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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 December 28, 1996
Commission File Number 1-11681
FOOTSTAR, INC.
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(Exact name of registrant as specified in its charter)
Delaware 22-3439443
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(State of incorporation) (IRS Employer Identification No.)
933 MacArthur Boulevard, Mahwah, New Jersey 07430
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(Address of principal executive offices)
Registrant's telephone number, including area code: (201) 934-2000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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Common Stock (par value $.01 per share) New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Page 1 of 2 page Cover Page
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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 the definitive proxy statement incorporated
by reference in Part III of this Form 10-K, or any amendment to this Form 10-K.
[ ]
The aggregate market value of the common stock held by non-affiliates of the
Registrant as of March 17, 1997 was $939,999,100.*
Number of shares outstanding of the issuer's Common Stock (par value $.01 per
share) at March 17, 1997: 30,533,883
Documents Incorporated by Reference
1. Portions of the registrant's Annual Report to Shareholders for the fiscal
year ended December 28, 1996: Part I, Item 1; Part II, Items 5, 6, 7 and 8;
and Part IV, Item 14.
2. Portions of the registrant's definitive Proxy Statement expected to be
filed pursuant to Regulation 14A not later than 120 days after the end of
the fiscal year (December 28, 1996): Part III, Items 10, 11, 12 and 13.
Forward-Looking Statements
This Report on Form 10-K and the documents incorporated by reference
contain statements which constitute forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. These
statements appear in a number of places in this Report as well as the documents
incorporated by reference and can be identified by the use of forward-looking
terminology such as "believe," "expect," "estimate," "plans," "may," "will,"
"should" or "anticipates" or similar statements or the negative thereof or other
variations thereof. Such forward-looking statements include, without limitation,
statements made as to cost savings, the impact of the discontinuation of Thom
McAn, improvements in infrastructure, distribution and replenishment systems and
operating efficiencies, business strategy, sales and earnings growth, and
expansion plans and projections. Such forward-looking statements involve known
and unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements. Consequently, all of the forward-looking statements
made herein are qualified by these cautionary statements, and there can be no
assurance that the actual results, performance or achievement will be realized.
The information contained in this Report and the documents incorporated by
reference as well as information contained under the caption "Risk Factors" in
the Form 10/A filed by the Company on September 25, 1996 with the Securities and
Exchange Commission, identifies important factors that could cause such results,
performance or achievements not to be realized.
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* For purposes of this calculation, only voting stock beneficially owned by
directors and executive officers or members of their immediate families has
been excluded. In making such calculation, the registrant does not
determine the affiliate or non-affiliate status of any shares for any other
purpose.
Page 2 of 2-page Cover Page
PART I
ITEM 1. BUSINESS
GENERAL
Footstar, Inc. (the "Company") is a holding company, which directly or
indirectly, through its wholly owned subsidiaries, owns the capital stock of the
subsidiaries that operate its Footaction and Meldisco businesses and its
discontinued Thom McAn segment. The Company was organized in Delaware on March
21, 1996 and became a publicly traded company as part of the overall
restructuring of Melville Corporation ("Melville"). As part of that
restructuring plan, Melville divested its ownership interest in the Company by
means of a tax-free distribution to its stockholders on October 12, 1996 of
all of the outstanding shares of common stock of the Company.
The Company is principally a specialty retailer conducting business in the
branded athletic footwear and apparel and discount footwear segments through its
Footaction and Meldisco businesses, respectively. The financial information
concerning industry segments required by Item 101(b) of regulation S-K is set
forth on page 35 of the Company's Annual Report to Shareholders for the
year-ended December 28, 1996 and is incorporated herein by reference.
In general, the retailing business is seasonal in nature, with peak sales
periods during Easter, "Back-to-School" and the Christmas selling periods.
Competition is generally based upon such factors as price, style, quality and
design of product and location and design of stores.
