise provided in Section 8(c), the
Executive shall continue, to the extent permitted under legal and underwriting
requirements (if any), to participate during his Severance Period in any group
medical, dental or life insurance plan he participated in prior to his
Termination Date, under substantially similar terms and conditions as an active
Employee; provided that participation in such group medical, dental and life
insurance benefits shall correspondingly cease at such time as the Executive
becomes eligible for a future employer's medical, dental and/or life insurance
coverage (or would become eligible if the Executive did not waive coverage) or
violates the provisions of Sections 9(a) or 9(b). Notwithstanding the foregoing,
the Executive may not continue to participate in such plans on a pre-tax or
tax-favored basis. Notwithstanding anything else herein, the Executive shall not
be entitled to any benefits during the Severance Period other than the benefits
provided in Section 8 and, without limiting the generality of the foregoing, the
Executive specifically shall not be entitled to continue to participate in any
group disability or voluntary accidental death or dismemberment insurance plan
he participated in prior to his Termination Date. The Executive's entitlement to
elect continuation coverage under the Company's group health plans pursuant to
the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended
("COBRA"), shall commence on the earlier of the date participation in such plans
ceases or following the expiration of the Severance Period. Without limiting the
generality of the foregoing, the Executive shall not accrue additional benefits
under any pension plan of the Company or an Affiliate (whether or not qualified
under Section 401(a) of the Code) during the Severance Period, provided,
however, that to the extent provided for under any applicable plan, the amount
of any Severance Benefit may be included in the Executive's earnings for
purposes of calculating the Executive's benefit under the Venator Group
Retirement Plan, the Venator Group Excess Cash Balance Plan, and the Venator
Group 401(k) Plan.
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(h) In the event of the Executive's death after becoming
eligible for the portion of the Severance Benefit described in Section 8(d)(i)
and prior to payment of such amount, such portion of the Severance Benefit shall
be paid to the Executive's Beneficiary. In addition to the foregoing, in the
event of the Executive's death prior to payment of the portion of the Severance
Benefit described in Section 8(d)(ii), such amount shall be paid to the
Executive's Beneficiary, but only to the extent that the Executive satisfied the
provisions set forth in Sections 9(a) and 9(b) for the period following the
Executive's Termination Date and prior to his death.
(i) Notwithstanding anything else herein, to the extent the
Executive would be subject to the excise tax under Section 4999 of the Code on
the amounts in Sections 8(d)(i) and (ii) and such other amounts or benefits he
received from the Company and its Affiliates required to be included in the
calculation of parachute payments for purposes of Sections 280G and 4999 of the
Code, the amounts provided under this Agreement shall be automatically reduced
to an amount one dollar less than that which, when combined with such other
amounts and benefits required to be so included, would subject the Executive to
the excise tax under Section 4999 of the Code if, and only if, the reduced
amount received by the Executive on a net after-tax basis after taking into
account federal, state and local income and social security taxes at the maximum
marginal rates would be greater than the unreduced amount to be received by the
Executive on a net after-tax basis after taking into account federal, state and
local income and social security taxes at the maximum marginal rates minus the
excise tax payable under Section 4999 of the Code on such amount and the other
amounts and benefits received by the Executive and required to be included in
the calculation of a parachute payment for purposes of Sections 280G and 4999 of
the Code.
9. Non-Competition and Confidentiality.
(a) (i) The Executive agrees that he shall not engage in
Competition during the Non-Competition Period, subject to the Company's option
to waive all or any portion of the Non-Competition Period, as more specifically
provided for in the following paragraph.
(ii) As additional consideration for the covenant not
to compete during the Non-Competition Period described above, the Company shall
pay the Executive, on a monthly basis, the sum of 25 percent of the Executive's
monthly Salary, less the amount of the Executive's "Monthly Severance Benefit,"
if any. This additional consideration shall be payable for the one (1) year
period commencing on the Termination Date and shall be payable on the first day
of each month. For purposes of this provision, the "Monthly Severance Benefit"
shall be equal to the Severance Benefit divided by the number of months in the
Severance Period. The Company has the option, for any reason, to elect to waive
all or any portion of the
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one (1) year period of Non-Competition commencing on the Termination Date, by
giving the Executive written notice of such election not less than thirty (30)
days following the Termination Date. In that event, the Company shall not be
obligated to pay the Executive under this paragraph for any months as to which
the covenant not to compete has been waived. The Company may discontinue
payments being made pursuant to this paragraph at any time during the
Non-Competition Period that (i) Executive is engaged in full-time employment
that, in the Company's opinion, does not violate the provisions of Section
9(a)(i) hereof, or (ii) Executive violates the provisions of Section 9(a)(i)
hereof.
(b) The Executive shall not at any time during the term of
this Agreement, or thereafter, communicate or disclose to any unauthorized
person, or use for the Executive's own account, without the prior written
consent of the Chief Executive Officer of the Company, nonpublic information of
any kind concerning the Company or any of its subsidiaries or affiliates,
including, but not limited to, nonpublic information concerning finances,
financial plans, accounting methods, strategic plans, operations, personnel,
organizational structure, methods of distribution, suppliers, customers, client
relationships, marketing strategies, real estate strategies or the like. In the
event of the termination of Executive's employment, Executive shall, on or
before the Termination Date, return all Confidential Information in his
possession, in whatever form, to the Company. It is understood, however, that
the obligations set forth in this paragraph shall not apply to the extent that
the aforesaid matters (a) are disclosed in circumstances in which the Executive
is legally required to do so or (b) become generally known to and available for
use by the public other than by the Executive's wrongful act or omission.
(c) The Executive agrees that any breach of the terms of
Sections 9(a) or 9(b) would result in irreparable injury and damage to the
Company for which the Company would have no adequate remedy at law; the
Executive therefore agrees that in the event of a breach or threatened breach by
the Executive of the provisions of Sections 9(a) or 9(b), the Company shall be
entitled to an immediate injunction and restraining order to prevent such breach
or threatened breach or continued breach by the Executive, including any and all
persons and entities acting for or with the Executive, without having to prove
damages, and to all costs and expenses, including reasonable attorneys' fees and
costs, in addition to any other remedies to which the Company may be entitled at
law or in equity. The terms of this paragraph shall not prevent the Company from
pursuing any other available remedies for any breach or threatened breach
hereof, including but not limited to the recovery of damages from the Executive.
The Executive and the Company further agree that the provisions of the covenant
not to compete are reasonable and that the Company would not have entered into
this Agreement but for the inclusion of such covenant herein. If any provision
of the covenants set forth in Section 9 is found by any court of competent
jurisdiction to be unenforceable because it extends for too long a period of
time or
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over too great a range of activities or in too broad a geographic area, it shall
be interpreted to extend over the maximum period of time, range of activities or
geographic area as to which it may be enforceable.
(d) The provisions of Section 9 shall survive any termination
of this Agreement and the existence of any claim or cause of action by the
Executive against the Control Group, whether predicated on this Agreement or
otherwise, shall not constitute a defense to the enforcement by the Company of
the covenants and agreements of Section 9.
10. No Duty to Mitigate/Set-off. The Company agrees that if the
Executive's employment with the Control Group is terminated during the term of
this Agreement, the Executive shall not be required to seek other employment or
to attempt in any way to reduce any amounts payable to the Executive by the
Company pursuant to this Agreement. Further, except to the extent provided for
in Section 8(d)(ii), the amount of the Severance Benefit provided for in this
Agreement shall not be reduced by any compensation earned by the Executive or
benefit provided to the Executive as the result of employment by another
employer or otherwise. Except as otherwise provided herein, the Company's
obligations to make the payments provided for in this Agreement and otherwise to
perform its obligations hereunder shall not be affected by any circumstances,
including without limitation, any set-off, counterclaim, recoupment, defense or
other right which the Company may have against the Executive. The Executive
shall retain any and all rights under all pension plans, welfare plans, equity
plans and other plans, including other severance plans, under which the
Executive would otherwise be entitled to benefits.
11. Withholding. The Company shall have the right to make such
provisions as it deems necessary or appropriate to satisfy any obligations it
may have to withhold federal, state or local income or other taxes incurred by
reason of payments pursuant to this Agreement. In lieu thereof, the Company
shall have the right to withhold the amount of such taxes from any other sums
due or to become due from the Company or an Affiliate to the Executive upon such
terms and conditions as the Committee may prescribe.
12. Release. In consideration of the Executive's entitlement hereunder
to a Severance Benefit which exceeds the severance benefit provided for under
the Company's standard severance program and as a condition of receiving any
Severance Benefit hereunder with regard to a termination of employment occurring
prior to a Change in Control, the Executive shall be required to provide the
Company with a release of all claims of the Executive (except with regard to
claims for payment of benefits specifically payable or providable hereunder
which have not been paid as of the effective date of the release, claims for
vested accrued benefits or claims under COBRA) of any kind whatsoever against
the Control Group, its past or present
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officers, directors and employees, known or unknown, as of the date of the
release. The release shall be in such form as may reasonably be specified by the
Company.
13. Successors; Binding Agreement. In addition to any obligations
imposed by law upon any successor to the Company, the Company will require any
successor (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Company to expressly assume and agree in writing to perform this Agreement in
the same manner and to the same extent that the Company would be required to
perform it if no such succession had taken place. This Agreement shall inure to
the benefit of and be enforceable by the Executive's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If the Executive shall die while any amount would still
be payable to the Executive hereunder if the Executive had continued to live,
all such amounts, unless otherwise provided herein, shall be paid in accordance
with the terms of this Agreement to the Executive's Beneficiary, or the
executors, personal representatives or administrators of the Executive's estate.
14. Termination of Severance Agreement. The severance agreement entered
into between the Company and the Executive dated as of May 5, 1999 is hereby
terminated as of December 31, 1999 without any further obligation of the parties
thereto.
15. Miscellaneous. No provisions of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing and signed by the Executive and such officer as may be specifically
designated by the Company. No waiver by either party hereto at any time of any
breach by the other party hereto of, or compliance with, any condition or
provision shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof have been made by either party which are not expressly set
forth in this Agreement. All references to sections of the Code or any other law
shall be deemed also to refer to any successor provisions to such sections and
laws.
16. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
17. Severability. If any provisions of this Agreement shall be declared
to be invalid or unenforceable, in whole or in part, such invalidity or
unenforceability shall not affect the remaining provisions hereof which shall
remain in full force and effect.
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18. Arbitration. Any dispute or controversy arising under or in
connection with this Agreement or the breach thereof, other than injunctive
relief pursuant to Section 9, shall be settled by arbitration, conducted before
a panel of three arbitrators in New York, New York, or in such other city in
which the Executive is then located, in accordance with the rules of the
American Arbitration Association then in effect. The determination of the
arbitrators, which shall be based upon a de novo interpretation of this
Agreement, shall be final and binding and judgment may be entered on the
arbitrators' award in any court having jurisdiction. The costs assessed by the
American Arbitration Association for arbitration shall be borne by the Company.
19. Notice. Any notice to either party hereunder shall be in writing,
and shall be deemed to be sufficiently given to or served on such party, for all
purposes, if the same shall be given personally delivered to such party, or sent
to such party by registered mail, postage prepaid, addressed as follows:
If to the Company: Venator Group, Inc.
233 Broadway
New York, NY 10279
Attn: President
If to the Executive:
Either party may change the address to which notices are to be
sent to such party hereunder by written notice of such new address given to the
other party hereto. Notices shall be deemed given when received if delivered
personally or three days after mailing if mailed as aforesaid.
20. Governing Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of New
York without regard to its conflicts of laws principles. For purposes of Section
9, the Executive consents to the jurisdiction of state and federal courts in New
York County.
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IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed and the Executive's hand has hereunto been set as of the date first set
forth above.
VENATOR GROUP, INC.
By:
----------------------
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APPENDIX A
Change in Control
A Change in Control shall mean any of the following: (i) (A) the making
of a tender or exchange offer by any person or entity or group of associated
persons or entities (within the meaning of Section 13(d)(3) or 14(d)(2) of the
Securities Exchange Act of 1934 (a "Person") (other than the Company or its
Affiliates) for shares of common stock of the Company pursuant to which
purchases are made of securities representing at least twenty percent (20%) of
the total combined voting power of the Company's then issued and outstanding
voting securities; (B) the merger or consolidation of the Company with, or the
sale or disposition of all or substantially all of the assets of the Company to,
any Person other than (a) a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving or parent entity) fifty percent (50%) or
more of the combined voting power of the voting securities of the Company or
such surviving or parent entity outstanding immediately after such merger or
consolidation; or (b) a merger or capitalization effected to implement a
recapitalization of the Company (or similar transaction) in which no Person is
or becomes the beneficial owner, directly or indirectly (as determined under
Rule 13d-3 promulgated under the Securities Exchange Act of 1934), of securities
representing more than the amounts set forth in (C) below; (C) the acquisition
of direct or indirect beneficial ownership (as determined under Rule 13d-3
promulgated under the Securities Exchange Act of 1934), in the aggregate, of
securities of the Company representing twenty percent (20%) or more of the total
combined voting power of the Company's then issued and outstanding voting
securities by any Person acting in concert as of the date of this Agreement;
provided, however, that the Board may at any time and from time to time and in
the sole discretion of the Board, as the case may be, increase the voting
security ownership percentage threshold of this item (C) to an amount not
exceeding forty percent (40%); or (D) the approval by the shareholders of the
Company of any plan or proposal for the complete liquidation or dissolution of
the Company or for the sale of all or substantially all of the assets of the
Company; or (ii) during any period of not more than two (2) consecutive years,
individuals who at the beginning of such period constitute the Board, and any
new director (other than a director designated by a person who has entered into
agreement with the Company to effect a transaction described in clause (i))
whose election by the Board or nomination for election by the Company's
stockholders was approved by a vote of at least two-thirds (2/3) of the
directors then still in office who either were directors at the beginning of the
period or whose election or nomination for election was previously so approved,
cease for any reason to constitute at least a majority thereof.
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EXHIBIT 10.24
EXECUTIVE EMPLOYMENT AGREEMENT
AGREEMENT made this ____________ day of ___________________ between
Venator Group, Inc. (the "Company"), a New York corporation with its principal
office located in New York, New York, and _________________ (the "Executive").
W I T N E S S E T H:
WHEREAS, the Company believes that the establishment and maintenance of
a sound and vital management of the Company is essential to the protection and
enhancement of the interests of the Company and its shareholders;
WHEREAS, the Company wishes to provide for the continued employment of
the Executive with the Control Group, and the Executive is willing to commit
himself to continue to serve the Company, on the terms and conditions herein
provided; and
WHEREAS, this Agreement supersedes any employment agreement, severance
plan, policy and/or practice of the Company in effect on the date hereof for the
Executive.
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, the parties hereto hereby agree as follows:
2. Definitions. The following terms shall have the meanings set forth
in this section as follows:
(a) "Affiliate" shall mean the Company and any entity
affiliated with the Company within the meaning of Code Section 414(b) with
respect to a controlled group of corporations, Code Section 414(c) with respect
to trades or businesses under common control with the Company, Code Section
414(m) with respect to affiliated service groups and any other entity required
to be aggregated with the Company under Section 414(o) of the Code. No entity
shall be treated as an Affiliate for any period during which it is not part of
the controlled group, under common control or otherwise required to be
aggregated under Code Section 414.
(b) "Beneficiary" shall mean the individual designated by the
Executive, on a form acceptable by the Committee, to receive benefits payable
under this Agreement in the event of the Executive's death. If no Beneficiary is
designated, the Executive's Beneficiary shall be his spouse, or if the Executive
is not survived by a spouse, the Executive's estate.
<PAGE> 2
(c) "Board" shall mean the Board of Directors of the Company.
(d) "Bonus" shall mean an amount equal to the target bonus
expected to be earned by the Executive under the Company's Annual Incentive
Compensation Plan or such other annual bonus plan or program that may then be
applicable to the Executive in a fiscal year, if the applicable target
performance goal is satisfied.
(e) "Cause" shall mean (with regard to the Executive's
termination of employment with the Control Group): (i) the refusal or willful
failure by the Executive to substantially perform his duties, (ii) with regard
to the Control Group or any of their assets or businesses, the Executive's
dishonesty, willful misconduct, misappropriation, breach of fiduciary duty or
fraud, (iii) the willful breach by the Executive of any material provision of
this Agreement, which breach is not cured within ten (10) business days from the
date of the Company's notice of the occurrence of such breach to the Executive,
or (iv) the Executive's conviction of a felony (other than a traffic violation)
or any other crime involving, in the sole discretion of the Committee, moral
turpitude.
(f) "Change in Control" shall have the meaning set forth in
Appendix A attached hereto.
(g) "Code" shall mean the Internal Revenue Code of 1986, as
amended and as hereafter amended from time to time.
(h) "Committee" shall mean the Compensation Committee of the
Board or an administrative committee appointed by the Compensation Committee.
(i) "Competition" shall mean the (i) participating, directly
or indirectly, as an individual proprietor, stockholder, officer, employee,
director, joint venturer, investor, lender, or in any capacity whatsoever
(within the United States of America, or in any country where any of the
Executive's former employing members of the Control Group does business) in (A)
a business in competition with the retail, catalog, or on-line sale of athletic
footwear, athletic apparel and sporting goods conducted by the Control Group
(the "Athletic Business"), or (B) a business that in the prior fiscal year
supplied product to the Control Group for the Athletic Business having a value
of $20 million or more at cost to the Company or any of its subsidiaries or
affiliates; provided, however, that such participation shall not include (X) the
mere ownership of not more than 1 percent of the total outstanding stock of a
publicly held company; (Y) the performance of services for any enterprise to the
extent such services are not performed, directly or indirectly, for a business
in competition with the Athletic Business or for a business which supplies
product to the Control Group for the Athletic Business; or (Z) any activity
engaged in with the prior written approval of
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the Chief Executive Officer of the Company; or (ii) intentional recruiting,
soliciting or inducing, of any employee or employees of the Control Group to
terminate their employment with, or otherwise cease their relationship with the
former employing members of the Control Group where such employee or employees
do in fact so terminate their employment.
(j) "Control Group" shall mean the Company and its Affiliates.
(k) "Good Reason" shall mean (with respect to an Executive's
termination of employment with the Control Group):
(i) Prior to a Change in Control, a reduction in the
Executive's rate of base salary as payable from time to time, other than a
reduction that occurs in connection with, and in the same percentage as, an
across-the-board reduction over any three-year period in the base salaries of
all executives of the Company of a similar level and where the reduction is less
than 20 percent of the Executive's base salary measured from the beginning of
such three-year period;
(ii) On or after a Change in Control, (A) any
reduction in the Executive's rate of base salary as payable from time to time or
(B) a failure of the Company to continue in effect the benefits applicable to,
or the Company's reduction of the benefits applicable to, the Executive under
any benefit plan or arrangement (including without limitation, any pension, life
insurance, health or disability plan) in which the Executive participates as of
the date of the Change in Control without implementation of a substitute plan(s)
providing materially similar benefits in the aggregate to those discontinued or
reduced, except for a discontinuance of, or reduction under, any such plan or
arrangement that is legally required, and provided that in either such event the
Company provides similar benefits (or the economic effect thereof) to the
Executive in any manner determined by the Company;
(iii) At any time, (A) any material demotion of the
Executive or any material reduction in the Executive's authority or
responsibility, except in each case in connection with the termination of the
Executive's employment for Cause or disability or as a result of the Executive's
death, or temporarily as a result of the Executive's illness or other absence;
(B) a reduction in the Executive's annual bonus classification level other than
in connection with a redesign of the applicable bonus plan that affects all
employees at the Executive's bonus level; or (C) the failure of any successor to
the Company to assume in writing the obligations hereunder.
(l) "Non-Competition Period" shall mean (i) the period the
Executive is employed by the Control Group and (ii) at any time prior to a
Change in Control, the one (1) year period commencing on the Termination Date if
the Executive's employment is terminated (A) by the Company for any reason (B)
by the
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Executive for any reason, or (C) by reason of the Company's decision not to
extend the term of this Agreement as provided in Section 2 hereof.
(m) "Salary" shall mean an Executive's base cash compensation
rate for services paid to the Executive by the Company or an Affiliate at the
time of his termination of employment from the Control Group. Salary shall not
include commissions, bonuses, overtime pay, incentive compensation, benefits
paid under any qualified plan, any group medical, dental or other welfare
benefit plan, noncash compensation or any other additional compensation but
shall include amounts reduced pursuant to an Executive's salary reduction
agreement under Sections 125 or 401(k) of the Code (if any) or a nonqualified
elective deferred compensation arrangement to the extent that in each such case
the reduction is to base salary.
(n) "Severance Benefit" shall mean (i) in the case of the
Executive's termination of employment with the Control Group that does not occur
within the 24 month period following a Change in Control and such termination is
a termination of employment by the Company without Cause or by the Executive for
Good Reason, two weeks' Salary plus 1/26 of the Bonus multiplied by the
Executive's Years of Service; provided, however, that the Severance Benefit
shall be no less than 39 weeks' Salary; or (ii) in the case of an Executive's
termination of employment with the Control Group that occurs within the 24 month
period following a Change in Control and such termination is a termination of
employment by the Company without Cause or by the Executive for Good Reason, two
weeks' Salary plus 1/26 of the Bonus multiplied by the Executive's Years of
Service; provided, however, that the Severance Benefit shall be no less than the
Bonus plus 52 weeks' Salary.
(o) "Severance Period" shall mean (i) in the case of the
Executive's termination of employment that does not occur within the 24 month
period following a Change in Control and such termination is a termination of
employment by the Company without Cause or by the Executive for Good Reason, two
weeks' multiplied by the Executive's Years of Service, with a minimum of 26
weeks; or (ii) in the case of an Executive's termination of employment within
the 24 month period following a Change in Control and such termination is a
termination of employment by the Company without Cause or by the Executive for
Good Reason, two weeks multiplied by the Executive's Years of Service, with a
minimum of 52 weeks.
(p) "Termination Date" shall mean in the case of the
Executive's death, the date of death, or in all other cases, the date specified
in the Notice of Termination; provided, however, that if the Executive's
employment is terminated by the Company due to disability as provided in Section
7(b), the date specified in the Notice of Termination shall be at least thirty
(30) days from the date the Notice of Termination is given to the Executive.
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(q) "Year of Service" shall mean each 12 consecutive month
period commencing on the Executive's date of hire by the Company or an Affiliate
and each anniversary thereof in which the Executive is paid by the Company or an
Affiliate for the performance of full-time services as an Executive. For
purposes of this section, full-time services shall mean that the Employee is
employed for at least 30 hours per week. A Year of Service shall include any
period during which an Employee is not working due to disability, leave of
absence or layoff so long as he is being paid by the Company or an Affiliate
(other than through any employee benefit plan). A Year of Service also shall
include service in any branch of the armed forces of the United States by any
person who is an Executive on the date such service commenced, but only to the
extent required by applicable law.
2. Term. The initial term of this Agreement shall commence on
_________________ and shall end on December 31, 2001, unless further extended or
sooner terminated as hereinafter provided. The term shall be automatically
renewed for additional one-year periods unless the Company notifies the
Executive prior to December 1, 2001, with regard to the initial term, and any
December 1 of any year thereafter, with regard to renewal terms, that the term
shall not be renewed. In no event, however, shall the term of the Executive's
employment extend beyond the date of the Executive's actual retirement under a
retirement plan of the Company. Notwithstanding anything in this Agreement to
the contrary, if the Company becomes obligated to make any payment to the
Executive pursuant to the terms hereof at or prior to the expiration of this
Agreement, then this Agreement shall remain in effect until all of the Company's
obligations hereunder are fulfilled.
3. Position and Duties. The Executive shall serve as _______________ of
the Company and shall have such responsibilities, duties and authority as he may
have as of the effective date of this Agreement (or any position to which he may
be promoted after the effective date of this Agreement) and as may from time to
time be assigned to the Executive by the Company that are consistent with such
responsibilities, duties and authority. The Executive shall devote substantially
all of his working time and efforts to the business and affairs of the Company
and its Affiliates.
4. Place of Performance. In connection with the Executive's employment
by the Company, the Executive shall be based in _________________, except for
required travel on the Company's business.
5. Compensation and Related Matters
(a) Salary. During the period of the Executive's employment
hereunder, the Company or an Affiliate shall pay to the Executive a salary at a
rate not less than the rate in effect as of the effective date of this Agreement
or such higher
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rate as may from time to time be determined by the Company, such salary to be
paid in accordance with the Company's normal payroll practices.
(b) Expenses. During the term of the Executive's employment
hereunder, the Executive shall be entitled to receive prompt reimbursement for
all reasonable and customary expenses incurred by the Executive in performing
services hereunder, including all expenses of travel and living expenses while
away from home on business or at the request of and in the service of the
Company or an Affiliate, provided that such expenses are incurred and accounted
for in accordance with the polices and procedures established by the Company.
(c) Other Benefits. The Company shall maintain in full force
and effect, and the Executive shall be entitled to continue to participate in,
all of the employee benefit plans and arrangements in effect on the date hereof
in which the Executive participates or plans or arrangements providing the
Executive with at least equivalent benefits thereunder (including without
limitation each retirement plan, excess retirement plans, annual incentive
compensation plans, stock option and purchase plans, group life insurance and
accident plan, medical and dental insurance plans, and disability plan), and the
Company shall not make any changes in such plans or arrangements that would
adversely affect the Executive's rights or benefits thereunder; provided,
however, that such a change may be made, including termination of such plans or
arrangements, to the extent permitted by the respective plan or arrangement, if
it occurs pursuant to a program applicable to all comparably situated executives
of the Company and does not result in a proportionately greater reduction in the
rights of or benefits to the Executive as compared with any other comparably
situated executive of the Company. The Executive shall be entitled to
participate in or receive benefits under any employee benefit plan or
arrangement made available by the Company in the future to its comparably
situated executives and key management employees, subject to and on a basis
consistent with the terms, conditions and overall administration of such plans
and arrangements. Nothing paid to the Executive under any plan or arrangement
presently in effect or made available in the future shall be deemed to be in
lieu of the salary payable to the Executive pursuant to Section 5(a). Any
payments or benefits payable to the Executive hereunder in respect of any
calendar year during which the Executive is employed by the Company for less
than the entire year shall, unless otherwise provided in the applicable plan or
arrangement, be prorated in accordance with the number of days in such calendar
year during which he is so employed.
