e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended July 4, 2009
or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the transition period from to
Commission File Number: 1-11681
FOOTSTAR, INC.
(Exact name of registrant as specified in its charter)
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Delaware
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22-3439443 |
(State or other jurisdiction
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(IRS Employer Identification No.) |
of incorporation for organization) |
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933 MacArthur Blvd., Mahwah, New Jersey 07430
(Address of principal executive offices including zip code)
(201) 934-2000
(Registrants telephone number, including area code)
None
(Former name, former address and former fiscal year, if changed since last report)
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 þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). Yes o
No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
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Large accelerated filer o
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Accelerated filer þ
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Non-accelerated filer o
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Smaller reporting company o |
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(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes o No þ
Indicate by check mark whether the registrant has filed all documents and reports required to be
filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a court. (The registrant did not distribute
new securities under the plan confirmed by the court; there was no change to the holders of
securities as a result of the registrants reorganization.) Yes þ No o
Number of shares outstanding of common stock, par value $.01 per share, as of August 10, 2009:
21,575,404
FOOTSTAR, INC. and SUBSIDIARY COMPANIES
FOOTSTAR, INC.
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
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15 |
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23 |
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23 |
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24 |
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24 |
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27 |
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27 |
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27 |
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31.1 Certification of Chief Executive Officer of the Company, pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002. |
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31.2 Certification of Chief Financial Officer of the Company, pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002. |
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32.1 Certification of Chief Executive Officer and Chief Financial Officer of the Company
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002. |
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EX-31.1 |
EX-31.2 |
EX-32.1 |
2
PART 1. FINANCIAL INFORMATION
ITEM 1. Financial Statements.
FOOTSTAR, INC. and SUBSIDIARY COMPANIES
Consolidated Condensed Statements of Operations For the period of January 4, 2009 through May 5, 2009 (unaudited) and
Consolidated Condensed Statements of Operations For the period of April 5, 2009 through May 5, 2009 (unaudited) and Three Months Ended June 28, 2008
(unaudited) and Six Months Ended June 28, 2008 (unaudited) (Going Concern Basis)
(in millions, except per share amounts)
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For the period |
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For the period |
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April 5, 2009 to |
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January 4, |
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Three Months Ended |
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Six Months Ended |
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May 5, 2009 |
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2009 to May 5, 2009 |
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June 28, 2008 |
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June 28, 2008 |
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Revenue |
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Net Sales |
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$ |
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$ |
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$ |
153.2 |
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$ |
271.1 |
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Liquidation of inventory |
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2.5 |
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Total revenue |
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2.5 |
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153.2 |
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271.1 |
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Cost of revenue |
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104.9 |
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188.5 |
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Gross Profit |
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2.5 |
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48.3 |
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82.6 |
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Store operating,
selling, general and
administrative expenses |
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1.7 |
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6.5 |
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38.5 |
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73.7 |
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Depreciation and
amortization |
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1.0 |
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2.8 |
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Gain on cancellation of
retiree benefit plan |
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(22.3 |
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(22.3 |
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Other expense |
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(0.2 |
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(0.3 |
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Interest Expense |
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0.4 |
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0.6 |
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Interest Income |
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(0.2 |
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(0.5 |
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Income (loss) before
income taxes and
discontinued operations |
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(1.5 |
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(3.7 |
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30.9 |
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28.3 |
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Income tax provision |
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0.5 |
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0.7 |
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Income (loss)from
continuing operations |
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(1.5 |
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(3.7 |
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30.4 |
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27.6 |
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Income from
discontinued
operations, net of
taxes |
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(1.3 |
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Net income (loss) |
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$ |
(1.5 |
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$ |
(3.7 |
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$ |
30.4 |
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$ |
28.9 |
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Net income (loss) per
share: |
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Basic : |
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Income (loss) from
continuing operations |
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$ |
(0.07 |
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$ |
(0.17 |
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$ |
1.46 |
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$ |
1.33 |
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Income (loss) from
discontinued
operations |
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0.06 |
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Net income (loss): |
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$ |
(0.07 |
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$ |
(0.17 |
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$ |
1.46 |
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$ |
1.39 |
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Diluted: |
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Income (loss) from
continuing operations |
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(0.07 |
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(0.17 |
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$ |
1.44 |
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$ |
1.31 |
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Income (loss) from
discontinued operations |
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0.06 |
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Net income (loss) |
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$ |
(0.07 |
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$ |
(0.17 |
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$ |
1.44 |
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$ |
1.37 |
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Average common shares
outstanding |
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Basic : |
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21.4 |
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21.3 |
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20.8 |
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20.8 |
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Diluted: |
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21.4 |
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21.3 |
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21.2 |
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21.1 |
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See accompanying notes to unaudited condensed financial statements.
3
FOOTSTAR, INC. and SUBSIDIARY COMPANIES
Consolidated
Condensed Statement of Net Assets July 4, 2009 (Liquidation Basis
unaudited) and Consolidated Condensed Balance Sheet (Going Concern
Basis audited)
January 3, 2009
($ in millions)
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July 4, 2009 |
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(Unaudited) |
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January 3, 2009 |
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Current assets: |
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Cash and cash equivalents |
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$ |
27.2 |
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56.6 |
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Receivables and other |
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56.8 |
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Prepaid expenses |
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5.8 |
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8.3 |
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Real Estate |
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6.2 |
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6.2 |
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Total current assets |
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39.2 |
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127.9 |
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Other assets |
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0.2 |
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1.0 |
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Total assets |
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$ |
39.4 |
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$ |
128.9 |
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Current liabilities: |
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Accounts Payable |
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0.1 |
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0.2 |
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Accrued Expenses |
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7.4 |
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19.2 |
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Income Tax Payable |
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0.4 |
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1.3 |
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Liability held for sale |
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2.0 |
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Liabilities of discontinued operations |
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0.5 |
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Total current liabilities |
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7.9 |
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23.2 |
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Other long term liabilities |
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7.2 |
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1.2 |
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Total liabilities |
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15.1 |
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24.4 |
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Shareholders equity |
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104.5 |
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Total liabilities and shareholders equity |
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$ |
128.9 |
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Net Assets in Liquidation |
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$ |
24.3 |
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See accompanying notes to unaudited condensed financial statements.