FOOTACTION: THE BRANDED ATHLETIC FOOTWEAR AND APPAREL BUSINESS
Footaction, which opened its first store in 1976, is a leading mall-based
specialty retailer of branded athletic footwear, apparel and related
accessories. Its primary customers are 12 to 24 year olds for whom having the
most up-to-date athletic footwear and apparel is an important consideration. As
of December 28, 1996, Footaction operated 479 stores in 43 states and Puerto
Rico. During 1996, the Company opened 51 new Footaction stores, including 24
stores converted from the discontinued Thom McAn business, and remodeled,
relocated or expanded 45 existing Footaction stores.
Footaction's stores are located predominantly in enclosed regional and
neighborhood malls anchored by major department stores to take advantage of
customer traffic and the shopping preferences of Footaction's target customers.
Footaction has been growing rapidly in recent years with 1996 sales increasing
22% to $516 million and operating profit before special charges increasing 171%
to $50 million. For the fiscal year ended December 28, 1996, Footaction
accounted for approximately 31% of the Company's net sales and approximately 34%
of the Company's operating profit.
The ability of Footaction to maintain a high level of sales is dependent in
part on a high volume of mall traffic and the continued popularity of mall
shopping among Footaction's primary customers. Its future growth is also
dependent on its ability to open new stores in desirable mall locations.
Unfavorable developments with respect to any of these factors could have a
material adverse effect on the Company.
Footaction--Merchandising
Footaction seeks to be one of the first to offer the most current and
innovative brand-name athletic footwear and apparel available to its target
customer group. Footaction constantly monitors product trends in order to
identify styles which are, or may become, popular. Footaction carries the
leading athletic footwear brands, including Nike, Reebok, Fila, Adidas,
Converse, New Balance, and Asics, as well as outdoor brands such as Timberland.
Footaction offers a selection of brand-name apparel and accessories including
warm-up suits, T-shirts, athletic shorts, caps, socks and shoe care products.
Apparel and accessory brands include Nike, Fila, Adidas and Reebok, among
others. The following table sets forth the approximate percentage of
Footaction's net sales attributable to footwear, apparel and accessories:
Approximate Percentage of Footaction's Net Sales
1996 1995 1994
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Footwear 77% 77% 80%
Apparel 17% 16% 14%
Accessories 6% 7% 6%
---- ---- ----
100% 100% 100%
==== ==== ====
Footaction also seeks to differentiate itself from other branded athletic
footwear and apparel retailers by increasing consumer awareness and name
recognition of Footaction and establishing in the minds of its target customer
group the perception that Footaction is one of the first to offer the latest
styles. As part of this strategy, Footaction works with leading vendors such as
Nike, Fila, Adidas and Reebok to design and develop product line exclusives
based on unique designs or variations in color of the latest styles of popular
brand-name footwear.
Footaction tailors merchandise assortment and store space allocation to
customer preferences at each store location. This is accomplished by recognizing
subtle differences in fashion preferences and demographic factors in the region
or market in which each store is located. This store-by-store merchandising
involves differences in brands, sizes, colors, fabrication and timing or the
assortment and space allocated to present such merchandise. Footaction maintains
information systems designed to manage aged inventory, assuring that its product
lines remain current.
Footaction--Marketing
Footaction believes that its core customers--teens and young adults, age 12
to 24--constitute 47% of total branded athletic footwear sales. And, that within
the target age group, male and female teens (age 12-17) are over-represented
among Footaction customers, accounting for 33% of Footaction shoppers and 41% of
sales.
Footaction's marketing strategy is to build traffic, sales, and brand
awareness with its primary customers by increasing awareness of Footaction among
individuals in the target customer group and by increasing the perception among
these individuals that Footaction is one of the first to have the latest styles.
Footaction's media advertisements typically feature both Footaction and a
branded product, and may include celebrity endorsements. The Company believes
endorsements of athletic wear by professional athletes, celebrities and other
trend setters influence purchasing patterns and preferences among Footaction's
image and status-conscious target customers. A portion of the cost of such
advertising is offset by co-operative advertising allowances. Footaction focuses
its mass media advertising during key selling periods on males in the 12 to 24
year old age group.