(d) Vacations. The Executive shall be entitled to no less than
the number of vacation days in each calendar year that is determined in
accordance with the Company's vacation policy as in effect on the date hereof.
The Executive shall also be entitled to all paid holidays and personal days
given by the Company to its executives.
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6. Offices. Subject to Sections 3 and 4, the Executive agrees to serve
without additional compensation, if elected or appointed thereto, as a director
of the Company and any of its Affiliates and in one or more executive offices of
any of the Company's Affiliates, provided that the Executive is indemnified for
serving in any and all such capacities on a basis no less favorable than is
currently provided by the Company to any other director of the Company or any of
its Affiliates.
7. Termination. The Executive's employment hereunder may be terminated
without any breach of this Agreement only upon the following circumstances:
(a) Death. The Executive's employment hereunder shall
automatically terminate upon his death.
(b) Disability. If, as a result of the Executive's incapacity
due to physical or mental illness as determined by the Company in its sole
discretion, the Executive shall have been absent from his duties hereunder on a
full-time basis for a period of six consecutive months, and within 30 days after
written Notice of Termination is given (which may occur before or after the end
of such six month period) shall not have returned to the performance of his
duties hereunder on a full-time basis, the Company may immediately terminate the
Executive's employment hereunder.
(c) Cause. The Company may terminate the Executive's
employment hereunder for Cause by, at any time at its election within six months
after the Company shall obtain knowledge of the grounds for termination, giving
the Executive notice of its intention to terminate the Executive for cause and
stating the termination date and the grounds for termination.
(d) Good Reason. The Executive may terminate his employment
hereunder for Good Reason upon 30 days' prior written notice to the Company;
provided, however, that prior to a Change in Control, if the Company corrects
the matter that has given rise to the Good Reason event, and makes the Executive
whole for any loss to the Executive resulting from such Good Reason event, the
Executive may not so terminate his employment.
(e) Without Cause. The Company may terminate the Executive's
employment hereunder without Cause upon 30 days' prior written notice to the
Executive.
(f) Without Good Reason. The Executive may terminate his
employment hereunder without Good Reason upon 30 days' prior written notice to
the Company.
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Any termination of the Executive's employment by the Company or by the
Executive (other than termination pursuant to Section 7(a)) shall be
communicated by written Notice of Termination to the other party hereto in
accordance with Section 19. For purposes of this Agreement, a "Notice of
Termination" shall mean a notice which shall indicate the specific termination
provision in this Agreement relied upon and shall set forth in reasonable detail
the facts and circumstances claimed to provide a basis for termination of the
Executive's employment under the provision so indicated.
8. Benefits Upon Termination.
(a) In the event the Executive's employment with the Control
Group is terminated by his death, the Company shall pay any amounts due to the
Executive under Section 5 through the date of his death in accordance with
Section 13.
(b) In the event the Executive's employment with the Control
Group is terminated under Section 7(b), the Company shall pay any amounts due to
the Executive under Section 5 through the Termination Date and shall have no
other obligation to the Executive or his dependents other than amounts due, if
any, under the Company's long-term disability plan, and any benefits offered by
the Company under its then policy to employees who become disabled while
employed by the Company.
(c) In the event Executive's employment with the Control Group
is terminated for Cause, the Company shall pay any amounts due to the Executive
under Section 5 through the Termination Date and shall have no other obligation
to the Executive or his dependents other than any amounts, if any, due to
Executive under its then existing policies to employees whose employment is
terminated for Cause or under the specific terms of any welfare, pension, fringe
benefit or incentive plan. Other than as provided in the preceding sentence, in
the event the Executive's employment is terminated for Cause, he shall not be
entitled to the continuance of benefits during the Severance Period provided for
in Section 9(g).
(d) In the event the Executive's employment with the Control
Group is terminated by the Company without Cause, or the Executive terminates
employment with the Control Group within 60 days after the occurrence of a Good
Reason event with regard to the Executive, or the Company provides the Executive
with the notice provided for in Section 2 that the term of this Agreement shall
not be extended beyond its then-current termination date (other than in
connection with a program applicable to all similarly situated executives by
which the Company enters into a new employment or severance agreement with
Executive to become effective upon the termination of this Agreement and
providing benefits to Executive substantially similar to, or better than, those
provided herein), the Company shall pay
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any amounts due to the Executive under Section 5 through the date of his
termination and shall pay the Executive a Severance Benefit as set forth below.
(i) The Executive shall receive 50 percent of his
Severance Benefit in the form of a lump sum cash payment as soon as
administratively feasible following his Termination Date, provided, however,
that interest shall be payable beginning on the tenth day following the
Termination Date at the prime rate of interest as stated in The Wall Street
Journal.
(ii) The Executive shall receive the remaining 50
percent of his Severance Benefit in the form of a lump sum cash payment as soon
as administratively feasible 90 days following the Executive's Termination Date,
subject to Section 8(e), provided, however, that interest shall be payable
beginning on the tenth day following the Termination Date at the prime rate of
interest as stated in The Wall Street Journal. Notwithstanding the foregoing, if
a Change in Control occurs prior to the Executive's receipt of the remaining 50
percent of his Severance Benefit, the Executive shall receive such remaining 50
percent within 10 days following the Change in Control (and, if not paid within
such 10 day period, with interest payable beginning on the tenth day following
the Change in Control at the prime rate of interest as stated in The Wall Street
Journal).
(e) The Executive shall only be entitled to the portion of his
Severance Benefit described in Section 8(d)(ii) if the Executive has not engaged
in Competition during the 90- day period following his Termination Date and has
not violated the provisions of Section 9(b). The Executive shall forfeit the
portion of the Severance Benefit described in 8(d)(ii) in the event the
Executive engages in Competition during such period or violates the provisions
of Section 9(b).
(f) Notwithstanding anything to the contrary contained herein,
if, within 24 months following a Change in Control, the Executive's employment
with the Control Group is terminated without Cause or if the Executive
terminates employment with the Control Group within sixty (60) days after the
occurrence of a Good Reason event with regard to the Executive, (i) the
Executive shall receive 100 percent of his Severance Benefit in the form of a
lump sum cash payment within 10 days following his Termination Date (and, if not
paid within such 10 day period, with interest payable beginning on the tenth day
following the Termination Date at the prime rate of interest as stated in The
Wall Street Journal), and (ii) the restriction on Competition contained in
Section 9(a) shall not apply.
(g) Except as otherwise provided in Section 8(c), the
Executive shall continue, to the extent permitted under legal and underwriting
requirements (if any), to participate during his Severance Period in any group
medical, dental or life insurance plan he participated in prior to his
Termination Date, under substantially
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similar terms and conditions as an active Employee; provided that participation
in such group medical, dental and life insurance benefits shall correspondingly
cease at such time as the Executive becomes eligible for a future employer's
medical, dental and/or life insurance coverage (or would become eligible if the
Executive did not waive coverage) or violates the provisions of Section 9(a).
Notwithstanding the foregoing, the Executive may not continue to participate in
such plans on a pre-tax or tax-favored basis. Notwithstanding anything else
herein, the Executive shall not be entitled to any benefits during the Severance
Period other than the benefits provided in Section 8 and, without limiting the
generality of the foregoing, the Executive specifically shall not be entitled to
continue to participate in any group disability or voluntary accidental death or
dismemberment insurance plan he participated in prior to his Termination Date.
The Executive's entitlement to elect continuation coverage under the Company's
group health plans pursuant to the Consolidated Omnibus Reconciliation Act of
1985, as amended ("COBRA"), shall commence on the earlier of the date
participation in such plans ceases or following the expiration of the Severance
Period. Without limiting the generality of the foregoing, the Executive shall
not accrue additional benefits under any pension plan of the Company or an
Affiliate (whether or not qualified under Section 401(a) of the Code) during the
Severance Period, provided, however, that to the extent provided for under any
applicable plan, the amount of any Severance Benefit may be included in the
Executive's earnings for purposes of calculating the Executive's benefit under
the Venator Group Retirement Plan, the Venator Group Excess Cash Balance Plan,
and the Venator Group 401(k) Plan.
(h) In the event of the Executive's death after becoming
eligible for the portion of the Severance Benefit described in Section 8(d)(i)
and prior to payment of such amount, such portion of the Severance Benefit shall
be paid to the Executive's Beneficiary. In addition to the foregoing, in the
event of the Executive's death prior to payment of the portion of the Severance
Benefit described in Section 8(d)(ii), such amount shall be paid to the
Executive's Beneficiary, but only to the extent that the Executive satisfied the
provisions set forth in Section 9(a) for the period following the Executive's
Termination Date and prior to his death.
(i) Notwithstanding anything else herein, to the extent the
Executive would be subject to the excise tax under Section 4999 of the Code on
the amounts in Sections 8(d)(i) and (ii) and such other amounts or benefits he
received from the Company and its Affiliates required to be included in the
calculation of parachute payments for purposes of Sections 280G and 4999 of the
Code, the amounts provided under this Agreement shall be automatically reduced
to an amount one dollar less than that which, when combined with such other
amounts and benefits required to be so included, would subject the Executive to
the excise tax under Section 4999 of the Code if, and only if, the reduced
amount received by the Executive on a
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net after-tax basis after taking into account federal, state and local income
and social security taxes at the maximum marginal rates would be greater than
the unreduced amount to be received by the Executive on a net after-tax basis
after taking into account federal, state and local income and social security
taxes at the maximum marginal rates minus the excise tax payable under Section
4999 of the Code on such amount and the other amounts and benefits received by
the Executive and required to be included in the calculation of a parachute
payment for purposes of Sections 280G and 4999 of the Code.
9. Non-Competition and Confidentiality.
(a) (i) During the period the Executive is employed by the
Control Group, the Executive agrees that he shall not engage in Competition.
Beginning January 1, 2001, the Executive agrees that he shall not engage in
Competition during the Non-Competition Period, subject to the Company's option
to waive all or any portion of the Non-Competition Period, as more specifically
provided for in the following paragraph.
(ii) As additional consideration for the covenant not
to compete during the Non-Competition Period described above, the Company shall
pay the Executive, on a monthly basis, the sum of 25 percent of the Executive's
monthly Salary, less the amount of the Executive's "Monthly Severance Benefit,"
if any. This additional consideration shall be payable for the one (1) year
period commencing on the Termination Date and shall be payable on the first day
of each month. For purposes of this provision, the "Monthly Severance Benefit"
shall be equal to the Severance Benefit divided by the number of months in the
Severance Period. The Company has the option, for any reason, to elect to waive
all or any portion of the one (1) year period of Non-Competition commencing on
the Termination Date, by giving the Executive written notice of such election
not less than thirty (30) days following the Termination Date. In that event,
the Company shall not be obligated to pay the Executive under this paragraph for
any months as to which the covenant not to compete has been waived. The Company
may discontinue payments being made pursuant to this paragraph at any time
during the Non-Competition Period that (i) Executive is engaged in full-time
employment that, in the Company's opinion, does not violate the provisions of
Section 9(a)(i) hereof, or (ii) Executive violates the provisions of Section
9(a)(i) hereof.
(b) The Executive shall not at any time during the term of
this Agreement, or thereafter, communicate or disclose to any unauthorized
person, or use for the Executive's own account, without the prior written
consent of the Chief Executive Officer of the Company, nonpublic information of
any kind concerning the Company or any of its subsidiaries or affiliates,
including, but not limited to,
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nonpublic information concerning finances, financial plans, accounting methods,
strategic plans, operations, personnel, organizational structure, methods of
distribution, suppliers, customers, client relationships, marketing strategies,
real estate strategies or the like. In the event of the termination of
Executive's employment, Executive shall, on or before the Termination Date,
return all Confidential Information in his possession, in whatever form, to the
Company. It is understood, however, that the obligations set forth in this
paragraph shall not apply to the extent that the aforesaid matters (a) are
disclosed in circumstances in which the Executive is legally required to do so
or (b) become generally known to and available for use by the public other than
by the Executive's wrongful act or omission.
(c) The Executive agrees that any breach of the terms of
Sections 9(a) or 9(b) would result in irreparable injury and damage to the
Company for which the Company would have no adequate remedy at law; the
Executive therefore agrees that in the event of a breach or threatened breach by
the Executive of the provisions of Sections 9(a) or 9(b), the Company shall be
entitled to an immediate injunction and restraining order to prevent such breach
or threatened breach or continued breach by the Executive, including any and all
persons and entities acting for or with the Executive, without having to prove
damages, and to all costs and expenses, including reasonable attorneys' fees and
costs, in addition to any other remedies to which the Company may be entitled at
law or in equity. The terms of this paragraph shall not prevent the Company from
pursuing any other available remedies for any breach or threatened breach
hereof, including but not limited to the recovery of damages from the Executive.
The Executive and the Company further agree that the provisions of the covenant
not to compete are reasonable and that the Company would not have entered into
this Agreement but for the inclusion of such covenant herein. If any provision
of the covenants set forth in Section 9 is found by any court of competent
jurisdiction to be unenforceable because it extends for too long a period of
time or over too great a range of activities or in too broad a geographic area,
it shall be interpreted to extend over the maximum period of time, range of
activities or geographic area as to which it may be enforceable.
(d) The provisions of Section 9 shall survive any termination
of this Agreement and the existence of any claim or cause of action by the
Executive against the Control Group, whether predicated on this Agreement or
otherwise, shall not constitute a defense to the enforcement by the Company of
the covenants and agreements of Section 9.
10. No Duty to Mitigate/Set-off. The Company agrees that if the
Executive's employment with the Control Group is terminated during the term of
this Agreement, the Executive shall not be required to seek other employment or
to
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attempt in any way to reduce any amounts payable to the Executive by the Company
pursuant to this Agreement. Further, except to the extent provided for in
Section 8(d)(ii), the amount of the Severance Benefit provided for in this
Agreement shall not be reduced by any compensation earned by the Executive or
benefit provided to the Executive as the result of employment by another
employer or otherwise. Except as otherwise provided herein, the Company's
obligations to make the payments provided for in this Agreement and otherwise to
perform its obligations hereunder shall not be affected by any circumstances,
including without limitation, any set-off, counterclaim, recoupment, defense or
other right which the Company may have against the Executive. The Executive
shall retain any and all rights under all pension plans, welfare plans, equity
plans and other plans, including other severance plans, under which the
Executive would otherwise be entitled to benefits.
11. Withholding. The Company shall have the right to make such
provisions as it deems necessary or appropriate to satisfy any obligations it
may have to withhold federal, state or local income or other taxes incurred by
reason of payments pursuant to this Agreement. In lieu thereof, the Company
shall have the right to withhold the amount of such taxes from any other sums
due or to become due from the Company or an Affiliate to the Executive upon such
terms and conditions as the Committee may prescribe.
12. Release. In consideration of the Executive's entitlement hereunder
to a Severance Benefit which exceeds the severance benefit provided for under
the Company's standard severance program and as a condition of receiving any
Severance Benefit hereunder with regard to a termination of employment occurring
prior to a Change in Control, the Executive shall be required to provide the
Company with a release of all claims of the Executive (except with regard to
claims for payment of benefits specifically payable or providable hereunder
which have not been paid as of the effective date of the release, claims for
vested accrued benefits or claims under COBRA) of any kind whatsoever against
the Control Group, its past or present officers, directors and employees, known
or unknown, as of the date of the release. The release shall be in such form as
may reasonably be specified by the Company.
13. Successors; Binding Agreement. In addition to any obligations
imposed by law upon any successor to the Company, the Company will require any
successor (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Company to expressly assume and agree in writing to perform this Agreement in
the same manner and to the same extent that the Company would be required to
perform it if no such succession had taken place. This Agreement shall inure to
the benefit of and be enforceable by the Executive's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If the Executive shall die while any amount
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would still be payable to the Executive hereunder if the Executive had continued
to live, all such amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to the Executive's Beneficiary, or
the executors, personal representatives or administrators of the Executive's
estate.
14. Termination of Severance Agreement. The Executive Severance Benefit
Agreement entered into between the Company and the Executive dated as of May 11,
1999 is hereby terminated as of December 31, 1999 without any further obligation
of the parties thereto.
15. Miscellaneous. No provisions of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing and signed by the Executive and such officer as may be specifically
designated by the Company. No waiver by either party hereto at any time of any
breach by the other party hereto of, or compliance with, any condition or
provision shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof have been made by either party which are not expressly set
forth in this Agreement. All references to sections of the Code or any other law
shall be deemed also to refer to any successor provisions to such sections and
laws.
16. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
17. Severability. If any provisions of this Agreement shall be declared
to be invalid or unenforceable, in whole or in part, such invalidity or
unenforceability shall not affect the remaining provisions hereof which shall
remain in full force and effect.
18. Arbitration. Any dispute or controversy arising under or in
connection with this Agreement or the breach thereof, other than injunctive
relief pursuant to Section 9, shall be settled by arbitration, conducted before
a panel of three arbitrators in New York, New York, or in such other city in
which the Executive is then located, in accordance with the rules of the
American Arbitration Association then in effect. The determination of the
arbitrators, which shall be based upon a de novo interpretation of this
Agreement, shall be final and binding and judgment may be entered on the
arbitrators' award in any court having jurisdiction. The costs assessed by the
American Arbitration Association for arbitration shall be borne by the Company.
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19. Notice. Any notice to either party hereunder shall be in writing,
and shall be deemed to be sufficiently given to or served on such party, for all
purposes, if the same shall be given personally delivered to such party, or sent
to such party by registered mail, postage prepaid, addressed as follows:
If to the Company: Venator Group, Inc.
233 Broadway
New York, NY 10279
Attn: General Counsel
If to the Executive:
Either party may change the address to which notices are to be sent to
such party hereunder by written notice of such new address given to the other
party hereto. Notices shall be deemed given when received if delivered
personally or three days after mailing if mailed as aforesaid.
20. Governing Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of New
York without regard to its conflicts of laws principles. For purposes of Section
9, the Executive consents to the jurisdiction of state and federal courts in New
York County.
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed and the Executive's hand has hereunto been set as of the date first set
forth above.
VENATOR GROUP, INC.
By:
----------------------
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APPENDIX A
Change in Control
A Change in Control shall mean any of the following: (i) (A) the making
of a tender or exchange offer by any person or entity or group of associated
persons or entities (within the meaning of Section 13(d)(3) or 14(d)(2) of the
Securities Exchange Act of 1934 (a "Person") (other than the Company or its
Affiliates) for shares of common stock of the Company pursuant to which
purchases are made of securities representing at least twenty percent (20%) of
the total combined voting power of the Company's then issued and outstanding
voting securities; (B) the merger or consolidation of the Company with, or the
sale or disposition of all or substantially all of the assets of the Company to,
any Person other than (a) a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving or parent entity) fifty percent (50%) or
more of the combined voting power of the voting securities of the Company or
such surviving or parent entity outstanding immediately after such merger or
consolidation; or (b) a merger or capitalization effected to implement a
recapitalization of the Company (or similar transaction) in which no Person is
or becomes the beneficial owner, directly or indirectly (as determined under
Rule 13d-3 promulgated under the Securities Exchange Act of 1934), of securities
representing more than the amounts set forth in (C) below; (C) the acquisition
of direct or indirect beneficial ownership (as determined under Rule 13d-3
promulgated under the Securities Exchange Act of 1934), in the aggregate, of
securities of the Company representing twenty percent (20%) or more of the total
combined voting power of the Company's then issued and outstanding voting
securities by any Person acting in concert as of the date of this Agreement;
provided, however, that the Board may at any time and from time to time and in
the sole discretion of the Board, as the case may be, increase the voting
security ownership percentage threshold of this item (C) to an amount not
exceeding forty percent (40%); or (D) the approval by the shareholders of the
Company of any plan or proposal for the complete liquidation or dissolution of
the Company or for the sale of all or substantially all of the assets of the
Company; or (ii) during any period of not more than two (2) consecutive years,
individuals who at the beginning of such period constitute the Board, and any
new director (other than a director designated by a person who has entered into
agreement with the Company to effect a transaction described in clause (i))
whose election by the Board or nomination for election by the Company's
stockholders was approved by a vote of at least two-thirds (?) of the directors
then still in office who either were directors at the beginning of the period or
whose election or nomination for election was previously so approved, cease for
any reason to constitute at least a majority thereof.
16
<PAGE> 1
EXHIBIT 10.34
December 21, 1999
____________________________
Venator Group, Inc.
233 Broadway
New York, NY 10279
Re: Severance Agreement
Dear _____________:
In accordance with Section 2 of the agreement entered into between you and
Venator Group, Inc. (the "Company") dated as of ___________,1999 (the
"Agreement"), this is to advise you that the Compensation Committee of the Board
of Directors of the Company has elected not to renew the term of the Agreement.
Therefore, the Agreement will expire on December 31, 2000 in accordance with its
terms, unless sooner terminated by agreement of the parties.
Sincerely,
/s/ Dennis M. Lee
Dennis M. Lee
Senior Vice President
Human Resources
<PAGE> 1
EXHIBIT 10.35
SPECIAL REAL ESTATE BONUS
Special bonus plan with regard to the disposal and/or conversion of the Kinney
and Footquarters portfolio. Program applicable to all members of the Real Estate
Department, with the payouts being based on individual levels in the
organization.
<PAGE> 1
EXHIBIT 12
VENATOR GROUP, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Unaudited)
($ in millions)
<TABLE>
<CAPTION>
Fiscal Years Ended
------------------------------------------------------------
Jan. 29, Jan. 30, Jan. 31, Jan. 25, Jan. 27,
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
NET EARNINGS
Income from continuing operations $ 17 $ 3 $ 213 $ 209 $ 29
Income tax expense (benefit) 11 (42) 120 139 34
Interest expense, excluding capitalized
interest 65 57 41 53 91
Portion of rents deemed representative
of the interest factor (1/3) 190 180 163 162 157
----- ----- ----- ----- -----
$ 283 $ 198 $ 537 $ 563 $ 311
===== ===== ===== ===== =====
FIXED CHARGES
Gross interest expense 67 64 41 53 91
Portion of rents deemed representative
of the interest factor (1/3) 190 180 163 162 157
----- ----- ----- ----- -----
$ 257 $ 244 $ 204 $ 215 $ 248
===== ===== ===== ===== =====
RATIO OF EARNINGS TO FIXED CHARGES 1.1 0.8 2.6 2.6 1.3
----- ----- ----- ----- -----
</TABLE>
Earnings were not adequate to cover fixed charges by $46 million for the fiscal
year ended January 30, 1999.
<PAGE> 1
VENATOR
GROUP
FOCUSED & FORWARD
Annual Report 1999
<PAGE> 2
TABLE OF CONTENTS
1 Focused & Forward
2 A message to our shareholders
6 A world-class athletic focus
8 Forward with innovative merchandise
10 Forward as a market leader
12 Forward as a global player
14 Forward with a talented team
16 Forward in a competitive market
17 Financial report
46 Directors and Officers
47 Corporate Information
<PAGE> 3
[SHOE GRAPHIC]
Focused & Forward
It takes a sharp focus to succeed in the competitive world of specialty
retailing. At Venator Group we are creating a results-driven organization that
balances strategic growth, superior merchandising and thoughtful expense
management with a common set of values that each business can embrace to drive
future growth. These values commit us to: 1) deliver on our commitments to our
shareholders; 2) provide the customer the most wanted product and services
first; 3) insist on superior execution in every aspect of our performance; 4)
approach every transaction with integrity; 5) create a sustainable competitive
advantage by valuing organizational development and 6) develop strong
relationships with our manufacturers.
By adhering to these values, we emerge at the start of the new
millennium a highly focused athletic organization, competitively positioned to
improve our profitability and extend our global reach as the world's leading
retailer of athletic footwear and apparel.
<PAGE> 4
A MESSAGE TO OUR SHAREHOLDERS
A YEAR AGO WE TOLD YOU THAT WE WERE POSITIONED TO WIN. AND, WHILE THE RACE
CONTINUES, YOU CAN BE ASSURED THAT WE ARE VISIBLY AHEAD OF OUR COMPETITORS -
LEVERAGING OUR STRENGTH AND SIZE - GAINING SIGNIFICANT MARKET SHARE INCREASES.
[LADY FOOT LOCKER GRAPHIC]
[FOOT LOCKER GRAPHIC]
The start of the millennium finds Venator Group strongly positioned for the
future. We are now providing our customers with merchandise alternatives that
create real excitement in our stores. As a result, for the first time in several
years our athletic stores are gaining market share at accelerated rates and
profitability, even in the face of a challenging athletic retail environment.
Our Company is clearly a focused athletic retailer. But beyond meeting our
customers' expectations, we are also leveraging our leadership position to take
advantage of opportunities and to create shareholder value.
POSITIONING FOR 2000
Despite a difficult athletic retailing environment, our business improved
significantly during the second half of last year as new merchandising
initiatives began to have a positive impact on our businesses. At the same time,
we also disposed of non-performing assets enabling us to move forward and focus
intensely on our athletic formats and generate higher profits. In positioning
the Company for 2000, we
- - re-energized the athletic footwear and apparel business generating a 2.8%
increase in comparable-store sales for the year. This reflected a 5.5% increase
in the third quarter and a 6.9% increase in the fourth, a level the Company has
not achieved since 1996;
- - significantly strengthened the financial position of the Company by reducing
debt, net-of-cash, by $247 million. This gives us increased flexibility to take
advantage of future opportunities in the changing market;
- - enhanced controls over merchandise receipts, improving aging and reducing
inventories 4% to $739 million, or 3% per selling square foot;
- - lowered the expense structure of the Company 240 basis points, or $88 million,
to 23.2% of sales;
- - opened a new highly effective fulfillment center in Europe and consolidated
our North American athletic distribution facilities;
- - increased sales of Footlocker.com, our direct-to-customer business, by 21.9%
to $195 million. This included $12 million of Internet-only sales - the highest
results in our industry;
- - generated over $280 million in net proceeds by selling Afterthoughts and the
Colorado Group in Australia;
- - finalized the planned disposal of eight non-core businesses and the closing of
358 under-performing stores; and
- - improved the operating results of the ongoing Northern Group by $21 million
and strengthened its merchandising capabilities.