4
FOOTSTAR, INC. and SUBSIDIARY COMPANIES
Consolidated Condensed Statement of Changes in Net Assets in Liquidation For the period May 6, 2009 through July 4, 2009
(Liquidation Basis unaudited)
($ in millions)
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For the period |
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May 5, 2009 to |
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July 4, 2009 |
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Shareholders Equity at May 5, 2009 |
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$ |
80.0 |
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Liquidation basis adjustments: |
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Adjust assets and liabilities to fair value |
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(1.2 |
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Accrued cost of liquidation |
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(10.0 |
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Net Assets in Liquidation May 5, 2009 |
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68.8 |
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Cash distribution to shareholders |
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(43.2 |
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Costs incurred from May 6, 2009 to July 4, 2009 |
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(1.3 |
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Net Assets in Liquidation July 4, 2009 |
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$ |
24.3 |
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See accompanying notes to unaudited condensed financial statements.
5
FOOTSTAR, INC. and SUBSIDIARY COMPANIES
Consolidated Condensed Statements of Cash Flows Period Ended May 5, 2009 (unaudited) and Six Months Ended June 28,
2008 (unaudited)
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For the period |
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January 4, 2009 |
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Six Months |
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to |
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Ended |
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May 5, 2009 |
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June 28, 2008 |
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Net cash (used in) provided by operating activities |
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$ |
43.9 |
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$ |
(16.1 |
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Cash flows provided by investing activities |
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Proceeds from sale of intellectual property |
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13.0 |
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Net cash provided by (used) in investing activities |
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13.0 |
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Cash flows used in financing activities |
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Special cash distribution paid |
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(21.6 |
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(21.3 |
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Payments on Mortgage Note |
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(0.7 |
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(0.6 |
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Net cash use in financing activities |
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(22.3 |
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(21.9 |
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Cash flows from discontinued operations: |
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Activities |
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Net increase (decrease) in cash -
discontinued operations |
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0.6 |
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Net increase (decrease) in cash and cash equivalents |
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21.6 |
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(24.4 |
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Cash and cash equivalents, beginning of period |
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56.6 |
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53.8 |
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Cash and cash equivalents, end of period |
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$ |
78.2 |
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$ |
29.4 |
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See accompanying notes to unaudited condensed financial statements.
6
FOOTSTAR, INC. and SUBSIDIARY COMPANIES
1. Nature of Company
Background
Footstar, Inc. (Footstar, the Company, we, us, or our) is a holding company that
operated its businesses through its subsidiaries which principally operated as a retailer
selling family footwear through licensed footwear departments in Kmart Corporation (Kmart)
stores. These operations comprised substantially all of our sales and profits.
Commencing March 2, 2004, Footstar and most of its subsidiaries filed voluntary petitions for
reorganization under Chapter 11 of Title 11 of the United States Code (Bankruptcy Code or
Chapter 11) in the United States Bankruptcy Court (Court).
On February 7, 2006, we successfully emerged from bankruptcy and paid substantially all our
creditors in full with interest.
Dissolution and Liquidation of the Companys Business
As part of its emergence from bankruptcy in February 2006, substantially all of the Companys
business operations consisted of running licensed footwear departments in Kmart stores pursuant to
an Amended and Restated Master Agreement among Kmart, Sears Holding Corporation (Sears) and the
Company (as amended, the Kmart Agreement). The Kmart Agreement expired by its terms at the end
of 2008 and during the first fiscal quarter of 2009, the Company received approximately $55.3
million from Kmart related to the liquidation sale of inventory.
In May 2008 the Board of Directors determined that it was in the best interests of the Company and
its stockholders to liquidate and ultimately dissolve after the expiration of the Kmart Agreement
in December 2008 (and other miscellaneous contracts through the end of such term) and to sell
and/or dispose of any of the Companys other remaining assets, including its owned property in
Mahwah, New Jersey, which contains its corporate headquarters building, improvements and 21 acres
of underlying land (collectively, the Mahwah Real Estate). In May 2008, the Board of Directors
approved a Plan of Complete Liquidation of Footstar, Inc. (the Original Plan), which provides
for the complete liquidation and ultimate dissolution of the Company after the expiration of the
Kmart Agreement on December 31, 2008.
The Board amended the Original Plan on March 5, 2009. The Amended Plan of Complete Dissolution and
Liquidation of Footstar, Inc. (the Plan of Dissolution) reflects technical and legal changes to
the Original Plan consistent with Delaware corporate law and is intended to modify, supersede and
replace the Original Plan in order to more efficiently facilitate the liquidation and dissolution
of the Company in the best interests of stockholders. The Plan of Dissolution provides for the
complete, voluntary liquidation of the Company by providing for the sale of its remaining assets
and the wind-down of the Companys business as described in the Plan of Dissolution and for
distributions of available cash to stockholders as determined by the Board of Directors (the
Dissolution).