In-store visual merchandising programs are also an important part of
Footaction's marketing effort. Footaction believes these initiatives create
excitement at the store level and support the marketplace message that
Footaction carries the latest products. Footaction has developed a "Coming Soon"
display to announce upcoming product launches, enhancing its presentation of new
product with a "New Arrivals" tower for the latest lines, and uses "exclusive
tags" to highlight products only available at Footaction.
Footaction has created a preferred customer card, called the Star Card,
which is designed to build a marketing database that enables the chain to
communicate directly with customers and gain more information about their buying
habits. Star Card members receive customized birthday greetings, selected vendor
mailings and "magalogs." The "magalog," a magazine/catalog combination called
the "Footaction Star," is mailed to Star Card holders four times a year. It is
an entertaining and informative marketing tool featuring the latest in athletic
footwear and apparel along with product availability dates. It also includes
interviews with popular athletes who appear in current Footaction advertising
campaigns, vendor profiles and other teen-relevant sports features.
Footaction--Competitive Environment
Historically, the athletic footwear industry has been served by a variety
of distribution channels, including mall-based specialty athletic footwear
retailers, department stores, discount retailers, traditional shoe stores,
sporting goods stores, and "category killers" (i.e. retailers providing a
dominant assortment of selected lines of merchandise at competitive prices).
Footaction competes in the brand-name segment of the athletic footwear market,
and faces competition primarily from other mall-based athletic footwear and
sporting goods stores.
Within the mall environment, Footaction's primary competitors are Woolworth
Athletic, Athletes Foot and The Finish Line. Woolworth Athletic is the largest
athletic footwear retailer, offering multiple formats designed to compete in
this market segment including Foot Locker, Lady Foot Locker, Kids Foot Locker,
Champs, Athletic Express and Going To The Game. The Finish Line competes on the
basis of price, while Footaction, Woolworth Athletic and Athletes Foot are
full-price retailers. Footaction believes that it differentiates itself from its
competitors by offering the latest styles demanded by fashion-conscious,
status-oriented consumers in an exciting shopping environment. However, there
can be no assurances that in the future these or other competitors will not have
a material adverse effect on the Company.
MELDISCO: THE DISCOUNT FOOTWEAR BUSINESS
Meldisco has operated leased footwear departments in discount chains since
1961 and is the leading operator of leased footwear departments today. As of
December 28, 1996, Meldisco operated leased footwear departments in 2,146 Kmart
department stores, 392 PayLess Drug Stores and Thrifty Drug Stores
(collectively, "PayLess Thrifty Drug Stores"), and 13 Tesco department stores
located in the Czech Republic, Slovakia and Hungary. In its Kmart leased
footwear departments, Meldisco sells a wide variety of family footwear,
including men's, women's and children's dress, casual and athletic footwear,
work shoes and slippers. The majority of the shoes offered by Meldisco in its
leased footwear departments are private label brands, although Meldisco also
sells some brand-name merchandise at discounted prices.
For the fiscal year ended December 28, 1996, Meldisco's net sales from
Kmart's operations accounted for approximately 67% of the Company's net sales
and 96% of Meldisco's net sales.
Pursuant to an agreement between the Company and Kmart Corporation
("Kmart") entered into effective July 1, 1995, and amended as of March 1996
(collectively, the "Kmart Agreement"), and an agreement between the Company and
PayLess Drug Stores Northwest, Inc. dated October 10, 1988, the Company has the
exclusive right to operate the footwear departments in Kmart and PayLess Thrifty
Drug Stores. All license agreements relating to the Kmart leased departments
expire July 1, 2012 and all agreements relating to PayLess Thrifty Drug Stores
have terms of 25 years. All of these agreements are subject to certain
performance standards. Rental payments under all such license agreements are
based on a percentage of sales, with additional payments to be made under
certain of the license agreements with Kmart based on profits. The Company has a
51% equity interest, and Kmart has a 49% equity interest, in all the
subsidiaries which operate leased departments in Kmart stores, with the
exception of 41 such subsidiaries in which the Company has a 100% equity
interest. The Company has a 100% equity interest in all the subsidiaries which
operate leased departments in PayLess Thrifty Drug Stores.