At Venator Group we are also working to create a culture that is more
efficient and cost-effective in everything we do. Over the past year, our Profit
Improvement Team, charged with
2
<PAGE> 5
improving productivity throughout the Company, effected substantial reductions
in both corporate and divisional overhead and expenses. Venator Group associates
submitted more than 5,000 productivity-improvement ideas, generating more than
$75 million in annualized savings.
POSITIONED TO CAPITALIZE ON THE FUTURE
The athletic footwear and apparel business represents a compelling opportunity
for Venator Group. Since 1995, we have invested more than $1 billion to
differentiate ourselves in the consumer's mind and improve our competitiveness.
This process affected virtually every aspect of our business: our retail stores,
information systems, logistics and distribution, product sourcing and
direct-to-customer operations.
Today, 2,372, or 50%, of our stores are less than five years old.
Productivity is up. Worldwide, comparable-store sales for stores opened or
remodeled during the past 12 months were up 44% for Foot Locker, 10% for Lady
Foot Locker, 11% for Kids Foot Locker and 27% for Champs Sports.
We spent $149 million since 1997 to redesign the architecture of our
information systems for the development of an integrated global retailing
approach that drives sales, improves margins and increases inventory turns more
effectively.
We implemented Merchandise 2000, an integrated, standardized system that
improves allocations by store and moves product into stores faster. This has
allowed us, quite simply, to sell more shoes and apparel in every store -
significantly improving our sales productivity.
In the area of logistics and distribution, we reduced our global
warehousing operations from 14 to 4 facilities to improve product flow to our
stores and emphasize speed, efficiency and cost-effectiveness.
We also enhanced our own product development and merchandise sourcing
capabilities. We now control the design, manufacture and import of quality
merchandise for sale under our proprietary labels. While branded goods will
continue to be the most important part of our athletic business, the ability to
produce proprietary products at attractive prices supplements our offerings and
gives us a significant competitive edge.
We launched Footlocker.com, our Internet business that we plan to
integrate fully with our retail stores and catalog operations. At the same time,
this enables us to leverage the Foot Locker name, one of the most powerful
athletic brands in the world.
Our 1997 acquisition of Eastbay, which operates multiple athletic
catalogs, provides our e-commerce sites access to an established and integrated
fulfillment and distribution system. This lets us offer consumers the world's
largest guaranteed in-stock selection of athletic merchandise on the Internet,
while providing the added convenience of having 3,186 domestic athletic stores
offering superior customer service.
POSITIONED WITH A TALENTED TEAM
I am very excited about our success in strengthening key management positions
throughout the organization, in particular with the recent appointment of Matt
Serra as President and Chief Operating Officer of the Corporation and a member
of the Board of Directors. Matt's new role gives him direct responsibility for
the athletic retail business. Given the recent success of the Foot Locker Group,
we expect his influence and leadership to drive productivity and sales
improvements throughout the athletic organization.
We now have a strong and seasoned retail management team in place: Tim
Finn, who
[KIDS FOOT LOCKER GRAPHIC] [RUNNER GRAPHIC]
[SHOE GRAPHIC]
3
<PAGE> 6
drove growth in the United States last year, heads Foot Locker domestically;
Larry Remington, a veteran retailer, runs the recently combined Lady and Kids
Foot Locker organization; Simon Rider continues to manage our dynamic Foot
Locker Europe business, which, in 1999, achieved a record-breaking performance;
and Rick Mina has been given the challenge of returning Champs Sports to its
historical profitability. All of these executives are seasoned athletic
retailers with extensive merchandising expertise who, under Matt Serra's
leadership, will continue to differentiate Venator Group.
We also appointed chief operating officers for each of the athletic
formats. They will focus on executing the various aspects of our businesses that
often go unnoticed but are essential elements to increased profitability. Having
senior operating executives partnering with the merchant heads of businesses has
already proven to be a winning organizational combination.
At the Northern Group we appointed Jim Harrington, who was instrumental in
turning around the Australian operations, to lead the Northern Group back to its
historical profit levels. We also appointed a new head merchant, Linda Knapp, to
work with Jim to re-energize our merchandising thrust, focusing on value price
points more closely tailored to our target customers. Linda brings energy,
experience and leadership that are already having noticeable impact.
POSITIONED FOR GROWTH - THE YEAR 2000
We outperformed the athletic retail market last year and our goal is to do so
again. Our mission moving forward is to increase both profitability and value to
our shareholders. The following priorities for 2000 will help us achieve these
goals:
1. Generate market share increases through increased sales productivity by
driving our merchandising advantage.
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Millions, except per share amounts 1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
Sales(1)
Global Athletic Group $ 3,785 $ 3,689
Northern Group 391 402
------- -------
Total $ 4,176 $ 4,091
======= =======
Operating profit(1)
Global Athletic Group $ 112 $ 25
Northern Group 8 (13)
------- -------
Total $ 120 $ 12
======= =======
Income from continuing operations $ 17 $ 3
Diluted earnings per share
from continuing operations $ 0.13 $ 0.02
Merchandise inventories(1) $ 739 $ 837
Total assets $ 2,515 $ 2,876
Debt, net of cash $ 327 $ 574
Shareholders' equity $ 1,139 $ 1,038
Number of stores at year end 4,874(2) 6,002
- --------------------------------------------------------------------------------
</TABLE>
(1) Excludes the operations of the businesses disposed and held for disposal.
(2) Includes 243 stores of businesses held for disposal.
[CHAMPS GRAPHIC]
[PAIR OF SHOES GRAPHIC]
4
<PAGE> 7
2. Capture international market share opportunities by leveraging our
experienced global organization.
3. Develop and expand the potential of our e-commerce business.
4. Competitively position the Northern Group.
We continue to be focused on driving sales through our existing store base
domestically, with more targeted assortments, fresh inventories and enhanced
proprietary brands that deliver value to our customers. We intend to keep a firm
control on inventory and continue to reduce our expense structure. We plan to
re-energize our field organizations with an emphasis on improving responsiveness
to our customers.
Capital spending is targeted at $100 million in 2000. About half of this
total will go towards revitalizing our stores in the United States and expanding
our business in Europe. The remaining funds will be devoted to e-commerce
development, to a new warehouse management system for our North American
athletic distribution center and to the ongoing maintenance of our stores and
facilities.
Our objectives with respect to the Northern Group are clear: We plan to
maximize its value by returning the division to its historical operating profit
level of 8% to 10% of sales within the next 12 to 24 months. We intend to do
this by improving its merchandise mix to reflect a superior price/value
relationship, increasing its international sourcing capabilities to enhance
product margins, and continuing to reduce its expense structure to ensure market
competitiveness.
Fiscal 2000 is off to a good start. We enter the new year feeling very
excited about our prospects for future growth as our past investments begin to
pay off.
High praise is due to our 47,000 associates worldwide. They admirably
moved beyond past challenges to devote their best efforts and energies to taking
this organization forward. Thanks to their dedication and enthusiasm, we begin
2000 focused on moving ahead successfully.
We are also grateful to our Board of Directors whose support was
unwavering in challenging times. Without their encouragement, challenges and
wisdom, we would not be in the position we are today.
I want to take this opportunity to acknowledge the special contribution of
Roger Farah, who served as Chief Executive Officer from 1994 to August 1999 and
as Chairman of the Board until April 12, 2000. His leadership and dedication
played a critical role in reshaping this Company. We wish him well in his future
endeavors and thank him for his direction and commitment to a very difficult
task.
I would also like to extend thanks to Margaret MacKimm, a director since
1977, and John Mackowski, a director since 1986, both of whom are retiring this
year. Both have been active directors - Mardie having served for many years as
Chairman of the Retirement Investment Committee and Mike as Chairman of the
Audit Committee - and their experience and perspective have helped us as we have
gone through the difficult process of repositioning ourselves. We have truly
valued their involvement and advice.
Finally, I would like to thank our shareholders for their support and
patience as we made the difficult decisions to reposition this Company. We are
committed to creating value for them.
Venator Group is clearly positioned to take advantage of current
opportunities. We are energized. We are focused and we are moving forward. I am
confident that the future will be rewarding for our associates and our
shareholders alike.
/s/ Dale W. Hilpert
Dale W. Hilpert
Chairman of the Board and
Chief Executive Officer
April 12, 2000
[EASTBAY GRAPHIC]
[NORTHERN GRAPHIC]
[RUNNERS GRAPHIC]
5
<PAGE> 8
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
New or Remodeled Stores(1) Average Size Total Selling
Number -------------------------- (Selling Square Square Footage
Format of Stores Number Percent Footage) (in thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
GLOBAL ATHLETIC Foot Locker 1,514 717 47% 2,300 3,543
-----------------------------------------------------------------------------------------------------------------
GROUP Lady Foot Locker 690 326 47% 1,300 862
-----------------------------------------------------------------------------------------------------------------
Kids Foot Locker 403 326 81% 1,400 579
-----------------------------------------------------------------------------------------------------------------
Foot Locker International 487 270 55% 1,400 708
-----------------------------------------------------------------------------------------------------------------
Champs Sports 616 216 35% 4,000 2,456
-----------------------------------------------------------------------------------------------------------------
Footlocker.com/Eastbay -- -- -- -- --
-----------------------------------------------------------------------------------------------------------------
Total 3,710(2) 1,855 50% 2,200 8,148
- ------------------------------------------------------------------------------------------------------------------------------------
NORTHERN Northern Reflections 571 238 42% 1,900 1,096
-----------------------------------------------------------------------------------------------------------------
GROUP Northern Getaway 183 153 84% 1,800 331
-----------------------------------------------------------------------------------------------------------------
Northern Elements 100 78 78% 1,900 187
-----------------------------------------------------------------------------------------------------------------
Northern Traditions 67 48 72% 1,700 117
-----------------------------------------------------------------------------------------------------------------
Total 921(2) 517 56% 1,900 1,731
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) New or remodeled during last five years
(2) Includes 98 Global Athletic Group stores and 188 Northern Group stores
that will close during fiscal 2000 as part of the previously announced
accelerated store closing program
A WORLD-CLASS ATHLETIC FOCUS
6
<PAGE> 9
Focused & Forward...
[SHOES GRAPHIC] [SLAM DUNK GRAPHIC]
[RUNNER GRAPHIC] [CLOTHING GRAPHIC]
<PAGE> 10
Today, people of all ages enjoy wearing athletic footwear and apparel. The
growing trend towards more comfortable, casual wear has revolutionized the
industry. Whether worn for function or fashion, athletic-inspired products fit
all facets of everyday life. As the world's largest athletic specialty
retailer, we offer our customers an extensive assortment of athletic footwear
and apparel incorporating the latest styles and technologies from infant to
adult sizes.
Although the lion's share of our merchandise mix consists of athletic
footwear, athletic apparel has played an important role in creating a
head-to-toe look that reflects today's casual trends. Through our strong
relationships with our vendor partners and our ability to design and manufacture
proprietary label products, we provide our customers with athletic merchandise
that is often available only at Foot Locker, Lady Foot Locker, Kids Foot Locker,
Champs Sports, Eastbay and Footlocker.com.
By creating and executing integrated marketing programs, we are able to
distinguish ourselves from the competition and focus on our core customer. The
creation of House of Hoops exclusively at Foot Locker reinforced to the 13-19
year old male that Foot Locker is the destination for basketball footwear and
apparel, including exclusives such as the Nike Uptempo collection.
Lady Foot Locker focuses on the female consumer by offering her footwear
and apparel made especially to fit her wants and needs, including sports
accessories such as sports bras. Understanding that the athletic needs of women
differ from men, Lady Foot Locker has earned the trust of its female customers
by creating an environment where she will find the latest product and expert
advice to satisfy her athletic and fitness needs. At Kids Foot Locker, parents
will find a complete collection of athletic products specifically for children
from infants to ten year olds. For beginner walkers, Kids Foot Locker recommends
footwear designed specifically to fit the unique shape of a baby's developing
foot, such as the Nike JDI footwear line for first walkers, which is available
exclusively at Kids Foot Locker. Champs Sports offers men, women and children an
array of sports and lifestyle footwear, apparel, sports equipment and
accessories, such as sunglasses and watches. Champs Sports places a greater
FORWARD WITH INNOVATIVE MERCHANDISE
THE INTRODUCTION OF EXCLUSIVE BRANDED MERCHANDISE HAS PLAYED AN INTEGRAL
ROLE IN POSITIONING US AS THE DESTINATION FOR NEW, INNOVATIVE, CUTTING-EDGE
PRODUCTS. OUR PROPRIETARY LABEL BRANDS SUCH AS FOOT LOCKER BASICS, LADY FOOT
LOCKER ACTRA AND CHAMPS SPORTS, IN AN ARRAY OF STYLES AND COLORS, OFFER
VERSATILITY AND MEET THE NEEDS OF TODAY'S CONSUMERS.
[INSIDE OF A FOOT LOCKER STORE GRAPHIC]
8
<PAGE> 11
emphasis on sports apparel and active sportswear for the serious athlete or
fashion enthusiast and offers an array of sports-specific footwear, such as
baseball and soccer cleats.
In addition to our retail outlets and catalogs, consumers will find an
extensive merchandise assortment via our websites (footlocker.com,
ladyfootlocker.com, kidsfootlocker.com, champssports.com and eastbay.com).
Die-hard football fans or enthusiasts also have access to the world's largest
on-line inventory of the National Football League's merchandise via NFLShop.com,
which is managed by Footlocker.com. As part of the NFLShop.com, fans can
personalize their favorite team's jersey to demonstrate their team spirit and
support.
Our Merchandising 2000 (M2K) program provides synchronization of our
strategic vision with a working plan and a financial plan in which all buyers,
planners and merchandisers follow the same process using integrated systems. We
have the ability to provide each store with the optimum product mix and timely
promotions for maximum sales. M2K is a quantum leap in how we plan and execute
our business by prioritizing our buys within a framework that best meets our
objectives and customer demand.
As we move forward, we remain focused and committed to developing new and
innovative products that create and reflect current trends in the athletic
industry and meet and satisfy the ever-changing wants and needs of our
consumers.
[SHOE GRAPHIC]
[INSIDE OF A FOOT LOCKER STORE GRAPHIC]
9
<PAGE> 12
[SHOE GRAPHIC] [STACK OF CLOTHING GRAPHIC]
OUR MARKET SIZE AFFORDS US THE ABILITY TO LEVERAGE OUR BUYING AND SELLING POWER
WITH PREMIER ATHLETIC BRANDS TO CREATE NEW MERCHANDISE OFTEN EXCLUSIVE TO US -
AND STIMULATE DEMAND. WE ARE IN A STRONG POSITION TO ATTRACT A BROAD CONSUMER
BASE AS EACH ATHLETIC DIVISION TARGETS A SPECIFIC DEMOGRAPHIC GROUP.
FORWARD AS A MARKET LEADER
[RUNNER GRAPHIC]
Today, Venator Group has a compelling leadership position with strong brand name
recognition. Foot Locker, Lady Foot Locker, Kids Foot Locker, Champs Sports and
our direct-to-customer business, Footlocker.com/Eastbay, currently represent 17
percent of the $14 billion U.S. athletic footwear market. We have more than
3,700 athletic retail stores worldwide that generate nearly $3.8 billion in
annualized sales.
We are in a unique position because of our size and distribution
capabilities to leverage our buying and selling power with our athletic brands,
including Nike, adidas, Reebok, New Balance, Champion and others, and to
maximize the benefits of our Pan-European presence, which enables us to be in
the forefront of hot new trends. Our cohesive team of merchants and buyers keep
a finger on this pulse to identify trends early on and then partner with our
athletic brands to launch new products in North America.
Foot Locker, with 2,000 stores worldwide, has been around for 25 years. It
has a very loyal core customer, particularly in the basketball and running
footwear categories, and they have recognized that Foot Locker is the place to
go for the latest in technology. In fact, Foot Locker enjoys a 97% unaided brand
recognition among its core 13 to 19 year old customer.
Leveraging the success of the Foot Locker brand, Lady and Kids Foot
Locker, with nearly 1,100 stores combined, are the only national specialty store
chains that specialize in women's and children's branded athletic footwear and
apparel for a variety of sports, including running, basketball, aerobics,
soccer, baseball, walking and tennis.
Champs Sports, with 616 stores, is the second largest mall-based sporting
goods retailer in North America directly behind Foot Locker. Champs Sports
caters to a 12 to 25 year old male sports enthusiast by providing the latest in
authentic sports-oriented lifestyle footwear, a variety of sports-specific
equipment and an extensive assortment of athletic apparel.
Eastbay is our $180 million catalog operation that offers 82,000
stock-keeping units, the world's largest assortment of sports-specific
merchandise, including team-specific merchan-
10
<PAGE> 13
dise for high school students participating in sports such as baseball,
basketball and track and field. Eastbay has an active list of more than 12
million households and mails 80 million catalogs a year.
Internet sales represent an enormous growth opportunity for Venator Group.
Because of Eastbay, Footlocker.com is particularly well-positioned to meet most
challenges that face retailers entering the new age of e-tailing, particularly
when it comes to customer order fulfillment and consumer-friendly service.
Our integrated direct-to-customer approach allows Footlocker.com to enter
the electronic marketplace with nearly 20 years of direct-marketing experience
along with a new 250,000 square foot distribution center. Footlocker.com
currently offers more than 14,000 products and its real-time inventory checks
enable it to ship 98% of credit-approved orders in 24 hours.
Backed by Eastbay's catalog fulfillment expertise and Footlocker.com's
Internet technology, Venator Group is also the exclusive licensee of the NFL's
catalog and e-commerce business - a tremendous coup given the NFL's leadership
in licensed product sales, which is one of the few licensed products that have
performed reasonably well.
Moving forward, Venator Group will continue to reinforce its position in
the market as the preeminent athletic footwear and apparel retailer - first in
the United States, Europe and Australia.
[SHOE GRAPHIC]
[BASKETBALL PLAYER RUNNING GRAPHIC]
[FEMALE ATHLETE GRAPHIC]
11
<PAGE> 14
FORWARD AS A GLOBAL PLAYER
BEING GLOBAL IS NOT NEW TO US. WITH MORE THAN 3,700 ATHLETIC STORES IN 14
COUNTRIES, WE ARE THE LARGEST ATHLETIC SPECIALTY RETAILER IN THE WORLD. WE
CURRENTLY HAVE 3,186 STORES IN THE UNITED STATES, 289 STORES IN 11 COUNTRIES IN
EUROPE, 58 STORES IN AUSTRALIA AND 172 STORES IN CANADA.
[PAIR OF SHOES GRAPHIC]
[SOCCER PLAYER GRAPHIC]
[SOCCER JERSEY GRAPHIC]
Today, the global retail athletic market is estimated to be $135 billion, of
which half is concentrated in the United States and Europe. As the world leader
in athletic footwear and apparel, Venator Group clearly enjoys an advantage in
the international arena.
Based on our sheer size and prominent retail locations around the world,
we are in the unique position to understand the cultural differences of our
consumers by city, country and continent. Our knowledge, experience and current
infrastructure equip us fully for future international growth.
Being global exposes our merchants and buyers to different trends. Their
job is to understand and interpret how those trends may influence other
countries in which we operate and share this information with our worldwide
team. Currently, our international customers want the classic, or "retro" styles
in footwear available from all leading manufacturers, but they also enjoy the
technology-driven running footwear category that dominates the worldwide
marketplace.
Since opening our first Foot Locker store in Great Britain in 1980, we
have opened stores in popular, high-traffic areas in Europe, Canada and
Australia to ensure our international leadership position. Currently, consumer
demand in Europe outstrips that in the United States, producing higher
comparable-store sales increases. We intend to grow aggressively in Europe,
while the economies are strong and demand is up.
In the fall of 2000, we will open another flagship Foot Locker store
outside of the United States on Oxford Street in Lon-
12
<PAGE> 15
don, one of the most prestigious retail locations in England, if not the world.
The new 15,000 square foot store will reflect the design and retail ambience of
our successful Foot Locker flagship store opened on 34th Street in New York City
in May 1999. We are very excited about the Oxford store opening, which will
complement the other 31 stores that we currently operate in England.
Growth in Europe will be facilitated by our new fully automated central
distribution center located in Heijen, the Netherlands, which opened in April
1999. The facility, at 200,000 square feet, more than doubles our previous
warehousing capacity and utilizes a pick management system that cross docks
merchandise and tracks receipt of goods to ensure same-day delivery to stores.
This cost-efficient, speed-to-market approach has revolutionized our
warehousing, fulfillment and customer service capabilities in Europe.
During the past three years, we have invested to remodel and upgrade more
than three-quarters of our athletic stores throughout Canada to better reflect
our current store design and merchandise strategy. Consumer response has been
positive, as we have seen very encouraging sales results in 1999 that have
continued in early 2000.
In Australia, we have concentrated our efforts on modernizing our stores,
increasing the size of our smaller stores, closing underperforming stores and
opening new stores in key locations. We have applied the same proven business
practices in Australia that have succeeded in the U.S. and follow the same
merchandising strategies, including our narrow and deep philosophy. We are
optimistic as we move forward in 2000 and are encouraged by the upcoming Summer
Olympics, which should have a positive impact on our business.
These efforts, combined with our merchandise initiatives in the United
States, provide us with the necessary tools for global expansion.
[GLOBE GRAPHIC]
[OUTSIDE OF A FOOT LOCKER STORE GRAPHIC]
[BOOT GRAPHIC]
13
<PAGE> 16
[FEMALE ASSOCIATE HOLDING CLOTHING GRAPHIC]
[FEMALE WORKING OUT GRAPHIC]
WE EMBRACE A TEAM PHILOSOPHY. WITH MORE THAN 47,000 TALENTED AND DEDICATED
ASSOCIATES WORLDWIDE, WE WORK TOGETHER TO ENSURE OUR LEADERSHIP POSITION IN THIS
COMPETITIVE MARKETPLACE. OUR ASSOCIATES THRIVE ON PROVIDING SUPERIOR CUSTOMER
SERVICE UNMATCHED IN THE ATHLETIC FOOTWEAR AND APPAREL INDUSTRY.
FORWARD WITH A TALENTED TEAM
[MALE ASSOCIATE HOLDING SHOES GRAPHIC]
At Venator Group, we are working to build a team of talented retailers with the
energy and insight to progress towards our mission of winning in the global
marketplace. From senior management to store operators we are striving to
retain, attract and develop focused and talented associates.
We are working hard to improve performance, ensure accountability and
strengthen the team of our 47,000 worldwide employees. We are implementing a
common set of practices and benchmarks, company-wide, to ensure efficiency and
consistency throughout the organization. We are measuring and rewarding our
associates against those benchmarks through an annual appraisal process. We are
also facilitating management and leadership growth with our
executive-development review program.
We will continue to invest in systems and processes to improve
productivity throughout the Company. Since 1997, we have invested over $130
million in streamlining our merchandising and back office operations. We have
re-trained our associates to work smarter and more efficiently.
A new Sales and Management Development Program is designed to drive sales
by focusing on customer service, store operations and effective interpersonal
and communication skills. Through various modules, the Program provides hands-on
training for every store associate, from part-timer to manager.
Since enlightened customer service is key to maximizing sales, store
operations have been charged specifically with re-energizing the sales support
staff and bringing them back to the premium level we enjoyed in the past. We
want our customers to rely on our store associates' expertise to help select the
right products to give them optimum performance. Our store associ-
14
<PAGE> 17
ates - many of whom are athletes who know and understand men's, women's and
children's athletic needs - are being trained to bring a personal perspective to
their work.
Store associates are also trained to Sell What is Available Today, known
familiarly as our S.W.A.T. program. The idea behind S.W.A.T. is to ensure that
we satisfy customers' needs by offering items of similar characteristics and
benefits. If we can't satisfy them with an alternative, we let them know that
out-of-stock items can be purchased through Footlocker.com, with delivery
promised within 72 hours. In 1999, the S.W.A.T. approach enabled us to sell an
additional 300,000 pairs of shoes.
The energy of all members of our staff and their ability to work together
has propelled all of us to win in this competitive environment. Their passion
for excellence and their willingness to define and meet new standards of
excellence have built a strong foundation for which we can be proud. Going
forward, our objective will be to continue to develop and enhance our team by
attracting equally dynamic and talented individuals to assure our success.
[FEMALE ASSOCIATE GRAPHIC]
[SHOES GRAPHIC]
[MALE ASSOCIATE CARRYING SHOE BOXES GRAPHIC]
15
<PAGE> 18
Last year, for the first time, we witnessed and experienced a reduction in
retail square footage in the U.S. athletic industry. Many athletic retailers,
including Venator Group, closed under-performing stores, because the market had
become over-stored from several years of rapid expansion. This created a highly
competitive environment.
Additionally, overall growth in the U.S. footwear market was flat, as
industry unit sales actually declined from their peak in 1996. However, during
this period, the industry experienced growth in the high-end, or marquee,
footwear category, an area in which Venator Group led the industry. This had a
stabilizing effect on industry average prices. In the second half of 1999,
Venator Group began to generate significant same-store sales gains, fueled by
strong sales of marquee shoes. This resulted in Venator Group outperforming the
industry and increasing its market share.
What has emerged from this industry contraction, as well as from our own
merchandising initiatives, is a resurgence of sales in the athletic footwear and
apparel categories.
Today, Venator Group is a more focused Company. We have repositioned
ourselves to grow the business, with the objective of increasing market share
through increased productivity at our retail stores, as well as through our
catalog and Internet businesses.
Success in this highly competitive market demands continuous improvement
in cost structure and efficiencies. Our goal is to be lean and financially
strong to capitalize on improving athletic trends.
Significant opportunities exist in the global market, which is expected to
reach $150 billion by the year 2001. At Venator Group, we have taken the
necessary steps to maximize our investment in the athletic industry.
FORWARD IN A COMPETITIVE MARKET
[BOTTOM OF SHOE GRAPHIC]
THE UNITED STATES SPORTING GOODS MARKET REPRESENTS A $67 BILLION INDUSTRY, OF
WHICH $35 BILLION IS APPAREL, $19 BILLION IS EQUIPMENT AND $14 BILLION IS
FOOTWEAR. VENATOR GROUP ENJOYS A 17% SHARE OF THE U.S. ATHLETIC FOOTWEAR
MARKET, FAR GREATER THAN OUR NEAREST MALL-BASED COMPETITOR.