The Plan of Dissolution was approved by stockholders at a special meeting on May 5, 2009. Also on
May 5, 2009, the Company filed a certificate of dissolution with the Secretary of State of
Delaware, which commenced a three-year statutory liquidation process. On May 6, 2009 the
stockholders of record on April 30, 2009 were paid a special cash distribution in the
amount of $2.00 per share. The Company began implementing the Plan of Dissolution immediately following
its approval.
7
FOOTSTAR, INC. and SUBSIDIARY COMPANIES
2. Basis of Presentation
The consolidated financial statements have been prepared by the Company without audit in accordance
with the rules and regulations of the Securities and Exchange Commission (the SEC), and should be
read in conjunction with the audited Consolidated Financial Statements previously filed on the
Companys Form 10-K for the fiscal year ended January 3, 2009. In the opinion of management, the
statements reflect all adjustments necessary for a fair presentation of the results of interim
periods.
Certain information and note disclosures, normally included in financial statements prepared in
accordance with accounting principles generally accepted in the United States of America, which are
not required for interim purposes, have been condensed or omitted. The results for any interim
period are not necessarily indicative of the results to be expected for a full year.
The consolidated financial statements for the period January 4, 2009, through May 5, 2009 and for
all periods presented for fiscal 2008 were prepared on the going concern basis of accounting, which
contemplates realization of assets and satisfaction of liabilities in the normal course of
business. As a result of the stockholder approval of the Plan of Dissolution, the Company adopted
the liquidation basis of accounting effective May 6, 2009. This basis of accounting is considered
appropriate when, among other things, liquidation of a company is probable and the net realizable
values of assets are reasonably determinable. Under this basis of accounting, assets are valued at
their net realizable values and liabilities are stated at their estimated settlement amounts.
The conversion from the going concern to liquidation basis of accounting required management to
make significant estimates and judgments. In order to record assets at estimated net realizable
value and liabilities at estimated settlement amounts under the liquidation basis of accounting,
the Company recorded the following adjustments to record its assets and liabilities at fair value
as of May 6, 2009, the date of adoption of the liquidation basis of accounting:
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($ in millions) |
Adjust assets and liabilities to fair value: |
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Write down of Other Assets |
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$ |
1.2 |
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Total |
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$ |
1.2 |
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8
FOOTSTAR, INC. and SUBSIDIARY COMPANIES
Accrued Cost of Liquidation
Under the liquidation basis of accounting, the Company has accrued for the known costs to be
incurred in liquidation, as follows:
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|
|
($ in millions) |
Compensation and Benefits Costs |
|
$ |
3.3 |
|
|
|
|
|
|
Professional Fees, Board of Director Fees, and
Insurance Costs |
|
|
2.8 |
|
|
|
|
|
|
General Administrative and Other Costs |
|
|
1.5 |
|
|
|
|
|
|
Headquarter Building Costs |
|
|
2.4 |
|
|
|
|
|
|
|
|
|
|
Total Estimated Expenses |
|
$ |
10.0 |
|
|
|
|
|
The Company recorded a $10.0 million liquidating expense accrual to adjust its assets and
liabilities to fair value. The conversion required management to make significant estimates and
judgments. In order to record assets at estimated net realizable value and liabilities at
estimated settlement amounts under the liquidation basis of accounting, the Company recorded a
$10.0 million liquidating expense accrual on its balance sheet as of May 5, 2009, the date of
adoption of the liquidation basis of accounting. The Company converted to liquidation accounting
effective May 6, 2009.
The Company will continue to incur certain operating costs and receive income on its investments
throughout the liquidation period. On a regular basis, we will evaluate our assumptions, judgments
and estimates that can have a significant impact on our reported net assets in liquidation based on
the most recent information available to us, and when necessary make changes accordingly. Actual
costs and income may differ from our estimates, which might reduce net assets available in
liquidation to be distributed to stockholders.
The Company expects to make further distributions to its stockholders of its remaining cash, less
any amount applied to or reserved for actual or contingent liabilities (which may be deposited in a
liquidating trust). The amounts reserved will be based on a determination by the board of
directors, derived from consultation with management and outside experts, if the board of directors
determines that it is advisable to retain such experts, and a review of, among other things, our
estimated contingent liabilities and our estimated ongoing expenses, including, but not limited to,
payroll, legal expenses, regulatory filings and other miscellaneous expenses. Each shareholder
will receive his or her pro rata share of each distribution based on the number of shares held on
the record date for such distribution.
If at the end of the statutory three-year dissolution period on May 5, 2012, the Company has
unsettled liabilities (i.e. Office Lease Guarantee, etc) as more fully discussed in Note 9, it may
determine to transfer its remaining assets and liabilities to a liquidating trust.
9
FOOTSTAR, INC. and SUBSIDIARY COMPANIES
3. Impact of Recently Issued Accounting Standards
In April 2009, the FASB issued FSP FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of
Financial Instruments. This FASB Staff Position (FSP) amends Statement of Financial Accounting
Standard (Statement) No. 107, Disclosures About Fair Value of Financial Instruments, to require
disclosures about fair value of financial instruments for interim reporting periods of publicly
traded companies as well as in annual financial statements. This FSP also amends APB Opinion
No. 28, Interim Financial Reporting, to require those disclosures in summarized financial
information at interim reporting periods. This FSP is effective for interim reporting periods
ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009.