The business relationship between Meldisco and Kmart is very significant to
the Company, and the loss of Meldisco's Kmart operations would have a material
adverse effect on the Company. The Kmart Agreement or any license agreement for
a particular Kmart store, may only be terminated: (i) by Kmart with respect to
any Kmart store with a footwear department which is to cease to operate and be
open for business to the public; (ii) by Kmart or Meldisco with respect to any
affected Kmart store, in the event that any footwear department premises become
unfit for use and occupancy by reason of material damage or destruction, or as a
result of condemnation; (iii) by Kmart or Meldisco if the other party shall fail
to make any material payments when due or to deliver any material accounting
reports as required by the Kmart Agreement, or in the event of a material breach
of any covenant, representation or warranty of the other party, subject to the
right of the party so charged to cure the breach or failure within a specified
period; (iv) by either party if Kmart or Meldisco shall fail to pay its debts
when due or becomes subject to certain insolvency, bankruptcy or similar events;
(v) at the option of the non-selling or non-transferring party, in the event of
a sale or transfer of a majority of the outstanding shares of the other party to
a single person or entity or an affiliated group under common control; or (vi)
in the event that the Meldisco Subsidiaries fail to achieve the performance
standards outlined in the Kmart Agreement.
Meldisco--Merchandising
Meldisco's merchandising strategy focuses on solidifying and building upon
its current industry position while attracting Kmart shoppers who do not
currently purchase their footwear at Kmart. The essence of this two-pronged
strategy is to satisfy Meldisco's core customer with high in-stock availability
rates of its footwear products while generating interest among Kmart's
non-footwear shoppers by providing a wider selection of well known national
brands.
Meldisco's traditional strength has been in seasonal, work, value-priced
athletic, and children's shoes. Meldisco works to solidify its strength in these
segments by ensuring high levels of customer service and satisfaction.
Meldisco's "narrow and deep" merchandising strategy and its planned systems
innovations are designed to ensure that each store is well stocked in product
lines that are particularly popular with Meldisco's core customers. Meldisco's
demand-driven merchandise replenishment system has been designed to permit
inventory management at the store, stock unit and size level.
Meldisco also seeks to attract more affluent Kmart non-footwear shoppers
into the footwear department from other areas of the store. To this end,
Meldisco increasingly offers selected high-quality footwear licensed by well
known national brands at prices significantly lower than comparable merchandise
sold by full price retailers. These branded products are also intended to change
customer perceptions of "sameness" among discount footwear retailers. Licensed
brands available only at Meldisco include "Weather Protectors by Totes,"
"Baywatch," and "Cobbie Cuddlers," a brand name licensed from and styled by Nine
West. Meldisco is currently conducting consumer research to assess the fit of
additional brands in terms of price, positioning, and discount category
suitability.
Meldisco is taking steps to increase customer perception of assortment
availability without increasing store inventories. Meldisco believes that
customer satisfaction and perception of assortment availability should improve
as Meldisco develops and implements systems enabling it to offer the optimal
product mix at the individual store level.
Meldisco--Marketing
Meldisco believes that Kmart's typical footwear shopper generally parallels
the average Kmart softlines shopper who is a "busy, budget-conscious mom" in the
25 to 49 age group, employed at least part-time, has at least one child under
the age of 18 and reports a total annual household income between $25,000 and
$65,000. Kmart's apparel and footwear shoppers do, however, tend to be less
affluent than Kmart's overall customer base. Meldisco's marketing initiatives
are designed to support its overall business strategy of increasing purchases
among traditional Kmart footwear shoppers while attracting more affluent current
Kmart non-footwear shoppers into the footwear department from hardlines and
other areas of the store.
Meldisco's marketing strategy is designed to convey to prospective Kmart
customers that Meldisco carries the right combination of product selection,
quality, and price to position Meldisco-operated Kmart leased footwear
departments as their discount footwear destination of choice.