U.S. ATHLETIC RETAIL
SQUARE FOOTAGE
(millions)
[BAR CHART]
<TABLE>
<S> <C>
94 34.7
95 39.9
96 45.1
97 49.6
98 54.6
99 51.3
</TABLE>
U.S. ATHLETIC
SPORTING GOODS MARKET
[PIE CHART]
<TABLE>
<S> <C>
52% Apparel
20% Footwear
28% Equipment
5% Venator Group
</TABLE>
U.S. ATHLETIC
FOOTWEAR MARKET
[PIE CHART]
<TABLE>
<S> <C>
17% Venator Group
9% Mall-based
specialty stores
13% Off-mall/
Superstores
61% Discount:
Department Stores/Other
</TABLE>
16
<PAGE> 19
SALES
($ billions)
94 $4.5
95 $4.4
96 $4.5
97 $4.6
98 $4.6
99 $4.6
INCOME FROM CONTINUING OPERATIONS
($ millions)
94 $23
95 $29
96 $209
97 $213
98 $3
99 $17
DEBT, NET OF CASH
($ millions)
94 $1,104
95 $597
96 $322
97 $446
98 $574
99 $327
CAPITAL EXPENDITURES
($ millions)
94 $116
95 $70
96 $86
97 $249
98 $549
99 $158
FINANCIAL REPORT
TABLE OF CONTENTS
18 Management's Discussion and Analysis of
Financial Condition and Results of Operations
25 Management's Report
25 Independent Auditors' Report
26 Consolidated Statements of Operations
26 Consolidated Statements of Comprehensive Income (Loss)
27 Consolidated Balance Sheets
28 Consolidated Statements of Shareholders' Equity
29 Consolidated Statements of Cash Flows
30 Notes to Consolidated Financial Statements
45 Five Year Summary of Selected Financial Data
46 Board of Directors
46 Corporate Officers
47 Corporate Information
17
<PAGE> 20
Management's Discussion and Analysis of
Financial Condition and Results of Operations
- --------------------------------------------------------------------------------
Venator Group, Inc., through its subsidiaries (Venator Group, Inc. and its
subsidiaries being hereafter referred to as the "Company" or "Venator Group")
operates in two reportable business segments, the Global Athletic Group and the
Northern Group. The Global Athletic Group is one of the largest athletic
footwear and apparel retailers in the world, whose formats include Foot Locker,
Lady Foot Locker, Kids Foot Locker and Champs Sports. The Global Athletic Group
also includes the Company's Footlocker.com subsidiary, which sells, through its
affiliates, to customers through catalogs and Internet websites. The Northern
Group consists of four apparel formats: Northern Reflections, Northern
Traditions, Northern Getaway and Northern Elements.
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 business formats sold, closed or held for
disposal other than discontinued business segments, and is therefore included in
continuing operations.
<TABLE>
<CAPTION>
(in millions) 1999 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Global Athletic Group:
Retail Stores $3,590 $3,529 $3,547
Direct to Customers 195 160 141
- --------------------------------------------------------------------------------
3,785 3,689 3,688
Northern Group 391 402 449
Disposed and held for
disposal 471 464 475
- --------------------------------------------------------------------------------
$4,647 $4,555 $4,612
================================================================================
</TABLE>
SALES
- --------------------------------------------------------------------------------
Sales of $4,647 million in 1999 increased 2.0 percent from sales of $4,555
million in 1998, reflecting an increase of 2.1 percent in comparable-store
sales. Excluding sales from businesses disposed and held for disposal and the
effect of foreign currency fluctuations, 1999 sales increased by 2.4 percent as
compared with 1998.
Sales of $4,555 million in 1998 decreased 1.2 percent from sales of $4,612
million in 1997, reflecting the impact of 294 additional stores offset by a
comparable-store sales decline of 5.5 percent. The impact of foreign currency
fluctuations and businesses disposed and held for disposal did not have a
significant impact on sales in 1998.
The 1997 reporting year included 53 weeks compared with 52 weeks in the
1998 and 1999 reporting years. The impact on sales and operating results of the
additional week was not significant to 1997.
Operating results reflect income (loss) from continuing operations before income
taxes, excluding corporate expense, corporate gains on real estate and net
interest expense. The following table summarizes operating profit (loss) by
segment, after reclassification for business formats disposed and held for
disposal, reconciled to income (loss) from continuing operations before income
taxes.
<TABLE>
<CAPTION>
(in millions) 1999 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Global Athletic Group:
Retail Stores $ 109 $ 23 $ 381
Direct to Customers 3 2 (1)
- --------------------------------------------------------------------------------
112 25 380
Northern Group 8 (13) 40
- --------------------------------------------------------------------------------
Operating profit from ongoing
operations 120 12 420
Disposed and held for disposal (1) (35) (18) (2)
Restructuring charges (2) (134) -- --
Gains on sales of businesses (3) 177 19 --
- --------------------------------------------------------------------------------
Total operating profit 128 13 418
Corporate expense, net (2) 43 8 50
Interest expense, net 57 44 35
- --------------------------------------------------------------------------------
Income (loss) from continuing
operations before income
taxes $ 28 $ (39) $ 333
================================================================================
</TABLE>
(1) Includes the operating results of Afterthoughts, The San Francisco Music Box
Company, Foot Locker Outlets, Colorado, Team Edition, Going to the Game!, Randy
River Canada, Weekend Edition, Garden Centers, Burger King franchises, Foot
Locker Asia, Northern Getaway U.S. and Northern Elements U.S.
(2) 1999 restructuring charges of $134 million included in operating expenses
and $21 million included in corporate expense reflect the disposition of
non-core businesses, an accelerated store closing program, headcount reduction,
and the closure of a distribution center.
(3) 1999 reflects the sale of Afterthoughts ($164 million) and Colorado in
Australia ($13 million). 1998 reflects the sale of Garden Centers.
RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
GROSS MARGIN
Gross margin, as a percentage of sales, of 27.2 percent in 1999 improved
slightly compared with 26.8 percent in 1998. The improvement reflects reduced
markdown activity in 1999, offset by increased occupancy costs and inventory
markdowns of $11 million associated with the Company's 1999 restructuring plan
to exit non-core businesses. Excluding the inventory markdowns of $11 million,
gross margin would have been 27.5 percent in 1999. Gross margin declined to 26.8
percent in 1998 compared with 32.2 percent in 1997 primarily reflecting
aggressive markdown activity in order to clear excess or slow-selling inventory.
18
<PAGE> 21
- --------------------------------------------------------------------------------
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses ("SG&A") declined by $88 million in
1999 to 23.2 percent, as a percentage of sales, compared with 25.6 percent in
1998. This improvement reflects the Company's successful cost-cutting
initiatives at both the corporate and divisional levels. SG&A included asset
impairment charges in 1999 and 1998 of $13 million and $33 million, before-tax,
respectively, or $8 million and $20 million, after-tax, respectively; the 1997
charge was not significant. SG&A increased by $158 million in 1998 compared with
1997 primarily attributable to the incremental costs related to additional
stores. In addition, a total reduction of $11 million, $3 million and $22
million in the 1991 restructuring reserve and the 1993 repositioning reserve was
recorded in SG&A in 1999, 1998 and 1997, respectively. These adjustments
primarily reflect sublease and other income related to leased and owned
properties.
Corporate expense, excluding $21 million of restructuring charges in 1999,
totaled $68 million, $90 million and $62 million for 1999, 1998 and 1997,
respectively. The decline in 1999 compared with 1998 reflects corporate cost
savings achieved by the Company this year primarily related to payroll costs.
The 1998 increase compared with 1997 included $16 million for the installation
of the Company's comprehensive information computer system ("ECLIPSE"), Y2K
costs of $3 million and costs associated with reducing the size of the corporate
office of $3 million.
DEPRECIATION AND AMORTIZATION
As a result of the Company's capital expenditure program in 1998, depreciation
and amortization increased by $30 million in both 1999 and in 1998, or by 19.7
percent and 24.6 percent respectively, compared with the prior year.
OTHER INCOME
In 1999, the Company recorded a gain of $164 million from the sale of the assets
of its Afterthoughts retail chain. In connection with the public offering of 100
percent of its holding in Colorado Group, Ltd., the Company recorded a gain of
$13 million to continuing operations in 1999 related to the Australian athletic
format. In 1998, other income included a $19 million gain on sale of the Garden
Centers nursery business.
Corporate real estate gains of $46 million, $82 million and $12 million in
1999, 1998 and 1997, respectively, are also included in other income. In 1998,
the Company sold its corporate headquarters and leased back a portion of the
building through 2008, recognizing a gain of $73 million. In 1999, the Company
terminated the lease related to the leased-back portion and sold the associated
furniture and fixtures for a net gain of $17 million.
OPERATING RESULTS
Operating profit increased by $115 million to $128 million in 1999 and declined
to $13 million in 1998 from $418 million in 1997. Excluding operating results
from businesses disposed and held for disposal and the associated restructuring
charges and gains on sales, operating profit was $120 million, $12 million and
$420 million in 1999, 1998 and 1997, respectively. The increase in operating
profit in 1999 primarily reflects the Company's cost-cutting initiatives related
to operating expenses, as well as the improvement in gross margin. The decline
in 1998 resulted from decreases in gross margin, primarily in the Global
Athletic Group.
INTEREST EXPENSE, NET
<TABLE>
<CAPTION>
($ in millions) 1999 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest expense $ 65 $ 57 $ 41
Interest income $ (8) $ (13) $ (6)
Interest expense, net of
interest income $ 57 $ 44 $ 35
Weighted-average interest rate
(excluding facility fees):
Short-term debt 7.7% 6.2% 6.3%
Long-term debt 7.6% 7.7% 8.0%
Total debt 7.7% 7.1% 7.9%
Short-term debt outstanding during the year:
High $ 354 $ 695 $ 207
Weighted-average $ 239 $ 291 $ 22
- --------------------------------------------------------------------------------
</TABLE>
Interest expense increased by 14.0 percent in 1999 reflecting higher effective
interest rates and fees on short-term borrowings, partially offset by lower
levels of average short-term borrowings during 1999. Interest income of $8
million in 1999 included $5 million related to tax refunds, compared with $13
million in 1998, $7 million of which related to a franchise tax settlement. On
March 19, 1999, the Company amended its revolving credit agreement by reducing
the facility from $500 million to $400 million, with a further reduction to $300
million effective February 15, 2000.
Interest expense, net of interest income, increased by 25.7 percent in
1998 as a result of increased borrowings under the Company's revolving credit
facility, which was partially offset by the increase in interest income of $7
million.
INCOME TAXES
The 1999 effective tax rate was 39.0 percent compared with (107.7) percent in
1998 and 36.0 percent in 1997. The change in the 1998 effective tax rate
primarily reflected the impact of utilizing available foreign tax credits as a
result of the sale of various businesses and assets, offset by the impact of
non-deductible items, such as goodwill amortization, and a one-time gain on the
surrender of company-owned life insurance policies.
19
<PAGE> 22
- --------------------------------------------------------------------------------
OPERATIONS DISPOSED AND HELD FOR DISPOSAL
Operations disposed and held for disposal represents those businesses sold,
closed, or held for disposal other than the discontinued segments and are
therefore included in continuing operations.
1999 RESTRUCTURING
In 1999, the Company embarked on a major restructuring program. In the second
quarter, the Company approved a restructuring 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. In the fourth quarter, the Company announced a
further restructuring program. The program included plans to close all Foot
Locker stores in Asia as well as 358 under-performing stores in the United
States and Canada, representing 150 Global Athletic Group stores and 208
Northern Group stores, which includes the disposal of the Northern Getaway and
Northern Elements formats in the United States. Operating losses of $16 million
were recorded in 1999 for under-performing stores of ongoing formats, which were
included in the accelerated store closing program. In connection with the
disposition of several of its non-core businesses, the Company reduced sales
support and corporate staff by over 30 percent, reduced divisional staff and
consolidated Kids and Lady Foot Locker's management and staff into one
organization. In addition, the Company plans to close the Champs Sports
distribution center in Maumelle, Arkansas and to consolidate its operation with
the Foot Locker facility located in Junction City, Kansas. Total restructuring
charges of $155 million before-tax were recorded in 1999 representing estimated
cash outlays for lease obligations ($60 million), severance and personnel costs
associated with eliminating 3,700 positions ($23 million), and other disposition
costs ($11 million). Non-cash charges included asset impairments ($50 million)
and inventory write-downs included in cost of sales ($11 million).
1999 DISPOSITIONS
The Company also completed the sale of its Afterthoughts retail chain and the
public offering of its holding in Colorado Group, Ltd. in Australia in 1999 for
proceeds of approximately $250 million and $55 million, respectively.
1998 AND 1997 DISPOSITIONS
During 1998, the Company sold its Garden Center nursery business and closed its
Randy River stores in the United States and its Ashbrooks stores in Canada as
part of its continuing program to exit under-performing businesses.
In 1997, the Company disposed of its Foot Locker operations in Hong Kong.
DISCONTINUED OPERATIONS
In September 1998, the Company discontinued both its Specialty Footwear and
International General Merchandise segments. The Company recorded a net charge to
earnings in 1998 of $234 million before-tax, or $155 million after-tax, for the
loss on disposal of the Specialty Footwear segment. Major components of the net
charge included estimated outlays for lease liabilities and other occupancy
costs ($93 million), operating losses and other expenses during the shutdown
period ($61 million), and severance and personnel costs ($14 million). Non-cash
charges included asset and inventory write-downs ($66 million). Disposition
activity reduced the reserve by $48 million and $113 million in 1999 and 1998,
respectively. The Company further reduced the reserve in 1999 by an adjustment
of $45 million before-tax, which primarily related to favorable results from
lease buy-outs and real estate dispositions compared with original estimates. On
October 22, 1998, the Company completed the sale of the general merchandise
operations in Germany for gross proceeds of $563 million and recorded a net gain
on the disposal of the International General Merchandise segment of $174 million
before-tax, or $39 million after-tax. In a management buy-out on December 1,
1999, the Company sold 85 of its Bargain! Shop stores for gross proceeds of $17
million, completing the disposal of the segment, and recorded a reduction to the
reserve of $13 million before-tax, reflecting disposition results more favorable
than anticipated.
In 1997, the Company discontinued the Domestic General Merchandise segment
and recorded a charge for the disposal of $310 million before-tax, or $195
million after-tax. The charge included outlays for real estate disposition costs
($101 million), liquidation expenses and other shutdown costs ($91 million), and
severance and other personnel related costs ($72 million). Non-cash charges
reflected asset write-downs ($46 million). In 1998, the Company recorded income
from discontinued operations of $4 million before-tax related to better than
expected gains from real estate dispositions. Net disposition activity for 1999,
1998 and 1997 was approximately $33 million, $51 million and $220 million,
respectively. In the fourth quarter of 1999, the Company recorded an additional
charge of $21 million before-tax, or $13 million after-tax, for the loss on
disposal of the Domestic General Merchandise segment. The charge primarily
reflected an adjustment for estimated lease costs related to excess space in
former general merchandise locations, which have limited commercial use,
contrary to what was originally anticipated.
The remaining reserve balance of $61 million at January 29, 2000 for all
discontinued segments consists principally of lease liabilities and occupancy
costs over future years.
STORE COUNT
The following table summarizes store count by segment, after reclassification
for businesses disposed and held for disposal. During 1999, the Company
remodeled or relocated 197 stores, excluding businesses disposed and held for
disposal. 262 stores included in the 358 accelerated store-closing program
related to ongoing formats and are included in the Global Athletic Group and the
Northern Group. Of the 358 under-performing stores, 72 were closed in the fourth
quarter of 1999 and the remaining 286 stores are expected to close in 2000.
<TABLE>
<CAPTION>
1998 OPENED CLOSED 1999
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Global Athletic Group 3,830 147 284 3,693
Northern Group 845 13 22 836
Disposed and held for disposal 1,327 114 1,096 345
- --------------------------------------------------------------------------------
Total 6,002 274 1,402 4,874
================================================================================
</TABLE>
20
<PAGE> 23
SEGMENTS
GLOBAL ATHLETIC GROUP
The Global Athletic Group, the Company's largest segment, operates via retail
stores and directly to customers. The retail formats include the Foot Locker
businesses: Foot Locker, Lady Foot Locker, and Kids Foot Locker, as well as
Champs Sports. The Foot Locker formats are located in North America, Europe and
Australia. Champs Sports operates in the United States and Canada. The Company
also operates Footlocker.com, which sells, through its affiliates, directly to
customers through catalogs and its Internet websites. Eastbay, one of its
affiliates, is the largest direct marketer of athletic footwear, apparel and
equipment in the United States, and provides the Company's six full-service
e-commerce sites access to an integrated fulfillment and distribution system.
Included in the Global Athletic Group's businesses disposed and held for
disposal are the Foot Locker Outlets, Colorado, Team Edition, Going to the Game!
and Foot Locker Asia.
The results of the Global Athletic Group segment are as follows:
<TABLE>
<CAPTION>
($ in millions) 1999 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
SALES
Retail Stores $ 3,590 $ 3,529 $ 3,547
Direct to Customers 195 160 141
Disposed and held for disposal 115 64 61
- --------------------------------------------------------------------------------
Total sales $ 3,900 $ 3,753 $ 3,749
- --------------------------------------------------------------------------------
OPERATING PROFIT (LOSS)
Retail Stores $ 109 $ 23 $ 381
Direct to Customers 3 2 (1)
Disposed and held for disposal (37) (13) (5)
Restructuring charges (71) -- --
Gains on sales of businesses 13 -- --
- --------------------------------------------------------------------------------
Total operating profit $ 17 $ 12 $ 375
- --------------------------------------------------------------------------------
Sales as a percentage of
consolidated total 84% 82% 81%
Number of stores at year end 3,710 3,925 3,625
Selling square footage
(in millions) 8.15 8.41 6.36
- --------------------------------------------------------------------------------
</TABLE>
The Global Athletic Group's sales of $3,900 million in 1999 increased 3.9
percent from $3,753 million in 1998, reflecting a comparable-store sales
increase of 2.4 percent. In 1998, sales of $3,753 million reflected 300
additional stores, offset by a comparable-store sales decline of 6.1 percent,
compared with $3,749 million in 1997.
Operating profit of $17 million in 1999 increased by 41.7 percent from $12
million in 1998. The increase primarily reflected the improved operating
performance of the ongoing retail formats and the gain on sale of Colorado in
Australia, offset by the operating losses of businesses disposed and held for
disposal and the associated restructuring charges. Operating profit in 1998 was
$12 million compared with $375 million in 1997. The decline was primarily a
result of lower gross margins due to significantly higher markdowns.
RETAIL STORES
Sales of $3,590 million from ongoing retail store formats in 1999 increased 1.7
percent in 1999, compared with $3,529 million in 1998, reflecting a
comparable-store sales increase of 1.4 percent. The increase was primarily
attributable to improved sales performance at remodeled and relocated stores. In
1998, sales were essentially flat compared with 1997 as the impact of the 295
increase in store base was offset by a comparable-store sales decline of 7.1
percent. This decline was primarily attributable to a major fashion shift away
from high-end athletic footwear, as well as soft branded and licensed apparel
sales.
The Company reported operating profit from ongoing retail store formats of
$109 million in 1999, compared with $23 million in 1998. The increase reflects
the improved sales performance and reduced markdown activity in 1999,
particularly in the Foot Locker format in the United States and Europe, offset,
in part, by increased occupancy costs and depreciation in all formats. Operating
profit in 1998 from ongoing retail store formats declined to $23 million from
$381 million in 1997 as a result of lower gross margins due to significantly
higher markdowns. Oversupplied inventory and a shift in customer preferences
from higher priced footwear, particularly basketball footwear, to lower price
point product necessitated the higher than normal markdowns. Asset impairment
charges of $8 million, $19 million and $1 million before-tax were included in
operating profit in 1999, 1998 and 1997, respectively.
DIRECT TO CUSTOMERS
Direct to Customers sales increased by 21.9 percent to $195 million in 1999 from
$160 million in 1998. Catalog sales increased 15.8 percent to $183 million in
1999 compared with the prior year. Internet sales, excluding freight, of $12
million in 1999 increased by $10 million compared with 1998. The increase in
Direct to Customers sales of 13.5 percent in 1998 to $160 million compared with
$141 million in 1997 was driven by the catalog business.
Excluding Internet costs of approximately $4 million in 1999, operating
profit would have increased to $7 million from $2 million in 1998. Management
expects significant growth in its integrated Internet and catalog Footlocker.com
business in future years, which will be further strengthened by the Company's
partnership with the National Football League.
NORTHERN GROUP
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
($ in millions) 1999 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
SALES
Sales $ 391 $ 402 $449
Disposed and held for disposal 16 13 6
- --------------------------------------------------------------------------------
Total sales $ 407 $ 415 $455
- --------------------------------------------------------------------------------
OPERATING PROFIT (LOSS)
Operating profit (loss) from
ongoing operations $ 8 $ (13) $ 40
Disposed and held for disposal (12) (13) --
Restructuring charges (59) -- --
- --------------------------------------------------------------------------------
Total operating profit (loss) $ (63) $ (26) $ 40
- --------------------------------------------------------------------------------
Sales as a percentage of
consolidated total 9% 9% 10%
Number of stores at year end 921 940 827
Selling square footage
(in millions) 1.73 1.66 1.34
- --------------------------------------------------------------------------------
</TABLE>
21
<PAGE> 24
The Northern Group consists of four formats: Northern Reflections, Northern
Traditions, Northern Getaway and Northern Elements. These stores sell specialty
apparel in Canada and the United States, specializing in a range of casual and
career apparel for women and casual apparel for men and children. The disposed
and held for disposal category reflects the Northern Getaway and Northern
Elements formats in the United States. Of the total 921 stores at year end, 501
stores are in the United States and 420 stores are in Canada.
The Northern Group sales of $407 million in 1999 decreased 1.9 percent
from 1998 and 5.4 percent on a comparable-store basis. Excluding the impact of
foreign currency fluctuations and businesses disposed and held for disposal,
sales declined by 3.5 percent. In 1998, sales of $415 million decreased 8.8
percent from 1997 and 11.0 percent on a comparable-store basis. Excluding the
impact of foreign currency fluctuations, sales decreased by 5.4 percent.
The operating loss of $63 million in 1999 compared with $26 million in
1998 reflects the impact of closing the under-performing Northern Getaway and
Northern Elements formats in the United States as well as restructuring charges
associated with an accelerated store closing program and reduction in headcount.
Excluding businesses disposed and held for disposal and the associated
restructuring charges, the Northern Group reported an operating profit of $8
million in 1999, compared with an operating loss of $13 million in 1998.
Operations in 1998 resulted in a loss of $26 million compared with a profit of
$40 million in 1997, which primarily reflected increased markdown activity and
an asset impairment charge of $7 million before-tax, or $4 million after-tax in
1998.
ALL OTHER BUSINESSES
All business formats captured in the "All Other" category have been disposed or
are held for disposal. They include Afterthoughts, The San Francisco Music Box
Company, Burger King franchises, Weekend Edition, Garden Centers and Ashbrooks.
<TABLE>
<CAPTION>
($ in millions) 1999 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
SALES
Sales of disposed and held for
disposal $ 340 $ 387 $ 408
- --------------------------------------------------------------------------------
OPERATING PROFIT (LOSS)
Disposed and held for disposal $ 14 $ 8 $ 3
Restructuring charges (4) -- --
Gains on sales of businesses 164 19 --
- --------------------------------------------------------------------------------
Total operating profit $ 174 $ 27 $ 3
- --------------------------------------------------------------------------------
Sales as a percentage of
consolidated total 7% 9% 9%
Number of stores at year end 243 1,137 1,256
Selling square footage
(in millions) 0.25 1.00 1.22
- --------------------------------------------------------------------------------
</TABLE>
On December 1, 1999, the Company completed the sale of the assets of its
Afterthoughts retail chain and recorded a pre-tax gain of $164 million. In
connection with the 1999 restructuring program, total charges of $4 million were
recorded for the disposition of Weekend Edition and Randy River in Canada. On
December 24, 1999, the Company completed the sale of 49 of its 87 Weekend
Edition stores and on February 27, 2000, substantially all of the Randy River
Canada stores were sold. The divestitures of The San Francisco Music Box Company
and the Burger King franchises are expected to be complete in 2000.
The operating profit in 1998 included a $19 million gain on the sale of
the Garden Centers nursery business.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOW
The Company'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 Company generally finances real estate with operating leases. The
principal use of cash has 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 provided $84 million of cash
in 1999, compared with cash used in operations of $11 million in 1998. These
amounts reflect the income (loss) from continuing operations, adjusted for
non-cash items and working capital changes. The decline in merchandise
inventories and accounts payable primarily reflects the Company's improved
inventory management in 1999. Also, additional inventory purchases were made in
1998 related to the opening of new larger-size athletic formats. Merchandise
inventories, excluding businesses disposed and held for disposal, of $739
million at January 29, 2000 declined by $29 million, or 3.8 percent, from $768
million at January 30, 1999.
Cash used in operations was $11 million in 1998 compared with cash
provided by operations of $149 million in 1997. This change reflects the $210
million decline in income from continuing operations in 1998 compared with 1997.
Investing activities of continuing operations contributed $149 million of
cash in 1999, compared with cash used of $405 million in investing activities in
1998. The Company received gross proceeds of approximately $250 million related
to the sale of the assets of its Afterthoughts retail chain. The public offering
of the Company's holding in Colorado Group, Ltd., its Australian athletic and
specialty footwear format, generated proceeds of $55 million. Total gross
proceeds were approximately $75 million, which included the repayment of a $20
million intercompany loan. Net proceeds related to continuing operations
amounted to approximately $21 million. Capital expenditures of $158 million for
1999 included expenditures for over 500 remodeled and new stores, management
information systems, logistics and other support facilities, as compared with
$549 million for the prior year. Proceeds from real estate disposition
activities amounted to $36 million in 1999, which reflected the sale of 15
properties, and the termination of the leased-back portion of the Company's
corporate headquarters, which was sold in 1998 for proceeds of approximately
$138 million. In 1998, cash used for the acquisition of Athletic Fitters of $29
million was partially offset by $22 million cash proceeds received from the sale
of the Garden Centers nursery business.