The adoption of this FSP did not have a material impact on the Companys results of operations,
financial condition or liquidity due to the Companys recent adoption of liquidation accounting
which requires the assets to be carried at fair value.
In April 2009, the FASB issued FSP FAS 157-4, Determining Fair Value When the Volume and Level of
Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That
Are Not Orderly. This FSP provides additional guidance for estimating fair value in accordance with
Statement No. 157, Fair Value Measurements, when the volume and level of activity for the asset or
liability have significantly decreased. This FSP also includes guidance on identifying
circumstances that indicate a transaction is not orderly. This FSP is effective for interim and
annual reporting periods ending after June 15, 2009, with early adoption permitted for periods
ending after March 15, 2009. The adoption of this FSP did not have a material impact on the
Companys results of operations, financial condition or liquidity.
On May 28, 2009, the FASB issued SFAS No. 165, Subsequent Events, which became effective for
periods ended after June 15, 2009. The statement requires the Company to evaluate subsequent events
through the date the consolidated financial statements are filed with
the SEC. Management performed an evaluation of the Companys activities through the time of filing this
Quarterly Report on Form 10-Q on August 13, 2009, and has concluded that, other than as noted
below, there are no significant subsequent events requiring recognition or disclosure in these
consolidated financial statements.
Effective January 1, 2008, the Company adopted SFAS No. 157. SFAS No. 157 defines fair value,
establishes a framework for measuring fair value under generally accepted accounting principles and
expands disclosures about fair value measurements. In February 2008, the FASB issued FSP 157-2,
Partial Deferral of the Effective Date of Statement 157, which deferred the effective date of
SFAS No. 157 for all nonfinancial assets and nonfinancial liabilities, except those that are
recognized or disclosed at fair value in the financial statements on a recurring basis (at least
annually), to fiscal years beginning after November 15, 2008. The Company uses the following
methods for determining fair value in accordance with SFAS No. 157. For assets and liabilities that
are measured using quoted prices in active markets for the identical asset or liability, the total
fair value is the published market price per unit multiplied by the number of units held without
consideration of transaction costs (Level 1). Assets and liabilities that are measured using
significant other observable inputs are valued by reference to similar assets or liabilities, such
as quoted prices for similar assets or liabilities, quoted prices in markets that are not active,
or other
10
FOOTSTAR, INC. and SUBSIDIARY COMPANIES
inputs that are observable or can be corroborated by observable market data (Level 2). For all
remaining assets and liabilities for which there are no significant observable inputs, fair value
is derived using an assessment of various discount rates, default risk, credit quality and the
overall capital market liquidity (Level 3).
The following table summarizes the basis used to measure certain financial assets and liabilities
at fair value on a recurring basis in the consolidated balance sheet:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices |
|
Significant |
|
|
|
|
|
|
|
|
in Active |
|
Other |
|
|
|
|
|
|
|
|
Markets for |
|
Observable |
|
Significant |
(In millions) |
|
Balance at |
|
Identical Items |
|
Inputs |
|
Unobservable |
Description |
|
July 4, 2009 |
|
(Level 1) |
|
(Level 2) |
|
Inputs (Level 3) |
|
Cash |
|
$ |
1.4 |
|
|
$ |
1.4 |
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money Market Funds |
|
|
25.8 |
|
|
|
25.8 |
|
|
|
|
|
|
|
|
|
Money Market Funds money market funds are valued using quoted market prices. Accordingly,
money market funds are categorized in Level 1 of the fair value hierarchy.
4. Reduction in Workforce
The Company currently has five employees, including one officer, to assist in the liquidation
process. Cash payments to terminated employees totaling approximately $5.5 million were paid
during the reporting period of January 4, 2009 to May 5, 2009. As of July 4, 2009, the Company
had an accrual of approximately $100,000 relating to severance and benefit costs included in
accrued expenses. In order to continue to retain key employees as it liquidates its businesses,
the Company may commit to additional cash charges when and if such plans are approved by the
Board of Directors.
The following are reconciliations of the beginning and ending severance and benefit costs accrual
for the three-month period ended and for the six-month period ended July 4, 2009 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the period |
|
|
For the period |
|
|
For the period |
|
|
For the period |
|
|
|
May 6, 2009 to |
|
|
January 4, 2009 |
|
|
April 5, 2009 to |
|
|
January 4, 2009 to |
|
|
|
July 4, 2009 |
|
|
to July 4, 2009 |
|
|
May 5, 2009 |
|
|
May 5, 2009 |
|
|
Beginning balance of termination benefits accrual |
|
$ |
2.6 |
|
|
$ |
6.8 |
|
|
$ |
2.5 |
|
|
$ |
6.8 |
|
Costs charged to expense |
|
|
(0.1 |
) |
|
|
1.2 |
|
|
|
0.2 |
|
|
|
1.3 |
|
Cash payments |
|
|
(2.4 |
) |
|
|
(7.9 |
) |
|
|
(0.1 |
) |
|
|
(5.5 |
) |
|
Ending balance of termination benefits accrual |
|
$ |
0.1 |
|
|
$ |
0.1 |
|
|
$ |
2.6 |
|
|
$ |
2.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5. Real Estate
In connection with the expiration of the Kmart Agreement, the Company has been marketing its
Mahwah Real Estate which was classified as assets held for sale at January 3, 2009. As of July 4,
2009, the Company estimates that the fair value of the real estate, less estimated closing costs,
is approximately $6.2 million.