This message is communicated through weekly advertising in Kmart's
newspaper insert. Meldisco currently pays Kmart a sales promotional fee that
Kmart applies toward its footwear advertisements in the Kmart weekly newspaper
insert, a publication with a circulation of approximately 70 million. Meldisco
advertises primarily through the Kmart newspaper insert but continuously
evaluates other alternatives for promotion of its products. Meldisco's marketing
strategy is supported by the announced Kmart high-frequency remodelling program
which relocates the footwear department to an improved position near the center
of the softlines area of the store.
Meldisco--Competitive Environment
The discount footwear industry is characterized by consolidation and a
highly competitive environment. Competition within the discount segment is
heavily concentrated among four retailers. Payless ShoeSource, Inc. ("Payless")
(which is not affiliated with PayLess Thrifty Drug Stores), and two discount
department stores, Wal-Mart and Dayton Hudson's Target are Meldisco's primary
retail footwear competitors. These competitors have been growing more rapidly
and have substantially greater resources than the Company. The Company believes
that it has been able to maintain its overall unit market share during this
period of rapid growth by its primary competitors due to the relative strength
of Meldisco's business. There can be no assurance, however, that in the future
the operations of competitors will not have a material effect on the Company.
J. Baker,Inc.'s Morse Shoe division ("Morse") is Meldisco's primary
competitor among operators of leased footwear departments. Morse, through its
subsidiaries, operates leased self-selection footwear departments in discount
and promotional department store chains located throughout the U. S., including
footwear departments at Hills, Bradlees, Ames and ShopKo stores. Morse
constitutes a competitor insofar as Meldisco is seeking to expand its leased
footwear department operations. Neither Morse nor any other operator, however,
is a competitor with respect to Kmart since the Meldisco agreement with Kmart
provides for Meldisco's continued operation of Kmart's footwear departments
through 2012, unless terminated earlier in the case of breach or certain other
limited circumstances.
Fashion Trends
The success of the Company depends in part on its ability to anticipate and
respond to changing fashion and merchandise trends and consumer demands in a
timely manner. Accordingly, any failure by the business segments to identify and
respond to emerging trends could adversely affect consumer acceptance of the
merchandise which in turn could adversely affect the Company's business.
Key Vendors
Footaction's product sourcing is driven by its relationships with athletic
footwear and apparel vendors. In 1996, approximately 85% of Footaction's net
sales were generated by merchandise purchased from Nike, Fila, Reebok and Adidas
with the most significant percent attributable to Nike. The loss of the
Company's relationship with certain key vendors could have a materially adverse
impact on the Company.
Foreign Purchasing
The Company's sourcing and purchasing of product is conducted by the
merchandising department of each of its segments. A significant percentage of
the Company's products are sourced or manufactured offshore, with China,
Indonesia and Brazil being the most significant offshore sources. There are
risks inherent in foreign sourcing and manufacturing and although the Company
has not historically experienced any material adverse effects from these risks,
there can be no assurances that they will not have a material adverse effect in
the future.
Trademarks and Service Marks
The Company or its subsidiaries own all rights to "Footaction" for use as a
trademark or service mark in connection with footwear and related products and
services. The Company or its subsidiaries have registered or have common law
rights to over 100 trademarks and/or service marks under which the Company
markets private label merchandise or its services. The Company either has
registered or is in the process of registering its trademarks and service marks
in foreign countries in which it may operate in the future. As necessary, the
Company vigorously protects its trademarks and service marks both domestically
and internationally.
Employees
As of December 28, 1996, the Company had approximately 12,600 employees
including approximately 8,200 at Meldisco and 4,400 at Footaction. Of
Meldisco's, approximately 3,600 were employed full-time, and 4,600 were
part-time employees. As of December 28, 1996, Footaction had approximately 1,600
full-time and 2,800 part-time employees.
Discontinuation of Thom McAn Segment
Thom McAn, which had been part of Melville since 1922, was primarily a
mall-based, specialty retailer, marketing moderately-priced men's and women's
private label footwear and accessories. As a result of extreme competitive
pressures in the moderately-priced footwear retail market, Melville decided to
exit the Thom McAn business by converting 80 to 100 Thom McAn stores to
Footaction stores, and selling or closing the remaining locations. As of
December 28, 1996, Thom McAn operated 17 stores, located primarily in Puerto
Rico all of which are now closed.