22
<PAGE> 25
Cash used in investing activities of continuing operations in 1998 totaled
$405 million compared with $377 million in 1997. Cash generated in 1998
primarily includes the proceeds on the sale of the Company's corporate
headquarters of approximately $138 million. The cash used in investing
activities in 1998 primarily reflects capital expenditures of $549 million, a
$300 million increase compared with 1997. The Company's capital expenditures
program concentrated on new store openings and remodeling of existing
facilities, particularly in the Global Athletic and Northern Groups, which
opened in excess of 600 stores. Also included in capital expenditures was the
cost of the Company's new comprehensive information systems totaling $70 million
and $61 million for 1998 and 1997, respectively. Investing activities in 1997
included the acquisition of Eastbay for a purchase price of approximately $140
million.
Financing activities of continuing operations utilized cash of $282
million in 1999, which primarily reflected the Company's reduction in short-term
and long-term debt, compared with a $250 million increase in short-term
borrowings in 1998. Outstanding borrowings under the Company's revolving credit
agreement were $71 million and $250 million at January 29, 2000 and January 30,
1999, respectively, and have been classified as short-term debt. The Company
used the proceeds of asset sales in 1999 to purchase $100 million of the 7
percent debentures, which are due in June 2000, at various dates throughout
January 2000. Total debt, net of cash, of $327 million at January 29, 2000
decreased by $247 million in 1999 from $574 million at January 30, 1999.
Cash provided by financing activities increased by $238 million in 1998
compared with 1997, which reflects the short-term debt borrowings of $250
million in 1998.
Discontinued operations provided net cash of $24 million in 1999. The
results of the real estate activity and other asset dispositions related to the
Specialty Footwear and International General Merchandise segments more than
offset the expenses charged to those discontinued reserves, as well as the
Domestic General Merchandise reserve, in 1999. Net proceeds related to
discontinued operations included the sale of the Australian specialty footwear
format and The Bargain! Shop Canadian general merchandise format in 1999 for $34
million and $17 million, respectively.
Net cash provided by discontinued operations in 1998 represents the net
proceeds from the sale of the German general merchandise operations of $495
million before-tax ($360 million after-tax) offset by the discontinuance of the
Specialty Footwear segment, as well as further utilization of the Domestic
General Merchandise reserve. The discontinuance of the Domestic General
Merchandise segment in 1997 did not require a net outlay of cash, as the
proceeds from the sales of inventories exceeded payments required.
CAPITAL STRUCTURE
The Company reduced long-term and short-term debt by approximately $100 million
and $180 million, respectively, in 1999 compared with 1998. 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. Planned
capital expenditures for 2000 are approximately $100 million, of which $56
million relates to new store openings and modernizations of existing stores, $22
million relates to the development of management information systems and $22
million relates to distribution centers and other support facilities.
On March 19, 1999, the Company amended its revolving credit agreement by
reducing the facility from $500 million to $400 million. In accordance with the
terms of the amended agreement, the facility was reduced to $350 million on
December 1, 1999 as a result of the sale of Afterthoughts, and, as required by
the revolving credit agreement was further reduced to $300 million on February
15, 2000. The Company is required to satisfy certain financial and operating
covenants under the terms of the amended agreement, which include: maximum ratio
of total debt to earnings before interest, taxes, depreciation and amortization,
minimum fixed charge coverage ratio, minimum tangible net worth and limits on
capital expenditures. In addition, the Company funded the repayment of the $200
million 7 percent debentures, which are due in June 2000, by February 15, 2000,
as required. As of March 28, 2000, the Company had purchased $110 million of the
debentures and the funds to repay the remaining balance were held in escrow.
This facility is unsecured relating to the Company's inventory; however, it does
include collateralization of certain properties as defined in the agreement. The
agreement also restricts consolidations or mergers with third parties,
investments and acquisitions, payment of dividends on common stock and
repurchases of common stock, and requires borrowings under the agreement to be
reduced to not more than $50 million for a period of at least 15 consecutive
days during the fourth quarter of each year. The Company was in compliance with
all covenants.
For purposes of calculating debt to total capitalization, the Company
includes the present value of operating lease commitments. These commitments are
the primary financing vehicle used to fund store expansion. The following table
sets forth the components of the Company's capitalization, both with and without
the present value of operating leases:
<TABLE>
<CAPTION>
($ in millions) 1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
Debt and capital lease obligations,
net of cash (1) $ 327 $ 574
Present value of operating leases 1,672 1,829
- --------------------------------------------------------------------------------
Total debt (1) 1,999 2,403
Shareholders' equity 1,139 1,038
- --------------------------------------------------------------------------------
Total capitalization $3,138 $3,441
================================================================================
Net debt capitalization percent (1) 63.7% 69.8%
Net debt capitalization percent
without operating leases (1) 22.3% 35.6%
- --------------------------------------------------------------------------------
</TABLE>
(1) Represents total debt, net of cash and cash equivalents.
The Company's debt to capitalization ratio improved significantly in 1999. Total
debt (including the present value of operating leases), net of cash, was reduced
by $404 million in 1999 as a result of improved inventory management and focused
capital expenditure and store opening programs in addition to proceeds from the
sale of non-core assets. Shareholders' equity increased by $101 million
pri-
23
<PAGE> 26
marily related to comprehensive income of $93 million, including net income of
$48 million and the $41 million change in the minimum pension liability
adjustment. The funded status of the Company's U.S. qualified retirement plan
changed from underfunded to overfunded in 1999, due to a change in the assumed
discount rate used to measure the projected benefit obligation, and an increase
in plan assets as a result of positive investment performance. Management's
objective is to further reduce its ratio of debt to capitalization.
Standard & Poor's and Moody's Investors Service lowered the Company's
credit ratings in early 1999 to BB and Ba3, respectively. This change increased
the Company's subsequent cost of borrowings.
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE
In 1999, the Company adopted a preferred method for calculating the
market-related value of its U.S. pension plan assets used in determining annual
pension expense. As compared with the previous accounting method, current year's
pension expense was reduced by approximately $5 million (before-tax) or $0.02
per diluted share. The Company recorded income of approximately $14 million
(before-tax) or $0.06 per diluted share representing the cumulative effect of
this change on prior years.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards 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 No. 133, an
Amendment of FASB Statement No. 133," which defers the implementation of SFAS
No. 133 by one year. The Company will adopt SFAS No. 133 in 2001 and is in the
process of evaluating its impact on the consolidated financial statements.
SEASONALITY
The Company'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 increased fourth quarter sales.
YEAR 2000 DISCLOSURE
During 1997, the Company instituted a plan to assess its state of readiness for
Y2K and to ascertain the level of compliance of material third parties.
The remediation of all information technology applications considered
critical to the Company's business operations, which were not Y2K compliant, was
successfully completed in the third quarter of 1999. To date, the Company has
experienced no major interruptions in its business operations as a result of the
date change. The total direct cost to remediate the Y2K issue of approximately
$5 million ($2 million in 1999) was expensed as incurred and funded through
operating cash flows.
The Company has contingency plans in place for those areas that might be
affected by Y2K. If any business interruption occurs in the future, and it is
promptly corrected, management expects it would not significantly impact the
Company's results of operations or financial position. However, some business
disruptions may occur even with defensive contingency plans.
IMPACT OF THE EUROPEAN MONETARY UNION
The European Union is comprised of 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 Company 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 Company 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 Company's results of operations or financial condition.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This report, including the message to our shareholders and 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 Company expects or anticipates will
or may occur in the future, including such things as future capital
expenditures, strategic plans, expansion, growth of the Company's business and
operations, Y2K 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 Company to
implement, in a timely manner, the programs and actions related to the Y2K and
euro issues. Any changes in such assumptions or factors could produce
significantly different results.
24
<PAGE> 27
MANAGEMENT'S REPORT
The integrity and objectivity of the financial statements and other financial
information presented in this annual report are the responsibility of the
management of the Company. The financial statements have been prepared in
conformity with generally accepted accounting principles and include, when
necessary, amounts based on the best estimates and judgments of management.
The Company maintains a system of internal controls designed to provide
reasonable assurance, at appropriate cost, that assets are safeguarded,
transactions are executed in accordance with management's authorization, and the
accounting records provide a reliable basis for the preparation of the financial
statements. The system of internal accounting controls is continually reviewed
by management and improved and modified as necessary in response to changing
business conditions. The Company also maintains an internal audit function for
evaluating and formally reporting on the adequacy and effectiveness of internal
accounting controls, policies and procedures.
The Company's financial statements have been audited by KPMG LLP, the
Company's independent auditors, whose report expresses their opinion with
respect to the fairness of the presentation of the statements.
The Audit Committee of the Board of Directors, which is comprised solely
of directors who are not officers or employees of the Company, meet regularly
with the Company's management, internal auditors, legal counsel and KPMG LLP to
review the activities of each group and to satisfy itself that each is properly
discharging its responsibility. In addition, the Audit Committee meets on a
periodic basis with KPMG LLP, without management's presence, to discuss the
audit of the financial statements as well as other auditing and financial
reporting matters. The Company's internal auditors and independent auditors have
direct access to the Audit Committee.
/s/ Dale W. Hilpert,
Dale W. Hilpert,
Chairman of the Board and Chief Executive Officer
/s/ Matthew D. Serra,
Matthew D. Serra,
President and Chief Operating Officer
/s/ Bruce L. Hartman,
Bruce L. Hartman,
Senior Vice President and Chief Financial Officer
April 12, 2000
INDEPENDENT AUDITORS' REPORT
KPMG
To the Board of Directors and Shareholders of
Venator Group, Inc.
We have audited the accompanying consolidated balance sheets of Venator
Group, Inc. and subsidiaries as of January 29, 2000 and January 30, 1999 and the
related consolidated statements of operations, comprehensive income (loss),
shareholders' equity and cash flows for each of the years in the three-year
period ended January 29, 2000. These consolidated financial statements are the
responsibility of Venator Group, Inc. management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Venator
Group, Inc. and subsidiaries as of January 29, 2000 and January 30, 1999, and
the results of their operations and their cash flows for each of the years in
the three-year period ended January 29, 2000 in conformity with generally
accepted accounting principles.
As discussed in note 20 to the consolidated financial statements, the
Company changed its method of calculating the market-related value of its U.S.
pension plan assets in 1999.
/s/ KPMG LLP
New York, NY
March 8, 2000
25
<PAGE> 28
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
(in millions, except per share amounts) 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SALES $ 4,647 $ 4,555 $ 4,612
- -----------------------------------------------------------------------------------------------------------------------
COSTS AND EXPENSES
Cost of sales 3,381 3,333 3,127
Selling, general and administrative expenses 1,078 1,166 1,008
Depreciation and amortization 182 152 122
Restructuring charge 144 -- --
Interest expense, net 57 44 35
- -----------------------------------------------------------------------------------------------------------------------
4,842 4,695 4,292
Other income (223) (101) (13)
- -----------------------------------------------------------------------------------------------------------------------
4,619 4,594 4,279
- -----------------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations before income taxes 28 (39) 333
Income tax expense (benefit) 11 (42) 120
- -----------------------------------------------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS $ 17 $ 3 $ 213
- -----------------------------------------------------------------------------------------------------------------------
Loss from discontinued operations, net of income tax benefit
of $(14) and $(13), respectively -- (26) (28)
Income (loss) on disposal of discontinued operations, net of income
tax expense (benefit) of $14, $57 and $(115), respectively 23 (113) (195)
Cumulative effect of accounting change, net of income tax expense of $6 8 -- --
- -----------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ 48 $ (136) $ (10)
=======================================================================================================================
Basic earnings per share:
Income from continuing operations $ 0.13 $ 0.02 $ 1.58
Income (loss) from discontinued operations 0.16 (1.02) (1.66)
Cumulative effect of accounting change 0.06 -- --
- -----------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 0.35 $ (1.00) $ (0.08)
=======================================================================================================================
Diluted earnings per share:
Income from continuing operations $ 0.13 $ 0.02 $ 1.57
Income (loss) from discontinued operations 0.16 (1.02) (1.64)
Cumulative effect of accounting change 0.06 -- --
- -----------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 0.35 $ (1.00) $ (0.07)
=======================================================================================================================
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
<TABLE>
<CAPTION>
(in millions) 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET INCOME (LOSS) $ 48 $ (136) $ (10)
Other comprehensive income (loss), net of tax
Foreign currency translation adjustment:
Translation adjustment arising during the period, net of deferred
tax (expense) benefit of $(3), $(26) and $33, respectively 4 39 (56)
Less: reclassification adjustment for net gain included in net loss on
disposal of discontinued operations, net of deferred tax expense of $149 -- (149) --
- -----------------------------------------------------------------------------------------------------------------------
Net foreign currency translation adjustment 4 (110) (56)
Minimum pension liability adjustment, net of deferred tax (expense)
benefit of $(26), $(2) and $5, respectively 41 2 (8)
- -----------------------------------------------------------------------------------------------------------------------
COMPREHENSIVE INCOME (LOSS) $ 93 $ (244) $ (74)
=======================================================================================================================
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
26
<PAGE> 29
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(in millions) 1999 1998
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 162 $ 193
Merchandise inventories 739 837
Assets held for disposal 61 --
Net assets of discontinued operations 13 97
Other current assets 114 148
- ---------------------------------------------------------------------------------------------
1,089 1,275
PROPERTY AND EQUIPMENT, NET 809 974
DEFERRED TAXES 317 358
GOODWILL, NET 151 171
OTHER ASSETS 149 98
- ---------------------------------------------------------------------------------------------
$2,515 $2,876
=============================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term debt $ 71 $ 250
Accounts payable 233 245
Accrued liabilities 254 285
Current portion of repositioning and restructuring reserves 88 11
Current portion of reserve for discontinued operations 25 167
Current portion of long-term debt and obligations under capital leases 106 6
- ---------------------------------------------------------------------------------------------
777 964
LONG-TERM DEBT AND OBLIGATIONS UNDER CAPITAL LEASES 312 511
OTHER LIABILITIES 287 363
SHAREHOLDERS' EQUITY 1,139 1,038
- ---------------------------------------------------------------------------------------------
$2,515 $2,876
=============================================================================================
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
27
<PAGE> 30
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
(shares in thousands, amounts in millions) 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
Shares Amount Shares Amount Shares Amount
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
COMMON STOCK AND PAID-IN CAPITAL
Par value $.01 per share, 500 million shares authorized
Issued at beginning of year 135,654 $ 328 134,986 $ 317 134,047 $ 299
Issued under restricted stock option plan 1,255 1 60 -- -- --
Issued under director and employee stock plans,
net of related tax benefit 633 5 608 11 939 18
- ------------------------------------------------------------------------------------------------------------------------------------
Issued at end of year 137,542 334 135,654 328 134,986 317
- ------------------------------------------------------------------------------------------------------------------------------------
Common stock in treasury at beginning of year (19) -- (10) -- -- --
Reissued under employee stock plans 104 -- -- -- -- --
Forfeitures of restricted stock (185) (1) -- -- -- --
Acquired at cost -- -- -- -- (10) --
Exchange of options -- -- (9) -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Common stock in treasury at end of year (100) (1) (19) -- (10) --
- ------------------------------------------------------------------------------------------------------------------------------------
Amortization of stock issued under
restricted stock option plan 3 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Common stock outstanding and paid-in capital
at end of year 137,442 336 135,635 328 134,976 317
- ------------------------------------------------------------------------------------------------------------------------------------
RETAINED EARNINGS
Balance at beginning of year 897 1,033 1,050
Net income (loss) 48 (136) (10)
Change in subsidiaries' year end -- -- (7)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at end of year 945 897 1,033
- ------------------------------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY BEFORE ADJUSTMENTS 1,281 1,225 1,350
- ------------------------------------------------------------------------------------------------------------------------------------
ACCUMULATED OTHER COMPREHENSIVE LOSS
Foreign Currency Translation Adjustment
Balance at beginning of year (144) (34) 22
Aggregate translation adjustment, net of deferred tax benefit 4 (110) (56)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at end of year (140) (144) (34)
- ------------------------------------------------------------------------------------------------------------------------------------
Minimum Pension Liability Adjustment
Balance at beginning of year (43) (45) (37)
Change during year, net of deferred tax benefit (expense) 41 2 (8)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at end of year (2) (43) (45)
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL ACCUMULATED OTHER COMPREHENSIVE LOSS (142) (187) (79)
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY $ 1,139 $ 1,038 $ 1,271
====================================================================================================================================
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
28
<PAGE> 31
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(in millions) 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FROM OPERATING ACTIVITIES
Net income (loss) $ 48 $(136) $ (10)
Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities of continuing operations:
Restructuring charge 144 -- --
(Income) loss on disposal of discontinued operations, net of tax (23) 113 195
Loss from discontinued operations, net of tax -- 26 28
Cumulative effect of accounting change, net of tax (8) -- --
Depreciation and amortization 182 152 122
Impairment of long-lived assets 13 33 1
Restricted stock compensation expense 3 -- --
Gains on sales of real estate (46) (82) (12)
Gains on sales of assets and investments (177) (19) --
Deferred income taxes (13) 30 10
Change in assets and liabilities, net of acquisitions and dispositions:
Merchandise inventories 30 (78) (111)
Accounts payable and other accruals (48) 16 67
1993 repositioning and 1991 restructuring reserves (12) (16) (47)
Income taxes payable (12) (27) (103)
Other, net 3 (23) 9
- --------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities of continuing operations 84 (11) 149
- --------------------------------------------------------------------------------------------------------------
FROM INVESTING ACTIVITIES
Proceeds from sales of assets and investments 271 22 --
Proceeds from sales of real estate 36 151 20
Capital expenditures (158) (549) (249)
Payments for businesses acquired, net of cash acquired -- (29) (148)
- --------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities of continuing operations 149 (405) (377)
- --------------------------------------------------------------------------------------------------------------
FROM FINANCING ACTIVITIES
Increase (decrease) in short-term debt (179) 250 --
Reduction in long-term debt (101) (15) (10)
Reduction in capital lease obligations (7) (3) (2)
Issuance of common stock 5 10 16
- --------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities of continuing operations (282) 242 4
- --------------------------------------------------------------------------------------------------------------
NET CASH FROM DISCONTINUED OPERATIONS 24 288 107
- --------------------------------------------------------------------------------------------------------------
EFFECT OF EXCHANGE RATE FLUCTUATIONS ON CASH AND CASH EQUIVALENTS (6) (2) 1
- --------------------------------------------------------------------------------------------------------------
NET CHANGE IN CASH AND CASH EQUIVALENTS (31) 112 (116)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 193 81 197
- --------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 162 $ 193 $ 81
==============================================================================================================
CASH PAID DURING THE YEAR:
Interest $ 66 $ 60 $ 41
Income taxes $ 22 $ 16 $ 51
- --------------------------------------------------------------------------------------------------------------
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
29
<PAGE> 32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Venator Group,
Inc. and its domestic and international subsidiaries (the "Company"), all of
which are wholly owned. All significant intercompany amounts have been
eliminated. The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions relating to the reporting of assets and liabilities and the
disclosure of contingent liabilities at the date of the financial statements,
and the reported amounts of revenue and expense during the reporting period.
Actual results are not expected to differ significantly from those estimates.
REPORTING YEAR
The reporting period for the Company and its subsidiaries is the Saturday
closest to the last day in January, representing the 52 weeks ended January 29,
2000 and January 30, 1999. Previously, the reporting period ended on the last
Saturday in January. The 1997 reporting year represents the 53 weeks ended
January 31, 1998. References to years in this annual report relate to fiscal
years rather than calendar years.
In 1997, the Company changed the reporting period for its Foot Locker
Europe operations from a calendar year ending December 31, to the 53-week period
ended on the last Saturday in January. The results of operations for the period
from January 1 through January 31, 1998 were charged to retained earnings for
the reporting year ended January 31, 1998 in order to report only 12 months'
operating results.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with original maturities of
three months or less to be cash equivalents.
MERCHANDISE INVENTORIES
Merchandise inventories are valued at the lower of cost or market using the
retail method. Cost is determined on the last-in, first-out (LIFO) basis for
most domestic inventories and on the first-in, first-out (FIFO) basis for
international inventories.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost, less accumulated depreciation and
amortization. Significant additions and improvements to property and equipment
are capitalized. Maintenance and repairs are charged to current operations as
incurred. Major renewals or replacements that substantially extend the useful
life of an asset are capitalized and depreciated.
CAPITALIZED SOFTWARE
Capitalized software reflects certain costs related to software developed for
internal use that are capitalized and amortized, after substantial completion of
the project, on a straight-line basis over periods not exceeding 8 years.
Capitalized software, net of accumulated amortization, is included in property
and equipment and was $23.2 million at January 29, 2000 and $7.7 million at
January 30, 1999.
DEPRECIATION AND AMORTIZATION
Owned property and equipment is depreciated on a straight-line basis over the
estimated useful lives of the assets: 25 to 45 years for buildings and 3 to 10
years for furniture, fixtures and equipment. Property and equipment under
capital leases and improvements to leased premises are generally amortized on a
straight-line basis over the shorter of the estimated useful life of the asset
or the remaining lease term.
GOODWILL
Goodwill represents the excess purchase price over the fair value of assets
acquired and is amortized on a straight-line basis over periods not exceeding 40
years. Goodwill arising from acquisitions made since 1995 is amortized over
periods not exceeding 20 years. Recoverability of goodwill is evaluated based
upon estimated future profitability and cash flows. Accumulated amortization
amounted to $58.7 million and $50.2 million at January 29, 2000 and January 30,
1999, respectively.
DERIVATIVE FINANCIAL INSTRUMENTS
Derivative financial instruments are used by the Company to manage its interest
rate and international currency exposures. The Company does not hold derivative
financial instruments for trading or speculative purposes. For interest rate
swap agreements, the interest rate differential to be paid or received under the
agreement is recognized over the life of the swap agreement and is included as
an adjustment to interest expense. The carrying amount of each interest rate
swap is reflected in the Consolidated Balance Sheets as a current receivable or
payable as appropriate. For forward foreign exchange contracts, gains and losses
designated as hedges of inventory purchases are deferred and included in the
cost of inventory.
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities," 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 Company will adopt SFAS No. 133 in 2001 and is in the
process of evaluating its impact on the consolidated financial statements.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of financial instruments is determined by reference to various
market data and other valuation techniques as appropriate. The carrying value of
cash and cash equivalents, other current receivables and short-term debt
approximate fair value due to the short-term maturities of these assets and
liabilities. Quoted market prices of the same or similar instruments are used to
determine fair value of long-term debt, interest rate swaps and forward foreign
exchange contracts. Discounted cash flows are used to determine the fair value
of long-term receivables and mortgages if quoted market prices on these
instruments are unavailable.
30
<PAGE> 33
RECOVERABILITY OF LONG-LIVED ASSETS
In accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of," an impairment loss is
recognized whenever events or changes in circumstances indicate that the
carrying amounts of long-lived tangible and intangible assets may not be
recoverable. Assets are grouped and evaluated at the lowest level for which
there are identifiable cash flows that are largely independent of the cash flows
of other groups of assets. The Company has identified this lowest level to be
principally individual stores. The Company considers historical performance and
future estimated results in its evaluation of potential impairment and then
compares the carrying amount of the asset to the estimated future cash flows
expected to result from the use of the asset. If the carrying amount of the
asset exceeds estimated expected undiscounted future cash flows, the Company
measures the amount of the impairment by comparing the carrying amount of the
asset to its fair value. The estimation of fair value is generally measured by
discounting expected future cash flows at the rate the Company utilizes to
evaluate potential investments. The Company estimates fair value based on the
best information available using estimates, judgments and projections as
considered necessary.
STOCK-BASED COMPENSATION
The Company accounts for stock-based compensation by applying Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB No. 25") as permitted by SFAS No. 123, "Accounting for Stock-Based
Compensation." In accordance with APB No. 25, compensation expense is not
recorded for options granted if the option price is not less than the quoted
market price at the date of grant. Compensation expense is also not recorded for
employee purchases of stock under the 1994 Stock Purchase Plan since the plan is
non-compensatory as defined in APB No. 25.
INCOME TAXES
The Company determines its deferred tax provision under the liability method,
whereby deferred tax assets and liabilities are recognized for the expected tax
consequences of temporary differences between the tax bases of assets and
liabilities and their reported amounts using presently enacted tax rates.
Deferred tax assets are recognized for tax credit and net operating loss
carryforwards, reduced by a valuation allowance, which is established when it is
more likely than not that some portion or all of the deferred tax assets will
not be realized. The effect on deferred tax assets and liabilities of a change
in tax rates is recognized in income in the period that includes the enactment
date.
Provision for U.S. income taxes on undistributed earnings of foreign
subsidiaries is made only on those amounts in excess of the funds considered to
be permanently reinvested.
STORE PRE-OPENING AND CLOSING COSTS
Store pre-opening costs are charged to expense as incurred. In the event a store
is closed before its lease has expired, the estimated post-closing lease
obligation, less sublease rental income, is provided for when a decision to
close the store is made.
ADVERTISING COSTS
Advertising and sales promotion costs are expensed at the time the advertising
or promotion takes place. Advertising costs as a component of selling, general
and administrative expenses were $79.8 million in 1999, $94.2 million in 1998
and $81.0 million in 1997.
FOREIGN CURRENCY TRANSLATION
The functional currency of the Company's international operations is the
applicable local currency. The translation of the applicable foreign currency
into U.S. dollars is performed for balance sheet accounts using current exchange
rates in effect at the balance sheet date and for revenue and expense accounts
using the weighted-average rates of exchange prevailing during the year. The
unearned gains and losses resulting from such translation are included as a
separate component of accumulated other comprehensive loss within shareholders'
equity.
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>
(in millions) 1999 1998 1997
- ----------------------------------------------------------
<S> <C> <C> <C>
Weighted-average common
shares outstanding 137.2 135.4 134.6
Incremental common shares
issuable 1.0 .5 1.2
- ----------------------------------------------------------
Weighted-average common
shares outstanding
assuming dilution 138.2 135.9 135.8
==========================================================
</TABLE>
Options to purchase 7.3 million shares of common stock with an exercise price
greater than the average market price were outstanding at January 29, 2000, but
were not included in the computation of diluted earnings per share.