11
FOOTSTAR, INC. and SUBSIDIARY COMPANIES
The Companys mortgage, assumed in connection with the purchase of the Mahwah Real Estate, totals
approximately $1.3 million and is included in accrued expense as of July 4, 2009. We believe that
the recorded value of the mortgage approximates its current fair value since the obligation is
expected to be settled within 9 months.
6. Earnings Per Share
Basic earnings per share (EPS) is computed by dividing net (loss) income available for common
stockholders by the weighted average number of common shares outstanding for the period. Diluted
EPS is computed by dividing net (loss) income available to common stockholders by the weighted
average shares outstanding, after giving effect to the potential dilution that could occur if
outstanding options or other contract or obligations to issue common stock were exercised or
converted.
The following table reflects average shares outstanding used to compute basic and diluted (loss)
earnings per share (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the |
|
|
|
|
|
Three |
|
|
|
|
period April |
|
For the period |
|
Months |
|
Six Months |
|
|
5, 2009 to |
|
January 4, 2009 to |
|
Ended June |
|
Ended June |
|
|
May 5, 2009 |
|
May 5, 2009 |
|
28, 2008 |
|
28, 2008 |
Average shares outstanding |
|
|
21.4 |
|
|
|
21.3 |
|
|
|
20.8 |
|
|
|
20.7 |
|
Average contingently issuable
shares (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.1 |
|
Average shares outstanding
basic |
|
|
21.4 |
|
|
|
21.3 |
|
|
|
20.8 |
|
|
|
20.8 |
|
|
|
|
Average shares outstanding
diluted |
|
|
21.4 |
|
|
|
21.3 |
|
|
|
21.2 |
|
|
|
21.1 |
|
|
|
|
(1) |
|
The computation of diluted EPS does not assume conversion,
exercise or issuance of shares that would have an anti-dilutive effect on EPS.
During the period of April 5, 2009 to May 5, 2009 and
January 4, 2009 to May 5,
2009 we had a net loss; as a result, any assumed conversions would result in
reducing the loss per share and, therefore, are not included in the
calculation. Shares that could potentially dilute EPS in the future, but which
were not included in the calculation of diluted EPS because to do so would have
been anti-dilutive, totaled 260,125 shares for the period of
April 5, 2009 to May 5, 2009 and for the period of
January 4, 2009 to May 5, 2009 |
12
FOOTSTAR, INC. and SUBSIDIARY COMPANIES
7. Comprehensive Income (Loss)
The components of comprehensive income (loss) consisted of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the period |
|
|
|
|
|
|
|
|
|
|
|
|
April 5, |
|
|
For the period |
|
|
Three Months |
|
|
Six Months |
|
|
|
2009 to |
|
|
January 4, 2009 to |
|
|
Ended |
|
|
Ended June |
|
|
|
May 5, 2009 |
|
|
May 5, 2009 |
|
|
June 28, 2008 |
|
|
28, 2008 |
|
|
Comprehensive Income
(Loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(1.5 |
) |
|
$ |
(3.7 |
) |
|
$ |
30.4 |
|
|
$ |
28.9 |
|
Defined postretirement
benefit plan, net of tax: |
|
|
|
|
|
|
|
|
|
|
(7.7 |
) |
|
|
(7.7 |
) |
Amortization of prior service
credit |
|
|
|
|
|
|
|
|
|
|
(0.3 |
) |
|
|
(0.6 |
) |
Amortization of actuarial gain |
|
|
|
|
|
|
|
|
|
|
(0.1 |
) |
|
|
(0.2 |
) |
|
Comprehensive Income (Loss) |
|
$ |
(1.5 |
) |
|
$ |
(3.7 |
) |
|
$ |
22.3 |
|
|
$ |
20.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8. Income Taxes
The 2008 income tax provision relates to the estimated income tax obligation of our stores located
in Puerto Rico, Guam and the Virgin Islands, which do not have net operating losses available to
offset income. The Company did not have any operations in these locations during the period ended
July 4, 2009.
As of July 4, 2009, all of the Companys deferred tax assets continue to be subject to a full
valuation allowance, including the net operating losses available to offset future taxable income.
9. Commitments and Contingencies
Litigation Matters
The Company is involved in various and routine litigation matters, which arise through the normal
course of business. Management believes that the resolution of these matters will not have a
material adverse effect on the final liquidation of the Company. While it firmly maintains that
all pending claims are meritless, the Company will, however, continue to expend costs as it
vigorously defends against these claims.
In connection with the Companys discontinued operations in 1995, the Company entered into two
subleases of locations formerly occupied by its Thom McAn stores. One of these subleases expired on
December 31, 2008. The other lease expires effective February 1, 2014. The Company believes that
there has been a novation of its obligations under such lease and may in the future bring
litigation to have a court finally determine such issue.
10. Special Cash Distribution
On January 8, 2009, the Company announced that its Board of Directors declared a special cash
distribution to stockholders in the amount of $1.00 per common share. The Company recorded this
13
FOOTSTAR, INC. and SUBSIDIARY COMPANIES
distribution effective the date the declaration was made by the Board of Directors. The special
cash
distribution of approximately $21.6 million was paid on January 27, 2009 to holders of record at
the close of business on January 20, 2009.
On April 20, 2009, the Company announced that its Board of Directors declared a special cash
distribution to stockholders in the amount of $2.00 per common share. The special cash distribution
of approximately $43.2 million was paid on May 6, 2009 to holders of record at the close of
business on April 30, 2009.