ITEM 2. PROPERTIES
Footaction has a nationwide presence. As of December 28, 1996, it operated
479 stores in 43 states and Puerto Rico. Footaction's prototype store design is
a 4,000 to 6,500 square foot large store format, which the Company believes
operates more profitably while satisfying the needs of its customers more
effectively then its 2,500 square foot traditional store format. At December
28, 1996, 148 of the Company's 479 Footaction stores were of the large store
format and 331 were of the traditional store format. Footaction stores are all
leased and typically for 10 year terms. These leases call for minimum annual
rent subject to periodic adjustments, plus other charges, including a
proportionate share of taxes, insurance and common area maintenance, and
percentage rent based on the store's sales volume.
At December 28, 1996, Meldisco operated leased footwear departments in
2,551 stores. Collectively, these leased departments are located in all 50
states, Guam, Puerto Rico, the U.S. Virgin Islands, the Czech Republic,
Slovakia, Hungary and Mexico. All but 405 of the leased departments operated at
December 28, 1996 were located in Kmart discount department stores. Of these 405
stores, 392 leased departments were located in PayLess Thrifty Drug Stores and
13 in Tesco department stores.
Kmart and PayLess Thrifty Drug stores provide Meldisco with store space to
sell footwear in exchange for certain payments. Meldisco-operated footwear
departments in traditional Kmart stores average 2,900 square feet and 3,600
square feet in Super Kmart Centers. Meldisco's footwear departments in PayLess
Thrifty Drug Stores generally occupy approximately 100 feet of selling space.
Company headquarters and Meldisco's corporate offices are located in
190,000 square feet of leased office space in Mahwah, New Jersey. Footaction's
corporate offices are located in 50,000 square feet of leased office space in
Irving, Texas. Meldisco operates out of its two new distribution facilities with
a total of 906,500 square feet. Footaction leases distribution facilities in
Dallas, Texas with a total of 180,000 square feet.
ITEM 3. LEGAL PROCEEDINGS
The Company is from time to time involved in routine litigation incidental
to the conduct of its business, none of which, the Company believes, will have a
material adverse effect on its financial position 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, through
solicitation of proxies or otherwise, during the fourth quarter of the fiscal
year ended December 28, 1996.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following information sets forth the name, age and business experienace
during the past five years of the executive officers of the registrant. For each
officer named below, the term of office extends to the date of the Board of
Directors Meeting following the next Annual Meeting of Stockholders of the
registrant.
J.M. Robinson, age 51, is and has been the Chairman, Chief Executive
Officer and President of the Company since October 12, 1996. Mr. Robinson was
President and Chief Executive Officer of the Meldisco division of Melville since
June 1988.
Carlos E. Alberini, age 41, is and has been the Senior Vice President,
Chief Financial Officer of the Company since October 12, 1996. From February,
1996 to July 10, 1996, Mr. Alberini was the Acting Chief Financial Officer of
Melville, having joined Melville in May 1995 as Vice President of Finance. Prior
to that time, Mr. Alberini served as the Chief Financial Officer and Senior Vice
President (1990-1995) of The Bon Ton Stores Inc., a chain of 64 department
stores.
Maureen Richards, age 40, is and has been the Vice President, General
Counsel and Corporate Secretary of the Company since October 12, 1996. From
October 1995, Ms. Richards had been Vice President, Corporate Counsel and
Assistant Secretary of Melville and its Corporate and Trademark Counsel and
Assistant Secretary from October 1991 to October 1995.
Donald V. Roach, age 39, is and has been the Vice President and Corporate
Controller of the Company since October 12, 1996. Prior to that time, Mr. Roach
served as Senior Vice President, Chief Financial Officer (1994-1996) and Vice
President, Chief Financial Officer (1991-1994) of Footaction USA.