RECLASSIFICATIONS
Certain balances in prior fiscal years have been reclassified to conform to the
presentation adopted in the current fiscal year. The inventory, fixed assets and
other long-lived assets of all businesses to be exited have been reclassified as
assets held for disposal in the Consolidated Balance Sheet as of January 29,
2000.
31
<PAGE> 34
2. 1999 RESTRUCTURING
Total restructuring charges of $155 million before-tax were recorded for the
Company's 1999 restructuring program. Inventory markdowns of $11 million were
included in cost of sales while the remaining $144 million restructuring charge
was included in operating expenses.
During the second quarter of 1999, the Company approved a restructuring
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. Restructuring charges
of $64 million pre-tax ($39 million after-tax) were recorded in the second
quarter. Major components of the charge included leasehold and real estate
disposition costs ($24 million), fixed asset and other asset impairments ($19
million), inventory markdowns ($12 million) and other exit costs ($9 million).
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 Company recorded an additional charge in the third quarter of approximately
$3 million before-tax ($2 million after-tax) primarily related to Weekend
Edition fixed assets and real estate disposition costs. On December 24, 1999,
the Company completed the sale of 49 of its 87 Weekend Edition stores. The
initial plan assumed the partial sale and partial liquidation of the Foot Locker
Outlets format. As the partial sale could not be completed, 39 of the 81 stores
were redeployed to the Foot Locker format, and the Company recorded a pre-tax
reduction of $4 million to the reserve in the fourth quarter, primarily related
to real estate disposition costs for the Foot Locker Outlets. Favorable results
from the Colorado liquidation, which was completed in December 1999, and real
estate disposition activity resulted in reductions in both inventory markdowns
and real estate costs of $1 million in the fourth quarter, which were offset by
additional fixed asset write-offs of approximately $1 million. In addition, the
Company recorded a pre-tax charge of approximately $1 million in the fourth
quarter related to the pending sale of substantially all of its Randy River
Canada stores, effective February 27, 2000. The remaining businesses will be
liquidated or sold and all dispositions are expected to be completed in 2000.
The $24 million reserve balance at January 29, 2000 primarily reflects estimated
lease costs, and will be substantially utilized within twelve months.
On January 25, 2000, the Company announced a further restructuring plan
and recorded a charge of $92 million before-tax, or $56 million after-tax, in
the fourth quarter of 1999. The components of the charge included an accelerated
store closing program ($62 million), the closure of the Foot Locker stores in
Asia ($6 million), headcount reduction ($17 million) and a distribution center
shutdown ($7 million).
The Company plans to close 358 under-performing stores in the United
States and Canada including 150 Global Athletic Group stores and 208 Northern
Group stores, which includes the disposal of the entire Northern Getaway and
Northern Elements formats in the United States. During the fourth quarter 72
stores were closed and the remaining 286 stores are expected to close in 2000.
The total charge related to the closed store restructuring program of $62
million included fixed asset impairments of $24 million. The reserve balance of
$38 million at January 29, 2000 represents leasehold and real estate disposition
costs of $37 million and $1 million in severance costs to eliminate
approximately 3,100 store positions. The Company recorded an additional
restructuring charge of approximately $6 million in the fourth quarter
associated with management's decision to close the Foot Locker stores in Asia,
which included fixed asset impairments of $3 million. The reserve remaining of
$3 million at January 29, 2000 reflects real estate disposition costs, severance
and inventory markdowns.
In connection with the disposition of several of its non-core businesses,
the Company reduced sales support and corporate staff by over 30 percent,
reduced divisional staff and consolidated the management of Kids Foot Locker and
Lady Foot Locker into one organization. Approximately 400 positions were
eliminated at a total cost of $17 million, $3 million of which was spent in
1999, and $14 million of which will be utilized in 2000. In addition, the
Company plans to close its Champs Sports distribution center in Maumelle,
Arkansas and to consolidate its operations with the Foot Locker facility located
in Junction City, Kansas. The charge of $7 million included fixed asset
impairments of $2 million. The reserve remaining of $5 million at January 29,
2000 includes severance costs to eliminate approximately 200 positions of $1
million and $4 million, related primarily to estimated lease costs in 2000.
Included in the consolidated results of operations are sales of $402
million and operating losses of $61 million in 1999 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 $61 million, have been reclassified as assets held for disposal
in the Consolidated Balance Sheet as of January 29, 2000.
3. OTHER INCOME
On December 1, 1999, the Company completed the sale of the assets of its
Afterthoughts retail chain for gross proceeds of $250 million. The Company
recorded a gain of $164 million before-tax, or $100 million after-tax, from the
sale. On December 6, 1999, the Company completed the public offering of 100
percent of its holding in Colorado Group, Ltd., its Australian athletic and
specialty footwear format, for proceeds of $55 million. Gross proceeds of
approximately $75 million included the repayment of a $20 million intercompany
loan. The Company recorded a pre-tax gain of $13 million to continuing
operations related to its Colorado athletic format. Included in the consolidated
results of operations are sales of $184 million and operating profit of $10
million in 1999 for Afterthoughts and Colorado.
On December 4, 1998, the Company completed the sale of its corporate
headquarters building in New York for gross proceeds of approximately $138
million and leased back a portion of the building. Other income in 1998 included
a $73 million gain recognized on the building sale, $29 million was deferred at
January 30, 1999 related to the leased back portion. On January 25, 2000, the
Company signed a definitive agreement to vacate the leased-back portion,
terminate the lease, and sell the associated furniture and fixtures. In
connection with the lease termination, the deferred gain of $29 million was
accelerated and the Company recognized a net gain of $17 million in 1999.
In addition, the sale of other corporate properties contributed gross
proceeds of $41 million, $13 million and $20 million in 1999, 1998 and 1997,
respectively, generating real estate gains of $29 million,$9 million and $12
million. In 1998, other income also includes the $19 million gain on sale of the
Garden Centers nursery business for proceeds of $22 million.
32
<PAGE> 35
4. ACQUISITIONS
On February 26, 1998, the Company acquired 94 stores from Athletic Fitters,
Inc., a Minneapolis-based company, for a cash price of approximately $29
million. This acquisition was accounted for as a purchase and the resulting
intangible assets of approximately $12 million are amortized using the
straight-line method over 10 years.
On January 30, 1997, the Company acquired Eastbay, Inc. ("Eastbay") for
$140 million in a transaction accounted for as a purchase. The Company's
consolidated results of operations include those of Eastbay beginning with the
date the acquisition was consummated. The excess of cost over net assets
acquired of approximately $107 million is amortized using the straight-line
method over 20 years.
On August 18, 1997, the Company acquired the assets of Koenig Sporting
Goods, Inc. for approximately $8 million in cash in a transaction that was
accounted for as a purchase. The Company has successfully converted 21 stores
into the Champs Sports format.
5. IMPAIRMENT OF LONG-LIVED ASSETS
In 1999, the Company recorded a non-cash pre-tax asset impairment charge of
approximately $50 million associated with its restructuring program, which
represented impairment of goodwill of $5 million and other long-lived assets
such as properties, store fixtures and leasehold improvements of $45 million.
The impairment loss was included in the $144 million restructuring charge
recorded in 1999. Of the total impairment loss recognized, $28 million related
to the Global Athletic Group and $19 million related to the Northern Group.
Corporate assets and formats included in the "All Other" category were impaired
by $2 million and $1 million, respectively.
In addition, the Company recorded a non-cash pre-tax charge of
approximately $8 million in 1999 in selling, general and administrative
expenses, which represented impairment of long-lived assets such as properties,
store fixtures and leasehold improvements related to the Global Athletic Group.
Corporate expense also included $5 million in 1999 and 1998 related to the
impairment of capitalized software.
In 1998, the Company recorded a non-cash pre-tax charge of $28 million in
selling, general and administrative expenses, which represented impairment of
long-lived assets such as properties, store fixtures and leasehold improvements.
Of the total impairment loss recognized, $19 million related to the Global
Athletic Group, $7 million related to the Northern Group and formats included in
the "All Other" category were impaired by $2 million. Pre-tax impairment was $1
million for 1997 continuing operations.
6. DISCONTINUED OPERATIONS
On September 22, 1998, the Company announced that it was exiting its
International General Merchandise segment. The sale of its general merchandise
business in Germany was completed on October 22, 1998 for $563 million and the
Company recorded a net gain on the disposal of the International General
Merchandise segment of $174 million before-tax, or $39 million after-tax. On
December 1, 1999, the Company sold 85 of The Bargain! Shop stores for proceeds
of $17 million and the remaining stores were liquidated by January 29, 2000. The
Company recorded a reduction to the reserve of $13 million before-tax, or $7
million after-tax, in the fourth quarter of 1999, which reflected better than
anticipated results in The Bargain! Shop disposition. The reserve balance at
January 29, 2000 of $10 million is required primarily to satisfy lease
obligations over the next few years.
On September 16, 1998, the Company announced that it was exiting its
Specialty Footwear segment including 467 Kinney Shoe stores and 103 Footquarters
stores. Approximately 66 of these locations have been converted to the Lady Foot
Locker and Kids Foot Locker formats and the remaining stores were closed in
1999. The Company recorded a net charge to earnings of $234 million before-tax,
or $155 million after-tax, in 1998 for the loss on disposal of the segment. In
the second and fourth quarters of 1999, respectively, the Company recorded
reductions to the reserve of $17 million and $28 million before-tax, or $10
million and $19 million after-tax, which principally related to favorable
results from lease buy-outs and real estate dispositions compared to original
estimates. The reserve balance of $28 million at January 29, 2000 primarily
reflects real estate and other disposition costs, $12 million of which is
expected to be utilized within twelve months and the remaining $16 million
thereafter.
In 1997, the Company exited its 400 store Domestic General Merchandise
segment and recorded a loss on disposal of discontinued operations of $310
million before-tax, or $195 million after-tax. The Company has converted many of
the prime locations into 131 stores including Foot Locker, Champs Sports, and
other athletic or specialty formats. As a result of gains from the planned
disposition of leased and owned stores in prime real estate locations of $34
million, and other actual experience better than anticipated, the Company
reduced the reserve by $4 million before-tax, or $3 million after-tax in 1998.
In the fourth quarter of 1999, the Company recorded an additional charge of $21
million before-tax, or $13 million after-tax. This charge reflected leasehold
obligations of $17 million principally for estimated lease costs related to
excess space in former general merchandise locations, which have limited
commercial use contrary to what was originally anticipated, and $4 million
primarily related to legal liabilities. The reserve remaining at January 29,
2000 of $23 million is included in current liabilities ($9 million) and other
liabilities ($14 million).
33
<PAGE> 36
Disposition activity related to the reserve for discontinued operations is
presented by segment below:
INTERNATIONAL GENERAL MERCHANDISE
<TABLE>
<CAPTION>
1998 1999
----------------------------- ----------------------------
CHARGE/ NET CHARGE/ NET
(in millions) (INCOME) PROCEEDS BALANCE (INCOME) PAYMENTS BALANCE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sale of German Operations $ (214) $ 214 $ -- $ -- $ -- $ --
The Bargain! Shop 40 1 41 (13) (18) 10
- ------------------------------------------------------------------------------------------------------------------------------------
Total $ (174) $ 215 $ 41 $ (13) $ (18) $ 10
====================================================================================================================================
</TABLE>
SPECIALTY FOOTWEAR
<TABLE>
<CAPTION>
1998 1999
----------------------------- ----------------------------
CHARGE/ NET CHARGE/ NET
(in millions) (INCOME) PAYMENTS BALANCE (INCOME) PAYMENTS BALANCE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Lease liabilities $ 93 $ (17) $ 76 $ (34) $ (27) $ 15
Operating losses & other costs 61 (35) 26 (5) (8) 13
Inventory liquidation 33 (31) 2 -- (2) --
Fixed asset write-offs 33 (22) 11 (2) (9) --
Severance & personnel 14 (8) 6 (4) (2) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total $ 234 $ (113) $ 121 $ (45) $ (48) $ 28
====================================================================================================================================
</TABLE>
DOMESTIC GENERAL MERCHANDISE
<TABLE>
<CAPTION>
1997 1998 1999
-------------------------------- ----------------------------- ------------------------------
CHARGE/ NET CHARGE/ NET CHARGE/ NET
(in millions) (INCOME) PAYMENTS BALANCE (INCOME) PAYMENTS BALANCE (INCOME) PAYMENTS BALANCE
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Lease liabilities $ 101 $ (36) $ 65 $ (26) $ (18) $ 21 $ 18 $ (23) $ 16
Severance & personnel 72 (59) 13 (10) (3) -- -- -- --
Fixed asset write-offs 46 (49) (3) 4 (1) -- -- -- --
Inventory liquidation & other costs 91 (76) 15 28 (29) 14 3 (10) 7
- ----------------------------------------------------------------------------------------------------------------------------------
Total $ 310 $ (220) $ 90 $ (4) $ (51) $ 35 $ 21 $ (33) $ 23
==================================================================================================================================
</TABLE>
The results of operations and assets and liabilities for the International
General Merchandise segment, the Specialty Footwear segment and the Domestic
General Merchandise segment have been classified as discontinued operations for
all periods presented in the Consolidated Statements of Operations and
Consolidated Balance Sheets. Sales, net income (loss) from discontinued
operations and interest expense allocations based on intercompany debt balances
for fiscal years 1998 and 1997 through the respective date of discontinuance of
each segment are presented below.
<TABLE>
<CAPTION>
INTERNATIONAL DOMESTIC
GENERAL SPECIALTY GENERAL
(in millions) MERCHANDISE FOOTWEAR MERCHANDISE TOTAL
- ---------------------------------------------------------------------
<S> <C> <C> <C> <C>
1998
Sales $ 842 301 -- $ 1,143
Net loss $ (9) (17) -- $ (26)
Interest expense
allocation $ -- 5 -- $ 5
1997
Sales $ 1,479 533 427 $ 2,439
Net income (loss) $ 8 (8) (28) $ (28)
Interest expense
allocation $ -- 6 8 $ 14
- ---------------------------------------------------------------------
</TABLE>
Presented below is a summary of the net assets of discontinued operations at
January 29, 2000 and January 30, 1999. Assets consist primarily of inventory,
fixed assets, and deferred tax assets and liabilities reflect accounts payable
and other accrued liabilities.
<TABLE>
<CAPTION>
INTERNATIONAL DOMESTIC
GENERAL SPECIALTY GENERAL
(in millions) MERCHANDISE FOOTWEAR MERCHANDISE TOTAL
- -----------------------------------------------------------------
<S> <C> <C> <C> <C>
1999
Assets $ 5 5 12 $ 22
Liabilities 2 2 5 9
- -----------------------------------------------------------------
Net assets of
discontinued
operations $ 3 3 7 $ 13
- -----------------------------------------------------------------
1998
Assets $ 47 63 23 $ 133
Liabilities 11 17 8 36
- -----------------------------------------------------------------
Net assets of
discontinued
operations $ 36 46 15 $ 97
- -----------------------------------------------------------------
</TABLE>
34
<PAGE> 37
7. SEGMENT INFORMATION
The Company has determined that its reportable segments are those that are based
on its method of internal reporting, which disaggregates its business by product
category. The Company's reportable segments are the Global Athletic Group and
the Northern Group. The Global Athletic Group sells branded athletic footwear
and apparel through its various retail stores and also directly to customers via
catalogs and the Internet. The Northern Group specializes in casual and career
apparel for women, and casual apparel for men and children. The Afterthoughts
jewelry format and The San Francisco Music Box Company, among others, are
included in the "All Other" category. All formats presented as "All Other" were
either disposed or held for disposal as of January 29, 2000.
SALES
<TABLE>
<CAPTION>
(in millions) 1999 1998 1997
- -------------------------------------------------------
<S> <C> <C> <C>
Global Athletic Group:
Retail Stores $3,705 $3,593 $3,608
Direct to Customers 195 160 141
- -------------------------------------------------------
3,900 3,753 3,749
Northern Group 407 415 455
All Other * 340 387 408
- -------------------------------------------------------
Total sales $4,647 $4,555 $4,612
=======================================================
</TABLE>
The accounting policies of the segments are the same as those described in the
"Summary of Significant Accounting Policies." There are no intersegment sales.
The Company evaluates performance based on several factors, of which the primary
financial measure is operating results. Operating results reflect earnings
before corporate expense, corporate gains on sales of real estate, interest and
income taxes.
OPERATING RESULTS
<TABLE>
<CAPTION>
(in millions) 1999 1998 1997
- --------------------------------------------------------------
<S> <C> <C> <C>
Global Athletic Group:
Retail Stores (1) $ 14 $ 10 $ 376
Direct to Customers 3 2 (1)
- --------------------------------------------------------------
17 12 375
Northern Group (2) (63) (26) 40
All Other (3) * 174 27 3
- --------------------------------------------------------------
Operating profit 128 13 418
Corporate expense, net (4) 43 8 50
Interest expense, net 57 44 35
- --------------------------------------------------------------
Income (loss) from continuing
operations before income
taxes $ 28 $ (39) $ 333
==============================================================
</TABLE>
(1) Includes restructuring charges of $71 million in 1999 ($11 million recorded
in cost of sales), offset by Colorado gain of $13 million.
(2) Includes restructuring charges of $59 million in 1999.
(3) 1999 includes Afterthoughts gain of $164 million, offset by restructuring
charges of $4 million. 1998 includes Garden Centers gain of $19 million.
(4) 1999 includes restructuring charges of $21 million.
<TABLE>
<CAPTION>
DEPRECIATION AND
AMORTIZATION CAPITAL EXPENDITURES TOTAL ASSETS
---------------------- ------------------------- ----------------------------
(in millions) 1999 1998 1997 1999 1998 1997 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Global Athletic Group:
Retail Stores $118 $ 95 $ 74 $103 $403 $ 132 $1,438 $1,719 $1,166
Direct to Customers 7 7 7 2 2 6 159 155 152
- ---------------------------------------------------------------------------------------------------------------------
125 102 81 105 405 138 1,597 1,874 1,318
Northern Group 14 13 10 6 37 23 278 297 250
All Other * 10 12 12 12 28 14 67 135 142
Corporate 33 25 19 35 79 74 560 473 484
Discontinued operations, net 13 97 604
- ---------------------------------------------------------------------------------------------------------------------
Total Company $182 $152 $122 $158 $549 $ 249 $2,515 $2,876 $2,798
=====================================================================================================================
</TABLE>
* All formats presented as "All Other" were either disposed or held for disposal
at January 29, 2000.
Sales and long-lived asset information by geographic area as of and for the
fiscal years ended January 29, 2000, January 30, 1999 and January 31, 1998 are
presented below. Sales are attributed to the country in which the sales
originate, which is where the legal subsidiary is domiciled. Long-lived assets
reflect property and equipment. No individual country included in the Other
International category is significant.
SALES
<TABLE>
<CAPTION>
(in millions) 1999 1998 1997
- --------------------------------------------------------
<S> <C> <C> <C>
United States $3,860 $3,811 $3,857
Canada 378 404 456
Other International 409 340 299
- --------------------------------------------------------
Total sales $4,647 $4,555 $4,612
========================================================
</TABLE>
LONG-LIVED ASSETS
<TABLE>
<CAPTION>
(in millions) 1999 1998 1997
- --------------------------------------------------------
<S> <C> <C> <C>
United States $ 706 $ 860 $ 540
Canada 47 52 46
Other International 56 62 39
- --------------------------------------------------------
Total long-lived assets $ 809 $ 974 $ 625
========================================================
</TABLE>
35
<PAGE> 38
8. 1993 REPOSITIONING AND 1991 RESTRUCTURING RESERVES
The Company recorded charges of $558 million in 1993 and $390 million in 1991 to
reflect the anticipated costs to sell or close under-performing specialty and
general merchandise stores in the United States and Canada. Under the 1993
repositioning program, approximately 970 stores were identified for closing.
Approximately 900 stores were closed under the 1991 restructuring program.
Included in operating results are adjustments of $11 million and $3
million for 1999 and 1998, respectively, which primarily reflect sublease and
other income relating to owned and leased properties. The remaining reserve
balance of $9 million at January 29, 2000 is expected to be required to satisfy
future lease obligations and cancellations of $6 million and facilities-related
costs of $3 million.
The activity in the reserves was as follows:
<TABLE>
<CAPTION>
(in millions) 1999 1998
- ----------------------------------------------------------------------------
<S> <C> <C>
Balance at beginning of year $ 21 $ 37
Interest on net present value of lease obligations 2 4
Cash payments (3) (17)
Sublease income and revision of estimates (7) (3)
Gain on sale of properties (4) --
- -----------------------------------------------------------------------------
Balance at end of year $ 9 $ 21
============================================================================
</TABLE>
9. MERCHANDISE INVENTORIES
<TABLE>
<CAPTION>
(in millions) 1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
LIFO inventories $576 $642
FIFO inventories 163 195
- --------------------------------------------------------------------------------
Total merchandise inventories $739 $837
================================================================================
Excess of current cost (FIFO) over stated LIFO cost $-- $ 1
- --------------------------------------------------------------------------------
</TABLE>
10. OTHER CURRENT ASSETS
<TABLE>
<CAPTION>
(in millions) 1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
Net receivables $ 54 $ 98
Operating supplies and prepaid expenses 29 26
Deferred taxes 31 22
Other -- 2
- --------------------------------------------------------------------------------
$114 $148
================================================================================
</TABLE>
11. PROPERTY AND EQUIPMENT, NET
<TABLE>
<CAPTION>
(in millions) 1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
LAND $ 5 $ 5
BUILDINGS:
Owned 25 38
Leased 3 --
FURNITURE, FIXTURES AND EQUIPMENT:
Owned 939 1,019
Leased 39 33
- --------------------------------------------------------------------------------
1,011 1,095
Less: accumulated depreciation (475) (476)
- --------------------------------------------------------------------------------
536 619
ALTERATIONS TO LEASED AND OWNED BUILDINGS,
NET OF ACCUMULATED AMORTIZATION 273 355
- --------------------------------------------------------------------------------
$ 809 $ 974
================================================================================
</TABLE>
12. OTHER ASSETS
<TABLE>
<CAPTION>
(in millions) 1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
Lease acquisition costs $ 60 $ 71
Pension benefits 43 1
Income taxes receivable 14 --
Other 32 26
- --------------------------------------------------------------------------------
$149 $ 98
================================================================================
</TABLE>
13. ACCRUED LIABILITIES
<TABLE>
<CAPTION>
(in millions) 1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
Payroll and related costs $ 52 $ 48
Taxes other than income taxes 30 34
7% debentures purchased, not settled 21 --
Income taxes payable 20 6
Store closings and real estate related costs 16 27
Pension and postretirement benefits 10 40
Deferred taxes 9 --
Other operating costs 96 130
- --------------------------------------------------------------------------------
$254 $285
================================================================================
</TABLE>
36
<PAGE> 39
14. SHORT-TERM DEBT
<TABLE>
<CAPTION>
($ in millions) 1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
Bank loans $ 71 $250
- --------------------------------------------------------------------------------
Weighted-average interest rate on
year-end balance 8.36% 5.63%
- --------------------------------------------------------------------------------
</TABLE>
At January 29, 2000, unused lines of credit under which the Company may borrow
funds totaled $270 million, of which domestic credit lines totaled $258 million
and international lines totaled $12 million. The domestic credit lines of $258
million in addition to $21 million standby letters of credit existed pursuant to
a revolving credit agreement with 13 lending institutions for general corporate
purposes. The $12 million international credit lines consisted of overdraft
facilities maintained for temporary needs. Unused letter of credit facilities
totaled $25 million at January 29, 2000. The Company has additional informal
agreements with certain banks in the United States.
On March 19, 1999, the Company amended its revolving credit agreement by
reducing the facility from $500 million to $400 million. In accordance with the
terms of the amended agreement, the facility was reduced to $350 million on
December 1, 1999 as a result of the sale of Afterthoughts and was further
reduced to $300 million on February 15, 2000. The Company is required to satisfy
certain financial and operating covenants under the terms of the agreement,
which include: maximum ratio of total debt to earnings before interest, taxes,
depreciation and amortization; minimum fixed charge coverage ratio; minimum
tangible net worth; and limits on capital expenditures. In addition, the Company
was required to fund the repayment of the $200 million 7 percent debentures,
which are due in June 2000, by February 15, 2000. In January and February 2000,
respectively, the Company extinguished $100 million and $4 million of the 7
percent debentures and on February 15, 2000, $96 million was placed in escrow to
fund the repayment of the balance outstanding at that date. As of March 7, 2000,
the Company purchased an additional $5 million of the debentures and reduced the
funds held in escrow by the same amount. This facility is unsecured relating to
the Company's inventory; however, it does include collateralization of certain
properties as defined in the agreement. The agreement also restricts
consolidations or mergers with third parties, investments and acquisitions,
payment of dividends on common stock and repurchases of common stock, and
requires borrowings under the agreement to be reduced to not more than $50
million for a period of at least 15 consecutive days during the fourth quarter
of each year. The Company was in compliance with all covenants.
Interest is determined at the time of borrowing based on the banks' base
rates, rates paid on certificates of deposit, the London Interbank Offered Rate
or other variable rates. Up-front fees paid under the amended agreement are
amortized over the life of the facility on a pro-rata basis. In addition, the
Company paid quarterly facility fees ranging from 0.50 to 1.25 percent of
outstanding borrowings based on the Company's 1999 credit ratings. The facility
will expire in April 2002.
15. LONG-TERM DEBT AND OBLIGATIONS UNDER CAPITAL LEASES
Following is a summary of long-term debt and obligations under capital leases:
<TABLE>
<CAPTION>
(in millions) 1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
7.0% debentures payable 2000 $100 $200
8.5% debentures payable 2022 200 200
6.98% medium-term notes payable 2001 50 50
7.0% medium-term notes payable 2002 40 40
Other -- 1
- --------------------------------------------------------------------------------
Total long-term debt 390 491
Obligations under capital leases 28 26
- --------------------------------------------------------------------------------
418 517
Less: current portion 106 6
- --------------------------------------------------------------------------------
$312 $511
================================================================================
</TABLE>
The Company purchased $100 million of the 7 percent debentures, which are due in
June 2000, at various dates throughout January 2000. The transactions were
accounted for on a trade date basis and $21 million was settled after the
year-end. The aggregate gain on sale related to the early extinguishment of debt
did not have a material impact on the Company's Consolidated Statements of
Operations. The Company purchased a further $9 million of the 7 percent
debentures through March 7, 2000, and set aside funds for the repayment of the
remaining balance outstanding.