The aggregate amount of any remaining liquidation distribution to our stockholders is expected to
be in the range of $.99 to $1.13 per common share. However, uncertainties as to the ultimate
amount of our liabilities make it impossible to predict with certainty the actual aggregate net
amounts that will ultimately be available for distribution to stockholders or the timing of any
such distributions. Such amount and timing will depend on a number of factors, several of which
cannot be determined at this time, including:
|
1) |
|
the ultimate amount of our known, unknown and contingent debts and
liabilities; |
|
2) |
|
the fees and expenses incurred by us in the liquidation of our assets; and |
|
3) |
|
the ultimate proceeds from the sale of the Mahwah Real Estate. |
As a result, the amount of cash remaining following completion of our liquidation could vary
significantly from our current estimates.
11. Letters of Credit
We entered into standby letters of credit to secure certain obligations, including insurance
programs and duties related to the import of our merchandise. As of July 4, 2009, we had standby
letters of credit which were cash collateralized at 103% of face value, plus a reserve for future
fees (the L/C Cash Collateral) totaling $5.5 million, with Bank of America as issuing bank. In
connection therewith, Bank of America has been granted a first priority security interest and lien
upon the L/C.
Cash Collateral. Amounts will be refunded to the Company as the letters of credit are reduced,
terminated or expired. Amounts are included in prepaid expenses.
12. Stock Options
The Company has adopted SFAS No. 123R, Share-Based Payment, which requires all companies to
measure and recognize compensation expense at fair value for all stock-based payments to employees
and directors. The Company uses the Black-Scholes option-pricing model to estimate fair value of
grants of employee and director stock options, with the following
average assumptions.
14
FOOTSTAR, INC. and SUBSIDIARY COMPANIES
The Company calculates expected volatility for a share-based grant based on historic daily stock
price observations of its common stock during the period immediately preceding the grant that is
equal in length to the expected term of the grant. SFAS No. 123R also requires that estimated
forfeitures be included as a part of the estimate of expense as of the grant date. The Company has
used historical data to estimate expected employee behaviors related to option term, exercises and
forfeitures. With respect to both grants of options and awards of restricted stock, the risk free
rate of interest is based on the U.S. Treasury rates appropriate for the expected term of the grant
or award. Stock option expense relating to stock options was $0 for
each of the periods of January 4, 2009 through May 5, 2009
and April 5, 2009 through May 5, 2009. A summary of option activity as of July 4, 2009 and changes
during the six months ended July 4, 2009 is presented below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average |
|
|
Shares |
|
Exercise Price |
Balance : January 3, 2009 |
|
|
323,725 |
|
|
$ |
30.58 |
|
|
|
|
|
|
|
|
|
|
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised |
|
|
|
|
|
|
|
|
Forfeited or Exercised |
|
|
63,600 |
|
|
$ |
25.79 |
|
|
Balance : July 4, 2009 |
|
|
260,125 |
|
|
$ |
31.75 |
|
|
Options Exercisable: July 4, 2009 |
|
|
260,125 |
|
|
$ |
31.75 |
|
ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
Forward-Looking Statements
This report contains forward-looking statements made in reliance upon the safe harbor provisions of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended (the Exchange Act). These statements may be identified by the use of
words such as anticipate, estimates, should, expect, project, intend, plan, believe
and other words and terms of similar meaning, in connection with any discussion of our financial
statements, business, results of operations, liquidity, future operating or financial performance
and other future events and circumstances. Factors that could affect our forward-looking statements
include, among other things:
|
|
the impact of any dividends or any other special distributions to stockholders on the
Companys future cash requirements and liquidity needs, both in connection with the
wind-down of the Companys operations and all contingencies; |
15
FOOTSTAR, INC. and SUBSIDIARY COMPANIES
|
|
under the Plan of Dissolution, the Companys remaining assets will be disposed of, known
liabilities will be paid or provided for and reserves will be established for contingent
liabilities, with only any remaining assets available for ultimate distribution; |
|
|
uncertainties exist as to the disposition value of our remaining assets as well as the
amount of our liabilities and obligations, and, in connection with the Plan of
Dissolution and our Dissolution, there can be no assurance as to the amount of any cash
or other property that may potentially be distributed to stockholders or the timing of
any distributions; |
|
|
we do not expect to be able to fully realize the benefits of our net operating loss carry
forwards; and |
|
|
the difficulty of selling the Mahwah Real Estate on satisfactory terms, taking into account
the current decline in the economic conditions and the current disruption in the capital and
credit markets. |
Because the information in this Quarterly Report on Form 10-Q is based solely on data currently
available, it is subject to change and should not be viewed as providing any assurance regarding
our future. Actual results, operations, performance, events, plans and expectations may differ
materially from our current expectations and the differences may be material, individually or in
the aggregate, to our business, financial condition, and results of operations, liquidity and
prospects. Additionally, we do not plan to update any of our forward-looking statements based on
changes in assumptions, changes in results or other events subsequent to the date of this Quarterly
Report on Form 10-Q, other than as included in our future required SEC filings, or as may otherwise
be legally required.
The following discussion should be read in conjunction with the unaudited consolidated financial
statements in Item 1 of this Quarterly Report on Form 10-Q.
16
FOOTSTAR, INC. and SUBSIDIARY COMPANIES
RECENT EVENTS
On April 20, 2009, the Company announced that its Board of Directors declared a special cash
distribution to stockholders in the amount of $2.00 per common share. The Company recorded this
distribution effective the date the declaration was made by the Board of Directors. This special
cash distribution of approximately $43.2 million was paid on May 6, 2009 to holders of record on
April 30, 2009.