PART II
ITEM 5. MARKET PRICES OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
The information required by this item is included in the registrant's
Annual Report to Shareholders for the year ended December 28, 1996 on pages 18,
21 and 36 and is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this item is included in the registrant's
Annual Report to Shareholders for the fiscal year ended December 28, 1996 on
page 37 and is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information required by this item is included in the registrant's
Annual Report to Shareholders for the fiscal year ended December 28, 1996 on
pages 18 through 21 and is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is included in the registrant's
Annual Report to Shareholders for the fiscal year ended December 28,1996 on
pages 23 through 37 and is incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding the executive officers is furnished under the heading
"EXECUTIVE OFFICERS OF THE REGISTRANT" in Part I of this report since such
information will not be furnished in the registrant's definitive proxy statement
other than for Mr. Robinson.
Any other information required by this Part III (Items 10, 11, 12 and 13)
will be included in the registrant's definitive proxy statement to be filed with
the Commission pursuant to Regulation 14A and is incorporated herein by
reference. The Compensation Committee report on executive compensation and the
performance graph included in such proxy statement shall not be deemed
incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(l) Financial Statements
The following financial statements and reports are incorporated by reference to
pages 22 through 37 of the Company's Annual Report to Shareholders for the
fiscal year ended December 28, 1996.
Independent Auditors' Report
Consolidated Statements of Operations for the years ended
December 28, 1996, December 31, 1995 and December 31, 1994
Consolidated Balance Sheets as of December 28, 1996 and
December 31, 1995
Consolidated Statements of Shareholders'
Equity for the years ended December 28, 1996,
December 31, 1995 and December 31, 1994
Consolidated Statements of Cash Flows for the years
ended December 28, 1996, December 31, 1995 and
December 31, 1994
Notes to Consolidated Financial Statements
Five-Year Historical Financial Summary
(a)(2) Schedules
The following schedules are included in Part IV of this Report: Page
----
Independent Auditors' Report on Schedule F-1
Schedule II - Valuation and Qualifying Accounts for the years
ended December 28, 1996, December 31, 1995 and December 31, 1994 F-2
Schedules not included above have been omitted because they are not applicable
or the required information is shown in the consolidated financial statements or
related notes.
(a)(3) Exhibits
The exhibits to this Report are listed in the Exhibit Index included elsewhere
herein.
(b) Reports on Form 8-K
On December 13, 1996, the Company filed a report on Form 8-K dated December 5,
1996 reporting Item 8 "Change in Fiscal Year." The event reported was the Board
of Directors' approval to change to a fiscal year ending on the Saturday closest
to December 31 from a calendar year.
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.
FOOTSTAR, INC.
By /s/ J. M. Robinson
-----------------------------
J. M. Robinson, Chairman,
Chief Executive Officer,
President and Director
Pursuant to the requirements of the Securities Act of 1934, this
registration statement has been signed by the following persons in the
capacities and on the date indicated.
Signature Title Date
--------- ----- ----
/s/ J. M. Robinson Chairman, Chief Executive
- --------------------------- Officer, President and March 26, 1997
J. M. Robinson Director
/s/ Carlos E. Alberini
- --------------------------- Senior Vice President and March 26, 1997
Carlos E. Alberini Chief Financial Officer
/s/ Donald V. Roach
- --------------------------- Vice President and March 26, 1997
Donald V. Roach Corporate Controller
/s/ George S. Day
- --------------------------- Director March 26, 1997
George S. Day
/s/ Stanley P. Goldstein
- --------------------------- Director March 26, 1997
Stanley P. Goldstein
/s/ Terry R. Lautenback
- --------------------------- Director March 26, 1997
Terry R. Lautenbach
/s/ Bettye Martin Musham
- --------------------------- Director March 26, 1997
Bettye Martin Musham
- --------------------------- Director March , 1997
Kenneth S. Olshan
/s/ M. Cabell Woodward, Jr.