Maturities of long-term debt and minimum rent payments under capital
leases in future periods are:
<TABLE>
<CAPTION>
LONG-TERM CAPITAL
(in millions) DEBT LEASES TOTAL
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
2000 $100 $ 8 $108
2001 50 5 55
2002 40 3 43
2003 -- 1 1
2004 -- -- --
Thereafter 200 14 214
- --------------------------------------------------------------------------------
390 31 421
Less: Imputed interest -- 3 3
Current portion 100 6 106
- --------------------------------------------------------------------------------
$290 $ 22 $312
================================================================================
</TABLE>
37
<PAGE> 40
16. LEASES
The Company is obligated under capital and operating leases for a major portion
of its store properties. Some of the store leases contain purchase or renewal
options with varying terms and conditions. Management expects that in the normal
course of business, expiring leases will generally be renewed or, upon making a
decision to relocate, replaced by leases on other premises. Operating lease
periods generally range from 5 to 10 years. Certain leases provide for
additional rent payments based on a percentage of store sales. The present value
of operating leases is discounted using various interest rates ranging from 6
percent to 13 percent.
Rent expense consists of the following:
<TABLE>
<CAPTION>
(in millions) 1999 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Rent $ 571 $ 540 $ 490
Contingent rent based on sales 9 12 19
Sublease income -- (7) (11)
- --------------------------------------------------------------------------------
Total rent expense $ 580 $ 545 $ 498
================================================================================
</TABLE>
Future minimum lease payments under non-cancelable operating leases are:
<TABLE>
<CAPTION>
(in millions)
- -------------------------------------------------------------------------------
<S> <C>
2000 $ 380
2001 346
2002 313
2003 271
2004 232
Thereafter 730
- -------------------------------------------------------------------------------
Total operating lease commitments $2,272
===============================================================================
Present value of operating lease commitments $1,672
===============================================================================
</TABLE>
17. OTHER LIABILITIES
<TABLE>
<CAPTION>
(in millions) 1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
Other postretirement benefits $173 $186
Reserve for discontinued operations 36 30
Pension benefits 25 65
Repositioning and restructuring reserves 5 10
Other 48 72
- --------------------------------------------------------------------------------
$287 $363
================================================================================
</TABLE>
18. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
FOREIGN EXCHANGE RISK MANAGEMENT
The Company enters into forward foreign exchange and option contracts to reduce
the effect of fluctuations in currency exchange rates. Exposures arising from
short-term intercompany transactions and inventory purchases are managed through
the use of forward and option contracts. Determination of hedge activity is
based upon market conditions, magnitude of inventory commitments and perceived
risks. All contracts mature within one year. At January 29, 2000 and January 30,
1999, the Company had outstanding foreign exchange contracts with an aggregate
notional value of $68 million and $79 million, respectively, for inventory
purchases, and $67 million and $52 million, respectively, for intercompany
transactions. The carrying values of these contracts did not differ materially
from their fair values.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value and estimated fair value of long-term debt was $390 million
and $311 million, respectively, at January 29, 2000, and $491 million and $454
million, respectively, at January 30, 1999.
INTEREST RATE RISK MANAGEMENT
Interest rate swaps have been utilized by the Company to minimize its exposure
to interest rate fluctuations. There were no swap agreements in effect at
January 29, 2000 or January 30, 1999.
CREDIT RISK
Credit risk of forward foreign exchange contracts and interest rate swaps is
considered minimal, as management closely monitors the financial condition of
the counter-parties to the contracts, which are financial institutions with
credit ratings of A- or higher.
BUSINESS RISK
The retailing business is highly competitive. Price, quality and selection of
merchandise, reputation, store location, advertising and customer service are
important competitive factors in the Company's business. The Company purchases
merchandise and supplies from thousands of vendors worldwide. The Company
purchased approximately 54 percent of its 1999 merchandise from one major
vendor. The Company considers vendor relations to be satisfactory.
38
<PAGE> 41
19. INCOME TAXES
Following are the domestic and international components of pre-tax income (loss)
from continuing operations:
<TABLE>
<CAPTION>
(in millions) 1999 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Domestic $ (1) $(19) $287
International 29 (20) 46
- --------------------------------------------------------------------------------
Total pre-tax income (loss) $ 28 $(39) $333
================================================================================
</TABLE>
The income tax provision (benefit) consists of the following:
<TABLE>
<CAPTION>
(in millions) 1999 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
CURRENT:
Federal $ 15 $ (70) $ 68
State and local 4 (2) 16
International 5 -- 26
- --------------------------------------------------------------------------------
Total current tax provision
(benefit) 24 (72) 110
- --------------------------------------------------------------------------------
DEFERRED:
Federal (19) 27 18
State and local (6) 2 (9)
International 12 1 1
- --------------------------------------------------------------------------------
Total deferred tax provision
(benefit) (13) 30 10
- --------------------------------------------------------------------------------
Total income tax provision
(benefit) $ 11 $ (42) $ 120
================================================================================
</TABLE>
Provision has been made in the accompanying Consolidated Statements of
Operations for additional income taxes applicable to dividends received or
expected to be received from international subsidiaries. The amount of
unremitted earnings of international subsidiaries, for which no such tax is
provided and which is considered to be permanently reinvested in the
subsidiaries, totaled $196 million at January 29, 2000.
A reconciliation of the significant differences between the federal
statutory income tax rate and the effective income tax rate on pre-tax income
(loss) from continuing operations is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal statutory income tax rate 35.0% (35.0)% 35.0%
State and local income taxes,
net of federal tax benefit (4.5) -- 4.4
International income taxed at
varying rates 14.0 9.3 1.4
Foreign tax credit utilization (4.4) (150.7) 0.9
Increase (decrease) in valuation
allowance 4.4 17.7 (4.3)
Gain on surrender of company-
owned life insurance -- 48.5 --
Goodwill amortization 10.8 7.4 --
Basis differential on disposition
of foreign assets (19.9) -- --
Other, net 3.6 (4.9) (1.4)
- -------------------------------------------------------------------------------
Effective income tax rate 39.0% (107.7)% 36.0%
===============================================================================
</TABLE>
Items that gave rise to significant portions of the deferred tax accounts are as
follows:
<TABLE>
<CAPTION>
(in millions) 1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
DEFERRED TAX ASSETS:
Tax loss/credit carryforwards $ 197 $ 157
Employee benefits 74 116
Reserve for discontinued operations 76 120
Repositioning and restructuring reserves 37 18
Property and equipment 104 86
Other 5 --
- -------------------------------------------------------------------------------
Total deferred tax assets 493 497
Valuation allowance (133) (87)
- -------------------------------------------------------------------------------
Total deferred tax assets, net 360 410
- -------------------------------------------------------------------------------
DEFERRED TAX LIABILITIES:
Inventories 21 14
Other -- 16
- -------------------------------------------------------------------------------
Total deferred tax liabilities 21 30
- -------------------------------------------------------------------------------
Net deferred tax asset $ 339 $ 380
===============================================================================
BALANCE SHEET CAPTION REPORTED IN:
Deferred taxes $ 317 $ 358
Other current assets 31 22
Accrued liabilities (9) --
- -------------------------------------------------------------------------------
$ 339 $ 380
===============================================================================
</TABLE>
As of January 29, 2000, the Company had a valuation allowance of $133 million to
reduce its deferred tax assets to estimated realizable value. The valuation
allowance primarily relates to the deferred tax assets arising from state tax
loss carryforwards of certain domestic operations, tax loss carryforwards of
certain foreign operations, foreign tax credit carryforwards and capital loss
carryforwards of the Canadian operations, as well as other discontinued
operations. The net change in the total valuation allowance for the year ended
January 29, 2000, was principally due to the sale of certain businesses and
potential expiration of excess foreign tax credits from prior periods.
Based upon the level of historical taxable income and projections for
future taxable income over the periods in which the temporary differences are
anticipated to reverse, management believes it is more likely than not that the
Company will realize the benefits of these deductible differences, net of the
valuation allowances at January 29, 2000. However, the amount of the deferred
tax asset considered realizable could be adjusted in the future if estimates of
taxable income are revised.
At January 29, 2000, the Company had international operating loss
carryforwards of approximately $200 million. Those expiring between 2000 and
2007 are $184 million and those that do not expire are $16 million. The Company
has state net operating loss carryforwards with a potential tax benefit of $40
million, which principally relates to the 16 states where the Company does not
file a combined return. These loss carryforwards expire between 2000 and 2019.
Foreign tax credits of approximately $63 million expiring between 2002 and 2005
are also available to the Company. The Company has U.S. Federal alternative
minimum tax credits of approximately $7 million, which do not expire.
39
<PAGE> 42
20. RETIREMENT PLANS AND OTHER BENEFITS
PENSION AND OTHER POSTRETIREMENT PLANS
The Company has defined benefit pension plans covering most of its employees,
which are funded in accordance with the provisions of the laws of the countries
where the plans are in effect. Plan assets consist primarily of stocks, bonds
and temporary investments. In addition to providing pension benefits, the
Company sponsors postretirement medical and life insurance plans, which are
available to most of its retired U.S. employees. These plans are contributory
and are not funded.
The following tables set forth the plans' changes in benefit obligations
and plan assets, funded status and amounts recognized in the Consolidated
Balance Sheets:
<TABLE>
<CAPTION>
POSTRETIREMENT
PENSION BENEFITS BENEFITS
------------------- -----------------
(in millions) 1999 1998 1999 1998
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at
beginning of year $ 739 $ 776 $ 75 $ 112
Service cost 7 8 -- --
Interest cost 48 50 5 5
Plan participants'
contributions -- -- 5 4
Actuarial (gain) loss (62) 8 (5) (35)
Foreign currency
translation
adjustments 5 (4) -- --
Benefits paid (73) (99) (13) (11)
Dispositions (3) -- -- --
Curtailment 1 -- -- --
- -------------------------------------------------------------------------------
Benefit obligation
at end of year $ 662 $ 739 $ 67 $ 75
- -------------------------------------------------------------------------------
CHANGE IN PLAN ASSETS
Fair value of plan
assets at beginning
of year $ 622 $ 626
Actual return on plan
assets 80 62
Employer contribution 33 37
Foreign currency
translation
adjustments 4 (3)
Benefits paid (73) (100)
Dispositions (4) --
- -------------------------------------------------------------------------------
Fair value of plan
assets at end
of year $ 662 $ 622
- -------------------------------------------------------------------------------
FUNDED STATUS
Funded status $ -- $(117) $ (67) $ (75)
Unrecognized net
asset at transition -- (3) -- --
Unrecognized prior
service cost 7 8 -- --
Unrecognized net
(gain) loss 13 87 (114) (118)
- --------------------------------------------------------------------------------
Prepaid asset
(accrued liability) $ 20 $ (25) $(181) $(193)
================================================================================
</TABLE>
<TABLE>
<CAPTION>
POSTRETIREMENT
PENSION BENEFITS BENEFITS
------------------- -----------------
(in millions) 1999 1998 1999 1998
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BALANCE SHEET CAPTION REPORTED IN:
Other assets $ 43 $ 1 $-- $--
Other liabilities (25) (65) (173) (186)
Accrued liabilities (2) (33) (8) (7)
Accumulated other
comprehensive
income, pre-tax 4 72 -- --
- -------------------------------------------------------------------------------
$ 20 $ (25) $(181) $(193)
===============================================================================
</TABLE>
As of January 29, 2000, the projected benefit obligation, accumulated benefit
obligation, and fair value of plan assets for the pension plans with accumulated
benefit obligations in excess of plan assets were $110 million, $107 million and
$85 million, respectively. The change in the assumed discount rate used to
measure the projected benefit obligation in 1999 and an increase in plan assets
as a result of positive investment performance, changed the funded status of the
Company's U.S. qualified retirement plan from underfunded to overfunded. The
projected benefit obligation, accumulated benefit obligation, and fair value of
plan assets for the pension plans with accumulated benefit obligations in excess
of plan assets were $736 million, $714 million and $618 million, respectively,
as of January 30, 1999.
In 1999, the Company disposed of the Australian pension plan in connection
with the public offering of its holding in Colorado Group and incurred a
curtailment loss of $1 million related to disposed formats in Canada. In
connection with the sale of its German general merchandise business on October
22, 1998, the Company disposed of its accumulated benefit obligation
representing the unfunded German pension plan. The discontinuance of the
Specialty Footwear segment had no impact on the accumulated pension and
postretirement benefit obligations as of January 30, 1999.
40
<PAGE> 43
<TABLE>
<CAPTION>
PRINCIPAL ASSUMPTIONS
PENSION BENEFITS POSTRETIREMENT BENEFITS
------------------------------- --------------------------------
1999 1998 1997 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Weighted-average discount rate 7.93% 6.71% 7.12% 8.00% 6.75% 7.00%
Weighted-average rate of compensation increase 4.89% 4.71% 4.95% 5.00% 5.00% 5.00%
Weighted-average long-term rate of return on assets 9.87% 9.87% 9.86%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The components of net benefit expense (income) are:
<TABLE>
<CAPTION>
PENSION BENEFITS POSTRETIREMENT BENEFITS
------------------------------- --------------------------------
(in millions) 1999 1998 1997 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Service cost $ 7 $ 8 $ 9 $-- $-- $--
Interest cost 48 50 56 5 5 8
Expected return on plan assets (57) (53) (54) -- -- --
Amortization of net asset at transition (1) (9) (9) -- -- --
Amortization of prior service cost 1 3 3 -- -- --
Amortization of net (gain) loss 2 3 6 (9) (9) (5)
Curtailment -- -- 8 -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Net benefit expense (income) $-- $ 2 $ 19 $ (4) $ (4) $ 3
===================================================================================================================================
</TABLE>
In the fourth quarter of 1999, the Company changed the method for
calculating the market-related value of plan assets for the U.S. qualified
retirement plan, used in determining the return on plan assets component of net
pension expense and the accumulated unrecognized net loss subject to
amortization. Under the previous accounting method, equity assets were valued
based on a five-year moving average of investment gains and losses. Under the
new method, equities are valued based on either a five-year or a three-year
moving average of investment gains and losses, whichever value is closer to
market value in each plan year. Under both new and previous methods, non-equity
assets are valued at market value, and only the accumulated net loss, which
exceeds ten percent of the greater of the projected benefit obligation or the
market-related value of plan assets is subject to amortization. The Company
believes the new method is preferable because it results in calculated plan
asset values that more closely approximate fair value, while still mitigating
the impact of annual market-value fluctuations. 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 was accounted for as if it had
occurred at the beginning of the first quarter of 1999. The impact of 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. Had this change been applied retroactively, pension expense would have
been reduced by approximately $1 million and $2 million in 1998 and 1997,
respectively.
In 1998, the amortization period of the domestic plans' unrecognized gains
and losses was changed to the average future life expectancy of inactive plan
participants, who now comprise the majority of plan participants, resulting in
decreases of approximately $4 million and $3 million, respectively, in net
pension and net postretirement benefit expense. Previously, the unrecognized
gains and losses were amortized over the average future working lifetime of
active plan participants.
In 1998, a medical plan dropout assumption for retirees was introduced to
the postretirement benefit obligation calculation. For measurement purposes, an
8.4 percent increase in the cost of covered health care benefits was assumed for
1999. The rate was assumed to decline gradually to five percent in 2008 and
remain at that level thereafter. A one percent increase in the health care cost
trend rate would increase the 1999 accumulated postretirement benefit obligation
by $2.8 million and decrease the 1999 income by $0.2 million. A one percent
decrease in the health care cost trend rate would decrease the 1999 accumulated
postretirement benefit obligation by $2.6 million and increase the 1999 income
by $0.2 million.
401(k) PLAN
The Company has a qualified 401(k) savings plan available to full-time employees
who meet the plan's eligibility requirements. This savings plan allows eligible
employees to contribute up to 15 percent of their compensation on a pre-tax
basis. The Company matches 25 percent of the first 4 percent of the employees'
contributions with Company stock. Effective January 1, 1998, such matching
Company contributions are vested incrementally over 5 years. The charge to
operations for the Company's matching contribution was $0.9 million, $1.4
million and $1.3 million in 1999, 1998 and 1997, respectively.
41
<PAGE> 44
21. STOCK PLANS
Under the Company's 1998 Stock Option and Award Plan (the "1998 Plan"), options
to purchase shares of common stock may be granted to officers and key employees
at not less than the market price on the date of grant. Under the plan, the
Company may grant officers and other key employees, including those at the
subsidiary level, stock options, stock appreciation rights (SARs), restricted
stock or other stock-based awards. Unless a longer period is established at the
time of the option grant, up to one-half of each stock option may be exercised
on each of the first two anniversary dates of the date of grant. Generally, for
stock options granted beginning in 1996, one-third of each stock option becomes
exercisable on each of the first three anniversary dates of the date of grant.
The options terminate up to 10 years from the date of grant. The 1998 Plan
provides for awards of up to 6,000,000 shares of the Company's common stock. The
number of shares reserved for issuance as restricted stock cannot exceed
1,500,000 shares.
In addition, options to purchase shares of common stock remain outstanding
under the Company's 1995 and 1986 Stock Option Plans. The 1995 Stock Option and
Award Plan (the "1995 Plan") is substantially the same as the 1998 Plan. The
number of shares reserved for issuance as restricted stock under the 1995 Plan
is also limited to 1,500,000 shares. Options granted under the 1986 Stock Option
Plan generally become exercisable in two equal installments on the first and the
second anniversaries of the date of grant.
In 1996, the Company established the Directors' Stock Plan (the
"Directors' Plan"). Under the Directors' Plan, non-employee directors receive 50
percent of their annual retainer in shares of common stock and may elect to
receive up to 100 percent of their retainer in common stock. The maximum number
of shares of common stock that may be issued under the Directors' Plan is
250,000 shares.
Under the Company's 1994 Stock Purchase Plan, participating employees may
contribute up to 10 percent of their annual compensation to acquire shares of
common stock at 85 percent of the lower market price on one of two specified
dates in each plan year. Of the 8,000,000 shares of common stock authorized for
purchase under the 1994 plan, 803 participating employees purchased 139,657
shares in 1999. To date, a total of 923,918 shares have been purchased under the
Stock Purchase Plan.
When common stock is issued under these plans, the proceeds from options
exercised or shares purchased are credited to common stock to the extent of the
par value of the shares issued and the excess is credited to additional paid-in
capital. When treasury common stock is issued, the difference between the
average cost of treasury stock used and the proceeds from options exercised or
shares awarded or purchased is charged or credited, as appropriate, to either
additional paid-in capital or retained earnings. The tax benefits relating to
amounts deductible for federal income tax purposes, which are not included in
income for financial reporting purposes, have been credited to additional
paid-in capital.
The Financial Accounting Standards Board issued SFAS No. 123, which
requires disclosure of the impact on earnings per share if the fair value method
of accounting for stock-based compensation is applied for companies electing to
continue to account for stock-based plans under APB No. 25. Accounting for the
Company's grants for stock-based compensation during the three-year period ended
January 29, 2000, in accordance with the fair value method provisions of SFAS
No. 123 would have resulted in the following:
<TABLE>
<CAPTION>
(in millions, except per share amounts) 1999 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income (loss):
As reported $ 48 $ (136) $ (10)
Pro forma $ 43 $ (142) $ (18)
Basic earnings per share:
As reported $ 0.35 $ (1.00) $ (0.08)
Pro forma $ 0.31 $ (1.05) $ (0.13)
Diluted earnings per share:
As reported $ 0.35 $ (1.00) $ (0.07)
Pro forma $ 0.31 $ (1.05) $ (0.13)
- --------------------------------------------------------------------------------
</TABLE>
The fair values of the Company's various stock option and purchase plans were
estimated at the grant date using a Black-Scholes option pricing model.
<TABLE>
<CAPTION>
STOCK OPTION PLANS STOCK PURCHASE PLAN
--------------------------------------- --------------------------------------
1999 1998 1997 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Weighted-average risk free
rate of interest 5.31% 4.57% 6.44% 7.12% 4.62% 5.84%
Expected volatility 45% 35% 30% 29% 29% 25%
Weighted-average expected award life 2 years 2 years 2 years .7 years .7 years .7 years
Dividend yield -- -- -- -- -- --
Weighted-average fair value $ 2.14 $ 7.67 $ 7.52 $ 1.10 $ 1.80 $ 6.44
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
42
<PAGE> 45
The information set forth in the following table covers options granted under
the Company's stock option plans:
<TABLE>
<CAPTION>
1999 1998 1997
--------------------------- ------------------------- ---------------------------
WEIGHTED- WEIGHTED- WEIGHTED-
NUMBER AVERAGE NUMBER AVERAGE NUMBER AVERAGE
(IN THOUSANDS, EXCEPT PRICES PER SHARE) OF SHARES EXERCISE PRICE OF SHARES EXERCISE PRICE OF SHARES EXERCISE PRICE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at
beginning of year 8,057 $ 20.93 7,450 $ 21.45 7,376 $ 22.02
Granted 3,739 $ 5.17 2,537 $ 21.89 2,321 $ 21.68
Exercised -- $ -- 260 $ 16.83 565 $ 16.76
Expired or canceled 1,873 $ 20.23 1,670 $ 25.39 1,682 $ 25.84
- ------------------------------------------------------------------------------------------------------------------------------------
Options outstanding at
end of year 9,923 $ 15.12 8,057 $ 20.93 7,450 $ 21.45
====================================================================================================================================
Options exercisable at
end of year 4,837 $ 19.95 4,429 $ 20.86 4,466 $ 22.34
- ------------------------------------------------------------------------------------------------------------------------------------
Options available for
future grant at end of year 2,220 6,131 1,896
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The following table summarizes information about stock options outstanding and
exercisable at January 29, 2000:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------- -------------------------
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
REMAINING AVERAGE AVERAGE
CONTRACTUAL EXERCISE EXERCISE
RANGE OF EXERCISE PRICE (in thousands, except prices per share) SHARES LIFE PRICE SHARES PRICE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 4.53 to $ 6.97 2,999 9.1 $ 4.86 10 $ 6.19
$ 7.03 to $13.63 1,748 6.7 11.40 985 12.95
$13.94 to $22.19 2,850 6.5 18.68 2,364 18.11
$22.41 to $29.94 2,029 6.5 26.00 1,181 26.54
$30.06 to $34.25 297 0.7 32.09 297 32.09
- ---------------------------------------------------------------------------------------------------------------------------------
$ 4.53 to $34.25 9,923 7.2 $15.12 4,837 $19.95
=================================================================================================================================
</TABLE>
22. RESTRICTED STOCK
The Company awarded 1,255,000 restricted shares of common stock at various dates
in 1999 to several of its officers and key employees. In 1998, 60,000 restricted
shares of common stock were granted to a key employee and in 1994, 200,000
restricted shares of common stock were granted to an officer of the Company. The
market values of the shares at the date of grant amounted to $8.4 million, $0.6
million and $3.3 million, respectively, and are recorded within shareholders'
equity. The market values are being amortized as compensation expense over the
related vesting periods not exceeding five years. During 1999, 185,000
restricted shares were forfeited. The compensation expense was $2.7 million,
$0.3 million, and $0.5 million in 1999, 1998 and 1997, respectively.
23. SHAREHOLDER RIGHTS PLAN
Effective April 14, 1998, simultaneously with the expiration of the then
existing rights, the Company issued one right for each outstanding share of
common stock. Each right entitles a shareholder to purchase one two-hundredth of
a share of Series B Participating Preferred Stock at an exercise price of $100,
subject to adjustment. Generally, the rights become exercisable only if a person
or group of affiliated or associated persons (i) becomes an "Interested
Shareholder" as defined in Section 912 of the New York Business Corporation Law
(an "Acquiring Person") or (ii) announces a tender or exchange offer that
results in that person or group becoming an Acquiring Person, other than
pursuant to an offer for all outstanding shares of the common stock of the
Company which the Board of Directors determines not to be inadequate and to
otherwise be in the best interests of, the Company and its shareholders. The
Company will be able to redeem the rights at $0.01 per right at any time during
the period prior to the 10th business day following the date a person or group
becomes an Acquiring Person. The plan also has a qualifying offer provision.
Upon exercise of the right, each holder of a right will be entitled to
receive common stock (or, in certain circumstances, cash, property or other
securities of the Company) having a value equal to two times the exercise price
of the right. The rights, which cannot vote and cannot be transferred separately
from the shares of common stock to which they are presently attached, expire on
April 14, 2008 unless extended prior thereto by the Board, or earlier redeemed
or exchanged by the Company.
43
<PAGE> 46
24. LEGAL PROCEEDINGS
The only legal proceedings pending against the Company or its consolidated
subsidiaries consist of ordinary, routine litigation, including administrative
proceedings, incident to the businesses of the Company, 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 Company's consolidated
financial position, liquidity, or results of operations.
25. COMMITMENTS
In connection with the sale of various businesses, the Company guarantees the
payment of lease commitments transferred to third parties pursuant to those
sales. The Company is also operating certain stores for which lease agreements
are in the process of being negotiated with landlords. Although there is no
contractual commitment to make these contingent payments, it is likely that a
final contract will be executed. Management believes that the resolution of such
contingencies will not significantly affect the Company's consolidated financial
position, liquidity, or results of operations.
26. SHAREHOLDER INFORMATION AND MARKET PRICES (UNAUDITED)
Venator Group, Inc. common stock is listed on the New York and Amsterdam stock
exchanges as well as on the Lausanne and Elektronische Borse Schweiz (EBS) stock
exchanges in Switzerland. In addition, the stock is traded on the Boston,
Cincinnati, Chicago, Philadelphia and Pacific stock exchanges. The New York
Stock Exchange ticker symbol for the Company's common stock is "Z."
At January 29, 2000, the Company had 34,408 shareholders of record owning
137,442,104 common shares.