Following
stockholder approval of the Plan of Dissolution on May 5, 2009 and the filing of a
certificate of dissolution with the Delaware Secretary of State that day, the Plan of Dissolution
took effect. Since May 5, 2009, pursuant to the Plan of Dissolution our activities have been
limited to actions we deem necessary or appropriate to accomplish, inter alia, the following:
|
|
|
remaining in existence as a non-operating entity for at least three years following
the filing of the certificate of dissolution on May 5, 2009 as required under Delaware
law; |
|
|
|
|
completing the sale or liquidation of the Companys remaining assets that are held for
sale, principally consisting of the Mahwah Real Estate, which may include, without
limitation, entering into commercial leases to enhance or facilitate the disposition of real
estate if advisable; |
|
|
|
|
the adoption by the Company of the liquidation basis of accounting effective May 6, 2009; |
|
|
|
|
collecting, or providing for the collection of, accounts receivable, debts and other
claims owing to the Company; |
|
|
|
|
paying, or providing for the payment of, our debts and liabilities, including both
known liabilities and those that are contingent, conditional, unmatured or unknown,
in accordance with Delaware law; |
|
|
|
|
winding up our remaining business activities and withdrawing from any jurisdiction in
which we remain qualified to do business; |
|
|
|
|
complying with the SECs filing requirements for so long as we are required to do so; |
|
|
|
|
making ongoing tax and other regulatory filings; and |
|
|
|
|
prepare to make, and making, distributions to our stockholders of any
liquidation proceeds that may be available for such distributions. |
Under Delaware law, subject to the terms of the Plan of Dissolution, our Board of Directors may
take such actions as it deems necessary or appropriate in furtherance of the Dissolution and
the winding up of the Companys affairs.
17
FOOTSTAR, INC. and SUBSIDIARY COMPANIES
Results of Operations For the reporting period of April 5, 2009 to May 5, 2009 versus
Three months ended June 28, 2008
The following is a discussion of the results of operations for the reporting period April 5, 2009
to May 5, 2009 compared with the three months ended June 28, 2008 (in millions):
For the period of April 5, 2009 to May 5, 2009 versus Three Months Ended June 28, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the period |
|
Three Months |
|
|
|
|
|
|
April 5, 2009 |
|
Ended |
|
|
|
|
|
|
to May 5, 2009 |
|
June 28, 2008 |
|
% of Sales - 2009 |
|
%
of Sales - 2008 |
Net Sales |
|
$ |
|
|
|
$ |
153.2 |
|
|
|
|
|
|
|
100.0 |
|
Gross Profit |
|
|
|
|
|
|
48.3 |
|
|
|
|
|
|
|
31.5 |
|
Store Operating,
Selling, General and
Administrative Expenses |
|
|
1.7 |
|
|
|
38.5 |
|
|
|
|
|
|
|
25.1 |
|
Depreciation/Amortization |
|
|
|
|
|
|
1.0 |
|
|
|
|
|
|
|
0.7 |
|
Gain on Cancellation of
Retiree Benefit Plan |
|
|
|
|
|
|
(22.3 |
) |
|
|
|
|
|
|
14.6 |
|
Other Expenses |
|
|
(0.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Profit (Loss) |
|
$ |
(1.5 |
) |
|
$ |
31.1 |
|
|
|
|
|
|
|
20.3 |
|
|
|
|
Net Sales
Due to the expiration of the Kmart Agreement, there were no net sales for the period April 5, 2009
to May 5, 2009. Net sales were $153.2 million for the three months ended June 28, 2008.
Gross Profit
For the period April 5, 2009 to May 5, 2009, there was no gross profit for the Company. Gross
profit was $48.3 million for the three months ended June 28, 2008.
Store Operating, Selling, General and Administrative Expenses
Store operating, selling, general and administrative expenses for the period April 5, 2009 to May
5, 2009 of $1.7 million primarily represent costs associated with the wind-down of the Company,
including compensation and benefits ($0.9 million), facility costs ($0.3 million), professional
fees ($0.4 million) and other miscellaneous costs ($0.1 million). Selling, general and
administrative expenses were $38.5 million for the three months ended June 28, 2008.
Depreciation and Amortization
All the Companys assets were fully depreciated as of January 3, 2009, with the exception of the
Mahwah Real Estate, which has been accounted for as an asset held for sale, and reflected at
estimated fair market value and therefore no depreciation expense was recorded during the period
April 5, 2009 to May 5, 2009. Depreciation and amortization was $1.0 million for the three months
ended June 28, 2008.
18
FOOTSTAR, INC. and SUBSIDIARY COMPANIES
Operating Loss
Operating loss of ($1.5) million in the period April 5, 2009 to May
5, 2009 compared with operating profit of $31.1 million in the three months ended June 28, 2008,
primarily due to the wind-down costs of the Company incurred from April 5, 2009 to May 5, 2009.