- --------------------------- Director March 25, 1997
M. Cabell Woodward, Jr.
Independent Auditor's Report on Schedule
To the Board of Directors and Shareholders of Footstar, Inc.:
Under the date of February 12, 1996, we reported on the consolidated balance
sheets of Footstar, Inc. and Subsidiary Companies as of December 28, 1996 and
December 31, 1995, and the related consolidated statements of operations,
shareholders' equity and cash flows for each of the years in the three-year
period ended December 28, 1996, as contained in the 1996 Annual Report to
Shareholders. These consolidated financial statements and our report thereon are
incorporated by reference in the Annual Report on Form 10-K for the year ended
December 28, 1996. In connection with our audits of the aforementioned
consolidated financial statements, we also have audited the related financial
statement schedule listed in answer to Part IV, Item 14(a)(2) of Form 10-K. This
financial statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion on this financial statement schedule
based on our audits.
In our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
/s/KPMG Peat Marwick LLP
New York, New York
February 12, 1997
F-1
Schedule II
FOOTSTAR, INC. AND SUBSIDIARY COMPANIES
Valuation and Qualifying Accounts
Years ended December 28, 1996, December 31, 1995
and 1994
($ in Millions)
Additions
Balance at Charged to
Description Beginning Costs and Balance at
----------- of Year Expenses Deductions(1) End of Year
------- -------- ------------ ------------
Accounts Receivable:
Allowance for Doubtful Accounts:
Year Ended December 28, 1996 .......... $1.0 $(0.3) $0.3 $0.4
==== ===== ==== ====
Year Ended December 31, 1995 .......... $0.6 $ 0.5 $0.1 $1.0
==== ===== ==== ====
Year Ended December 31, 1994 .......... $0.4 $ 0.3 $0.1 $0.6
==== ===== ==== ====
(1) Write-offs, net of recoveries
F-2
Exhibit Index
Exhibit
Number DESCRIPTION
------ -----------
2.1 Form of Distribution Agreement among Melville Corporation
("Melville"), Footaction Center, Inc., and the Registrant.
Incorporated by reference to Exhibit 2.1 to Footstar,
Inc.'s Form 10/A Information Statement dated September 26,
1996.
3.1 Amended and Restated Articles of Incorporation of the
Registrant. Incorporated by reference to Exhibit 3.1 to
Footstar, Inc.'s Form 10/A Information Statement dated
September 26, 1996.
3.2 Amended and Restated Bylaws of the Registrant.
Incorporated by reference to Exhibit 3.2 to Footstar,
Inc.'s Form 10/A Information Statement dated September 26,
1996.
10.1 Master Agreement, dated as of June 9, 1995, between Kmart
Corporation and the Registrant, as amended. Incorporated
by reference to Exhibit 10.1 to Footstar, Inc.'s Form 10/A
Information Statement dated September 26, 1996. Certain
portions of this Exhibit have been accorded confidential
treatment.
10.2 Tax Disaffiliation Agreement between Melville and the
Registrant. Incorporated by reference to Exhibit 10.2 to
Footstar, Inc.'s Form 10/A Information Statement dated
September 26, 1996.
10.3 1996 Incentive Compensation Plan of Registrant.
Incorporated by reference to Exhibit 10.3 to Footstar,
Inc.'s Form 10/A Information Statement dated September 26,
1996.
10.4 1996 Non-Employee Director Stock Plan of Registrant.
Incorporated by reference to Exhibit 10.4 to Footstar,
Inc.'s Form 10/A Information Statement dated September 26,
1996.
10.5 Employment Agreements with Executive Officers.
10.6 Credit Agreement, dated as of August 13, 1996, among the
Banks listed therein, the Bank of New York, as Issuing
Bank, Morgan Guaranty Trust Company of New York, as
Administrative Agent and Swingline Lender, and the
Registrant. Incorporated by reference to Exhibit 10.6 to
Footstar, Inc.'s Form 10/A Information Statement dated
September 26, 1996.
10.7 Change in Control Agreement with Executive Officer.
10.8 Footstar Deferred Compensation Plan.
10.9 Supplemental Retirement Plan for Select Senior Management.
13.1 Portions of Annual Report to Shareholders for the fiscal
year ended December 28, 1996.
21.1 A list of subsidiaries of the Registrant.
23.1 Consent of KPMG Peat Marwick LLP
27.1 Financial Data Schedule for the fiscal year ended December
28, 1996.