Market prices for the Company's common stock were as follows:
<TABLE>
<CAPTION>
1999 1998
---------------- ------------------
High Low High Low
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCK
QUARTER
1st Q 11 1/2 3 3/16 27 1/4 21 1/2
2nd Q 12 8 3/8 23 1/4 14 5/16
3rd Q 10 3/4 6 1/2 14 7/16 6 3/4
4th Q 8 3/16 5 7/8 12 9/16 4 1/4
- --------------------------------------------------------------------------------
</TABLE>
27. QUARTERLY RESULTS (UNAUDITED)
<TABLE>
<CAPTION>
(in millions, except per share amounts) 1st Q 2nd Q 3rd Q 4th Q Year
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SALES
1999 $ 1,079 1,063 1,178 1,327 4,647
1998 $ 1,058 1,043 1,122 1,332 4,555
GROSS MARGIN (a)
1999 $ 288 272(d) 330 376(e) 1,266
1998 $ 310 307 282 323 1,222
OPERATING PROFIT (LOSS) (b)
1999 $ 3 (62)(f) 32(g) 155(h) 128
1998 $ 49 24 (30) (30) 13
INCOME (LOSS) FROM CONTINUING OPERATIONS
1999 $ (11) (40)(f) 8(g) 60(h) 17
1998 $ 8 6 (40) 29 3
NET INCOME (LOSS)
1999 $ (3) (30) 8 73 48
1998 $ (5) (13) (155) 37 (136)
BASIC EARNINGS PER SHARE:
1999
Income (loss) from continuing operations $ (0.08) (0.29) 0.06 0.44 0.13
Income from discontinued operations $ -- 0.07 -- 0.09 0.16
Cumulative effect of accounting change (c) $ 0.06 -- -- -- 0.06
Net income (loss) $ (0.02) (0.22) 0.06 0.53 0.35
1998
Income (loss) from continuing operations $ 0.06 0.04 (0.29) 0.21 0.02
Income (loss) from discontinued operations $ (0.10) (0.13) (0.85) 0.06 (1.02)
Net income (loss) $ (0.04) (0.09) (1.14) 0.27 (1.00)
DILUTED EARNINGS PER SHARE:
1999
Income (loss) from continuing operations $ (0.08) (0.29) 0.06 0.44 0.13
Income from discontinued operations $ -- 0.07 -- 0.09 0.16
Cumulative effect of accounting change (c) $ 0.06 -- -- -- 0.06
Net income (loss) $ (0.02) (0.22) 0.06 0.53 0.35
1998
Income (loss) from continuing operations $ 0.06 0.04 (0.29) 0.21 0.02
Income (loss) from discontinued operations $ (0.10) (0.13) (0.85) 0.06 (1.02)
Net income (loss) $ (0.04) (0.09) (1.14) 0.27 (1.00)
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Gross margin represents sales less cost of sales.
(b) Operating profit (loss) represents income (loss) before income taxes,
interest expense, corporate expense and corporate gains on real estate.
(c) Reflects change in method for calculating the market-related value of
pension plan assets (see note 20). 1999 quarterly information has been
restated.
(d) Includes a restructuring charge of $12 million.
(e) Includes a $1 million reduction of the second quarter restructuring
charge.
(f) Includes total restructuring charges of $64 million.
(g) Includes total restructuring charges of $3 million.
(h) Includes Afterthoughts gain ($164 million) and Colorado gain ($13
million), offset by total restructuring charges of $88 million, $67
million included in operating results and $21 million included in
corporate expense.
44
<PAGE> 47
FIVE YEAR SUMMARY OF SELECTED FINANCIAL DATA
The selected financial data below should be read in conjunction with the
Consolidated Financial Statements and the notes thereto and other information
contained elsewhere in this report. All selected financial data has been
restated for discontinued operations, except for return on average investment
("ROI").
<TABLE>
<CAPTION>
($ in millions, except per share amounts) 1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SUMMARY OF CONTINUING OPERATIONS
Sales $ 4,647 4,555 4,612 4,504 4,383
Gross margin 1,266(1) 1,222 1,485 1,484 1,375
Selling, general and administrative expenses 1,078 1,166 1,008 975 1,025
Restructuring charge 144 -- -- -- --
Depreciation and amortization 182 152 122 114 137
Interest expense, net 57 44 35 50 88
Other income (223) (101) (13) (3) (18)
Income from continuing operations 17 3 213 209 29
Cumulative effect of accounting change (2) 8 -- -- -- --
Basic earnings per share from continuing operations 0.13 0.02 1.58 1.56 0.22
Basic earnings per share from cumulative effect of
accounting change 0.06 -- -- -- --
Diluted earnings per share from continuing operations 0.13 0.02 1.57 1.55 0.21
Diluted earnings per share from cumulative effect of
accounting change 0.06 -- -- -- --
Preferred stock dividends declared -- -- -- 1.10 2.20
Weighted-average common shares outstanding (in millions) 137.2 135.4 134.6 133.5 132.9
Weighted-average common shares outstanding
assuming dilution (in millions) 138.2 135.9 135.8 134.3 133.5
===================================================================================================================================
FINANCIAL CONDITION
Cash and cash equivalents $ 162 193 81 197 10
Merchandise inventories 739 837 754 617 663
Property and equipment, net 809 974 625 480 569
Total assets 2,515 2,876 2,798 2,807 2,776
Short-term debt 71 250 -- -- 69
Long-term debt and obligations under capital leases 418 517 527 519 538
Total shareholders' equity 1,139 1,038 1,271 1,334 1,229
===================================================================================================================================
FINANCIAL RATIOS
Return on equity (ROE) 1.6% 0.2 16.3 16.3 2.2
Return on average investment (ROI) 3.7% 2.7 8.3 6.9 0.8
Operating profit as a percentage of sales 2.8% 0.3 9.1 10.2 4.5
Income from continuing operations as a percentage of sales 0.4% 0.1 4.6 4.6 0.7
Net debt capitalization percent (3) 63.7% 69.8 61.0 58.3 64.3
Net debt capitalization percent (without
present value of operating leases) (3) 22.3% 35.6 26.0 19.4 32.7
Current ratio 1.4 1.3 2.6 3.6 3.6
===================================================================================================================================
Capital Expenditures $ 158 549 249 86 70
Number of stores at year end 4,874 6,002 5,708 5,527 5,763
Total selling square footage at year end (in millions) 10.14 11.07 8.92 8.02 8.25
===================================================================================================================================
</TABLE>
(1) Includes a restructuring charge of $11 million related to inventory
markdowns.
(2) Reflects change in method for calculating the market-related value of
pension plan assets (see note 20).
(3) Represents total debt, net of cash and cash equivalents.
45
<PAGE> 48
BOARD OF DIRECTORS
DALE W. HILPERT
Chairman of the Board and Chief Executive Officer
MATTHEW D. SERRA
President and Chief Operating Officer
J. CARTER BACOT (1),(4), (6)
Retired Chairman of the Board and Chief Executive Officer The Bank of New York
Company, Inc. and Chairman of the Board of The Bank of New York (banking
services)
PURDY CRAWFORD (1), (2), (5)
Chairman of the Board AT&T Canada (telecommunications)
PHILIP H. GEIER JR. (1), (3)
Chairman of the Board and Chief Executive Officer Interpublic Group of
Companies, Inc. (advertising agencies and other marketing communication
services)
JAROBIN GILBERT JR. (1), (2),(4)
President and Chief Executive Officer DBSS Group, Inc. (management, planning and
trade consulting services)
ALLAN Z. LOREN (1), (2)
Retired Executive Vice President and Chief Information Officer American Express
Company (travel and financial services)
MARGARET P. MACKIMM (1), (3), (5)
Former Senior Vice President - Communications Kraft Foods, Inc. (multinational
marketer and processor of food products)
JOHN J. MACKOWSKI (1), (2), (5)
Director of various companies
JAMES E. PRESTON (1), (3), (4), (6)
Retired Chairman of the Board and Chief Executive Officer Avon Products, Inc.
(manufacture and sale of beauty and related products)
CHRISTOPHER A. SINCLAIR (1), (6)
Chairman of the Board and Chief Executive Officer Caribiner International
(business communications)
(1) Member of Executive Committee
(2) Member of Audit Committee
(3) Member of Compensation Committee
(4) Member of Nominating and Organization Committee
(5) Member of Retirement Investment Committee
(6) Member of Acquisitions and Finance Committee
CORPORATE OFFICERS
DALE W. HILPERT
Chairman of the Board and Chief Executive Officer
MATTHEW D. SERRA
President and Chief Operating Officer
SENIOR VICE PRESIDENTS
GARY M. BAHLER
General Counsel and Secretary
JEFFREY L. BERK
Real Estate
S. RONALD GASTON
Chief Information Officer
DENNIS M. LEE
Human Resources
BRUCE L. HARTMAN
Chief Financial Officer
VICE PRESIDENTS
JON D. BARTOL
Information Systems - Technical/Operations
GARY H. BROWN
Real Property
JOHN H. CANNON
Treasurer
PETER M. CUPPS
Corporate Shared Services
JUDITH FISHMAN
Organization and Leadership Development
STEPHEN J. HEINMILLER
Informations Systems - Development
ROBERT W. MCHUGH
Chief Accounting Officer
JURIS PAGRABS
Investor Relations
PATRICIA A. PECK
Human Resources
LAUREN B. PETERS
Planning
RICHARD J. PRICE
Logistics
THOMAS J. SLOVER
Worldwide Sourcing
46
<PAGE> 49
CORPORATE INFORMATION
CORPORATE HEADQUARTERS
112 West 34th Street
New York, New York 10120
(212)720-3700
TRANSFER AGENT AND REGISTRAR
First Chicago Trust Co., a division of EquiServe
P.O. Box 2500
Jersey City, New Jersey 07303-2500
(800)519-3111
INDEPENDENT AUDITORS
KPMG LLP
345 Park Avenue
New York, New York 10154
(212)758-9700
FORM 10-K
A copy of the Venator Group, Inc. 1999 Annual Report on Form 10-K filed with the
Securities and Exchange Commission is available, without charge, by request to
the Investor Relations Department at the Corporate Headquarters.
INVESTOR INFORMATION
Investor inquiries should be directed to the Investor Relations Department at
(212)720-4600.
WORLD WIDE WEB SITE
Our website at www.venatorgroup.com offers information about our Company, as
well as online versions of our Annual Report, SEC reports, quarterly results and
press releases.
THE VENATOR GROUP, FOOTLOCKER.COM, FOOT LOCKER, LADY FOOT LOCKER, KIDS FOOT
LOCKER, CHAMPS SPORTS, EASTBAY, COLORADO, GOING TO THE GAME, NORTHERN
REFLECTIONS, NORTHERN GETAWAY, NORTHERN ELEMENTS, NORTHERN TRADITIONS, AUTHENTIC
NORTHERN EXPERIENCE, RANDY RIVER, THE SAN FRANCISCO MUSIC BOX COMPANY, BASICS BY
FOOT LOCKER, ACTRA AND O.U.T., OUTDOOR URBAN TERRAIN SERVICE MARKS AND
TRADEMARKS ARE OWNED BY VENATOR GROUP, INC. OR ITS AFFILIATES.
<PAGE> 50
[VENATOR GROUP LOGO]
Venator Group, Inc.
112 West 34th Street
New York, NY 10120
<PAGE> 1
EXHIBIT 18
March 8, 2000
Venator Group, Inc.
233 Broadway
New York, NY 10279
Ladies and Gentlemen:
We have audited the consolidated balance sheets of Venator Group, Inc. and
subsidiaries (the "Company"), as of January 29, 2000 and January 30, 1999, and
the related consolidated statements of operations, comprehensive income (loss),
shareholders' equity, and cash flows for each of the years in the three-year
period ended January 29, 2000, and have reported thereon under date of March 8,
2000. The aforementioned consolidated financial statements and our audit
report thereon are included in the Company's annual report on Form 10K for the
year ended January 29, 2000. As stated in Note 20 to those financial
statements, the Company changed its method of calculating the market-related
value of pension plan assets used in determining the return on plan assets
component of net pension expense and the accumulated unrecognized net loss
subject to amortization. The Company states the newly adopted accounting
method is preferable in the circumstances because it results in calculated plan
asset values that more closely approximate fair value, while still mitigating
the impact of annual market-value fluctuations. In accordance with your
request, we have reviewed and discussed with the Company officials the
circumstances and business judgment and planning upon which the decsion to make
this change in the method of accounting was based.
With regard to the aforementioned accounting change, authoritative criteria
have not been established for evaluating the preferability of an acceptable
method of accounting over another accpetable method. However, for purposes of
Venator Group, Inc's compliance with the requirments of the Securities and
Exchange Commission, we are furnishing this letter.
Based on our review and discussion, with reliance on management's business
judgment and planning, we concur that the newly adopted method of accounting is
preferable in the Company's circumstances.
Very truly yours,
/s/KPMG LLP
<PAGE> 1
EXHIBIT 21
VENATOR GROUP, INC. AND SUBSIDIARIES (1)
April 1, 2000
<TABLE>
<CAPTION>
State or Other
Name Jurisdiction of Incorporation
- ---- -----------------------------
<S> <C>
Venator Group, Inc. New York
Footlocker.com, Inc. Delaware
Eastbay, Inc. Wisconsin
Foot Locker Asia, Inc. Delaware
Foot Locker Asia Limited Hong Kong
Foot Locker Australia, Inc. Delaware
Foot Locker Austria GmbH Austria
Foot Locker Belgium N.V. Belgium
Foot Locker Denmark ApS Denmark
Foot Locker China, Inc. Delaware
Foot Locker Europe B.V. Netherlands
Foot Locker France S.A. France
CB Diffusion S.A. France
Faust S.A.R.L. France
Florentin Freres-Primaprix S.A. France
Les Nouveautes du Centre S.A.R.L. France
Privilege S.A. France
Foot Locker Germany GmbH Germany
Foot Locker Italy S.r.l. Italy
Foot Locker Japan, Inc. Delaware
Foot Locker Japan K.K. Japan
Foot Locker Netherlands B.V. Netherlands
Foot Locker Singapore Pte. Ltd. Singapore
Foot Locker Spain S.L. Spain
Foot Locker Sweden Aktiebolag Sweden
Foot Locker (Thailand) Co., Ltd. Thailand
Foot Locker U.K. Limited U.K.
Freedom Sportsline Limited U.K.
Venator Group Realty Europe Limited U.K.
</TABLE>
- --------------------------
(1) The name of each subsidiary company is indented under the name of its
parent company and, unless otherwise noted in a footnote, each such
subsidiary company is 100% owned by its parent. Directors' qualifying
shares, if any, are deemed to be beneficially owned by a subsidiary's
parent company. All subsidiaries wholly owned, directly or indirectly, by
Venator Group, Inc. are consolidated with Venator Group, Inc. for
accounting and financial reporting purposes.
<PAGE> 2
<TABLE>
<CAPTION>
State or Other
Name Jurisdiction of Incorporation
- ---- -----------------------------
<S> <C>
[VENATOR GROUP, INC. -- (CONT.)]
Kids Mart, Inc.(2) Florida
Kids Mart, Inc. Delaware
Kinney New Zealand Limited New Zealand
Little Folk Shop Inc. Delaware
Northern Reflections Inc. Delaware
Randy River, Inc. Delaware
The Richman Brothers Company Ohio
Custom Cut, Inc. Delaware
RX Place, Inc. Delaware
The San Francisco Music Box Company California
Specialty Times, Inc. Delaware
Team Edition Apparel, Inc. Florida
Venator Group Administration, Inc. Delaware
Venator Group Specialty, Inc. New York
AB Specialty, Inc. Delaware
Barclay Park and Church Advertising Inc. Delaware
Checklot Service Center, Inc. Delaware
Frame Scene, Inc. Delaware
Herald Square Stationers, Inc. Delaware
Lamston 37-33/45 Seventy-Fourth Street Corp. New York
Lamston 69-73/5 Grand Avenue Corp. New York
Lamston 1279 Third Avenue Corp. New York
Red Grille of Hawaii, Inc. Delaware
Red Grille of Louisiana, Inc. Delaware
Trade Center Realty, Inc. Delaware
Woolco Fashionwear Corp. Delaware
Woolco Inc. Delaware
233 Broadway, Inc. New York
340 Supply Co. Pennsylvania
Venator Group Franchises LLC Delaware
Venator Group Investments LLC Delaware
Rosedale Accessory Lady, Inc. Minnesota
Accessory Lady, Inc. Texas
Atlanta Southlake Accessory Lady, Inc. Georgia
Beachwood Accessory Lady, Inc. Ohio
Brea Accessory Lady, Inc. California
</TABLE>
- -----------
(2) 1 million shares of Series A Convertible Preferred Stock, par value $.001
per share, pursuant to a Stock Acquisition Agreement dated May 30, 1996.
2
<PAGE> 3
<TABLE>
<CAPTION>
State or Other
Name Jurisdiction of Incorporation
- ---- -----------------------------
<S> <C>
[VENATOR GROUP, INC. -- (CONT.)]
[VENATOR GROUP, SPECIALTY, INC. -- (CONT.)]
[ROSEDALE ACCESSORY LADY, INC. -- (CONT.)]
Bridgewater Commons Accessory Lady, Inc. New Jersey
Buckland Hills Accessory Lady, Inc. Connecticut
Cherry Hill Accessory Lady, Inc. New Jersey
Chesterfield Accessory Lady, Inc. Virginia
Chicago Accessory Lady, Inc. Illinois
Copley Place Accessory Lady, Inc. Massachusetts
Colonie Center Accessory Lady, Inc. New York
Crabtree Mall Accessory Lady, Inc. North Carolina
Dadeland Center Accessory Lady, Inc. Florida
Delamo Accessory Lady, Inc. California
Fashion Valley Accessory Lady, Inc. California
Four Seasons Accessory Lady, Inc. North Carolina
Fox Valley Accessory Lady, Inc. Illinois
Garden State Accessory Lady, Inc. New Jersey
The Gardens Accessory Lady, Inc. Florida
Glendale Accessory Lady, Inc. California
Grand Avenue Accessory Lady, Inc. Wisconsin
Hanes Mall Accessory Lady, Inc. North Carolina
Hawthorne Center (IL.) Accessory Lady, Inc. Illinois
Lakeside Accessory Lady, Inc. Louisiana
Mainplace Accessory Lady, Inc. California
Mall Del Norte Accessory Lady, Inc. Texas
McAllen Accessory Lady, Inc. Texas
Penn Square Accessory Lady, Inc. Oklahoma
Pentagon City Accessory Lady, Inc. Virginia
Raceway Accessory Lady, Inc. New Jersey
Randhurst Accessory Lady, Inc. Illinois
Regency Square Accessory Lady, Inc. Florida
Ridgedale Accessory Lady, Inc. Minnesota
McLean Accessory Lady, Inc. Virginia
Menlo Park Accessory Lady, Inc. New Jersey
Montclair Accessory Lady, Inc. California
Montgomery Accessory Lady, Inc. Maryland
Northbrook Accessory Lady, Inc. Illinois
North County Fair Accessory Lady, Inc. California
Northridge Accessory Lady, Inc. California
Oakbrook Center Accessory Lady, Inc. Illinois
The Oaks Accessory Lady, Inc. California
Orlando Accessory Lady, Inc. Florida
Paradise Valley Accessory Lady, Inc. Arizona
Palm Beach Mall Accessory Lady, Inc. Florida
Paramus Park Accessory Lady, Inc. New Jersey
The Parks Accessory Lady, Inc. Texas
</TABLE>
3
<PAGE> 4
<TABLE>
<CAPTION>
State or Other
Name Jurisdiction of Incorporation
- ---- -----------------------------
<S> <C>
[VENATOR GROUP, INC. -- (CONT.)]
[VENATOR GROUP SPECIALTY, INC. -- (CONT.)]
[ROSEDALE ACCESSORY LADY, INC. -- (CONT.)]
Riverside Hackensack Accessory Lady, Inc. New Jersey
Roosevelt Field Accessory Lady, Inc. New York
Scottsdale Accessory Lady, Inc. Arizona
Southdale Accessory Lady, Inc. Minnesota
St. Louis Galleria Accessory Lady, Inc. Missouri
Stoneridge Accessory Lady, Inc. California
Stonestown Accessory Lady, Inc. California
Sunrise Boulevard (Fla.) Accessory Lady, Inc. Florida
Sunvalley Accessory Lady, Inc. California
Towson Accessory Lady, Inc. Maryland
Tri-County Accessory Lady, Inc. Ohio
Tysons Corner Accessory Lady, Inc. Virginia
Valley Fair Accessory Lady, Inc. California
Willowbrook Accessory Lady, Inc. New Jersey
Woodman Avenue Accessory Lady, Inc. California
Venator Group Retail, Inc. New York
Armel, Inc. Florida
Armel Acquisition, Inc. Florida
Champs of Crossgates, Inc. Florida
Champs of Holyoke, Inc. Florida
Champs Sporting Goods of
Esplanade, Inc. Florida
Champs Sporting Goods, Inc. Tennessee
Champs Sport Shops, Inc. of Maryville Florida
Champs Sport Shops, Inc. of Cutler Ridge Florida
Champs Sport Shops, Inc. of Broward Florida
Champs Sport Shops of Daytona, Inc. Florida
San Del of Jacksonville, Inc. Florida
Champs Sport Shops, Inc. of 163rd Street Florida
San Del, Inc. of Atlanta Florida
Champs Four Seasons, Inc. North Carolina
Joe Chichelo, Inc. Florida
Champs Sport Shops, Inc. Florida
Champs Sport Shops, Inc. of Aventura Florida
Champs Sporting Goods of N.C., Inc. North Carolina
Champs Sport Shops, Inc. of
Miami International Florida
Champs Sporting Goods, Inc. Louisiana
Champs Sport Shops, Inc. of Omni Florida
Champs Sport Shops, Inc. of Nashville Florida
Champs Sport Shops, Inc. of Houston Florida
Champs Sport Shops, Inc. of Fort Lauderdale Florida
Sneakers Inc. of Greensboro North Carolina
</TABLE>
4
<PAGE> 5
<TABLE>
<CAPTION>
State or Other
Name Jurisdiction of Incorporation
- ---- -----------------------------
<S> <C>
[VENATOR GROUP, INC. -- (CONT.)]
[VENATOR GROUP RETAIL, INC. -- (CONT.)]
[ARMEL, INC. -- (CONT.)]
[ARMEL ACQUISITION, INC. -- (CONT.)]
Sneakers Inc. of Knoxville Tennessee
Sneakers Inc. of Daytona Beach Florida
Champs of Maryland, Inc. Florida
Champs of Virginia, Inc. Florida
SneaKee Feet of Maryland, Inc. Florida
SneaKee Feet of Montgomery Village, Inc. Florida
SneaKee Feet of North Carolina, Inc. Florida
Runner-Up of Orlando, Inc. Florida
SneaKee Feet of Tampa, Inc. Florida
SneaKee Feet, Inc. Florida
Champs of Missouri, Inc. Missouri
Champs Sport Shops of Maryland, Inc. Maryland
Champs of Connecticut, Inc. Connecticut
Champs Sport Shops of Massachusetts, Inc. Massachusetts
Champs of Georgia, Inc. Georgia
Champs of New Jersey, Inc. New Jersey
Champs of Oklahoma, Inc. Oklahoma
Champs of Tennessee, Inc. Tennessee
SneaKee Feet of Washington Outlet Mall, Inc. Florida
Foot Locker Atlantic City LLC Delaware
Menlo Trading Company California
Athletic Shoe Factory, Inc. California
Janess Properties, Inc. Delaware
Venator Group Corporate Services, Inc. Delaware
Kinney Trading Corp. New York
Robby's Sporting Goods, Inc. Florida
SFMB Specialty Corporation California
Venator Group Realty Corporation New York
Venator Group Holdings, Inc. New York
Retail Company of Germany, Inc. Delaware
Venator Group Pacific Holdings, Inc. Delaware
Woolworth Holding S. de R.L. de C.V. Mexico
Foot Locker de Mexico, S.A. de C.V. Mexico
Distribuidora Foot Locker S.A. de C.V. Mexico
Venator Group Canada Inc. Canada
142739 Canada Limited Canada
Venator Group Sourcing, Inc. Delaware
</TABLE>
5
<PAGE> 1
EXHIBIT 23
VENATOR GROUP, INC.
CONSENT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders of
Venator Group, Inc.
We consent to the incorporation by reference in the Registration Statements
Numbers 33-10783, 33-91888, 33-91886, 33-97832, 333-07215, 333-21131, 333-62425
and 333-33120 on Form S-8 and Numbers 33-43334 and 33-86300 on Form S-3 of
Venator Group, Inc. and subsidiaries of our report dated March 8, 2000 relating
to the consolidated balance sheets of Venator Group, Inc. and subsidiaries as
of January 29, 2000 and January 30, 1999 and the related consolidated
statements of operations, comprehensive income (loss), shareholders' equity and
cash flows for each of the years in the three-year period ended January 29,
2000, which report appears in the January 29, 2000 Annual Report on Form 10-K
of Venator Group, Inc. and subsidiaries.
/s/ KPMG LLP
New York, New York
April 21, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Statements of Operations for the twelve months ended January 29,
2000 and the Consolidated Balance Sheet as of January 29, 2000 and is qualified
in its entirety by reference to such Financial Statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-29-2000
<PERIOD-START> JAN-31-1999
<PERIOD-END> JAN-29-2000
<CASH> 162
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 739
<CURRENT-ASSETS> 1,089
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,515
<CURRENT-LIABILITIES> 777
<BONDS> 312
0
0
<COMMON> 0
<OTHER-SE> 1,139
<TOTAL-LIABILITY-AND-EQUITY> 2,515
<SALES> 4,647
<TOTAL-REVENUES> 4,647
<CGS> 3,381
<TOTAL-COSTS> 3,381
<OTHER-EXPENSES> 182
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 57
<INCOME-PRETAX> 28
<INCOME-TAX> 11
<INCOME-CONTINUING> 17
<DISCONTINUED> 23
<EXTRAORDINARY> 0
<CHANGES> 8
<NET-INCOME> 48
<EPS-BASIC> .35<F1>
<EPS-DILUTED> .35
<FN>
<F1>The amount is reported as EPS Basic and not for EPS Primary.
</FN>
</TABLE>