Results of Operations For the reporting period of January 4, 2009 to May 5, 2009 versus
Six months ended June 28, 2008
For the period of January 4, 2009 to May 5, 2009 versus Six Months Ended June 28, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the period |
|
|
|
|
|
|
|
|
January 4, 2009 to |
|
Six Months Ended |
|
% of |
|
% of |
|
|
May 5, 2009 |
|
June 28, 2008 |
|
Sales - 2009 |
|
Sales - 2008 |
Net Sales |
|
$ |
|
|
|
$ |
271.1 |
|
|
|
|
|
|
|
100.0 |
|
Liquidation of Inventory |
|
|
2.5 |
|
|
|
|
|
|
|
100.0 |
|
|
|
|
|
|
|
|
Total Revenues |
|
|
2.5 |
|
|
|
271.1 |
|
|
|
100.0 |
|
|
|
100.0 |
|
Gross Profit |
|
|
2.5 |
|
|
|
82.6 |
|
|
|
100.0 |
|
|
|
30.5 |
|
Store Operating,
Selling, General and
Administrative Expenses |
|
|
6.5 |
|
|
|
73.7 |
|
|
|
260.0 |
|
|
|
27.2 |
|
Depreciation/Amortization |
|
|
|
|
|
|
2.8 |
|
|
|
|
|
|
|
1.0 |
|
Gain on Cancellation of
Retiree Benefit Plan |
|
|
|
|
|
|
(22.3 |
) |
|
|
|
|
|
|
8.2 |
|
Other Expenses |
|
|
(0.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Profit (Loss) |
|
$ |
(3.7 |
) |
|
$ |
28.4 |
|
|
|
(148.0 |
) |
|
|
10.5 |
|
Net Sales
Due to the expiration of the Kmart Agreement at the end of 2008, there were no net sales for the
period January 4, 2009 to May 5, 2009. Net sales were $271.1 million for the six months ended June
28, 2008.
Liquidation of Inventory
Liquidation of inventory for the period January 4, 2009 to May 5, 2009 of $2.5 million represents
the amount received from Kmart relating to the resolution of the disputed amounts of the
liquidation of the inventory on hand as of December 31, 2008. There was no liquidation of
inventory for the six months ended June 28, 2008.
Gross Profit
For the period January 4, 2009 to May 5, 2009, the Company had gross profit of $2.5 million. Gross
profit was $82.6 million for the six months ended June 28, 2008.
19
FOOTSTAR, INC. and SUBSIDIARY COMPANIES
Store Operating, Selling, General and Administrative Expenses
Store operating, selling, general and administrative expenses the period January 4, 2009 to May 5,
2009 of $6.5 million primarily represent costs associated with the wind-down of the Company,
including compensation and benefits ($4.3 million), facility costs ($0.6 million), professional
fees ($1.1 million) and other miscellaneous costs ($0.5 million). Selling, general and
administrative expenses were $73.7 million for the six months ended June 28, 2008.
Depreciation and Amortization
All the Companys assets were fully depreciated as of January 3, 2009, with the exception of the
Mahwah Real Estate, which has been accounted for as an asset held for sale, and reflected at
estimated fair market value and therefore no depreciation expense was recorded during the period
January 4, 2009 to May 5, 2009. The Company had depreciation and amortization expense of $2.8
million for the six months ended June 28, 2008.
Operating Loss
Operating loss decreased to ($3.7) million in the period January 4, 2009 to May 5, 2009 compared
with operating profit $28.4 million for the six months ended June 28, 2008 primarily due to the
wind-down costs of the Company incurred from January 4, 2009 to May 5, 2009.
Liquidity and Capital Resources
Our primary uses of cash are funding wind-down expenses. The Company also has and continues to
incur additional severance, liquidation costs and professional fees in connection with the
wind-down of its business. The Company intends to fund such cash requirements through current
balances in cash and cash equivalents. The Amended Credit Facility dated May 9, 2008, between the
Company and the Bank of America, N.A. (the Amended Credit Facility), matured on December 31, 2008
and all amounts due there under were paid as of that date. At July 4, 2009, we had cash and cash
equivalents of approximately $27.2 million.
On January 8, 2009, the Company announced that its Board of Directors declared a $1.00 per share
special cash distribution to stockholders of record as of January 20, 2009. The distribution
totaling $21.6 million was paid on January 27, 2009 from current balances in cash and cash
equivalents.
On April 20, 2009, the Company announced that its Board of Directors declared a special cash
distribution to stockholders in the amount of $2.00 per common share. The special cash distribution
of $43.2 million was paid on May 6, 2009 to holders of record at the close of business on April 30,
2009.
Net cash provided by operating activities for the reporting period of January 4, 2009 to July 4,
2009 was $43.9 million, primarily consisting of a decrease in accounts receivable of $56.9 million
(primarily related to the liquidation of our inventory on hand as of December 31, 2008) and
miscellaneous items of $1.0 million partially offset by net loss from continuing operations of $3.7
million and a decrease of accrued expenses of $10.3 million.
20
FOOTSTAR, INC. and SUBSIDIARY COMPANIES
Factors that could affect our short and long term liquidity relate primarily to the final
wind-down of the businesses and include, among other things, the payment of any further
dividends or distributions, our ability to sell our Mahwah Real Estate on acceptable terms and
the timing of any such sale, and managing costs associated with the management, liquidation and
dissolution of the Company.
The Board of Directors approved the Plan of Dissolution on March 5, 2009, which is intended to
modify, supersede and replace the Original Plan in order to more efficiently facilitate the
liquidation and dissolution of the Company in the best interests of stockholders. The Plan of
Dissolution was approved by stockholders at a special meeting on May 5, 2009. The Plan of
Dissolution provides for the complete liquidation of the Company by providing for the sale of
the Companys remaining assets and the wind-down of the Companys business as described in the
Plan of Dissolution and for distributions of available cash to stockholders as determined by the
Board of Directors.
During the first quarter of fiscal 2009, the Company received proceeds of approximately $55.3
million in connection with the sale of inventory to Kmart pursuant to the Kmart Agreement. In
addition, during the first fiscal quarter of 2009, the Company received proceeds of approximately
$1.3 million in connection with the sale of its remaining Rite-Aid inventory.
We plan to sell or liquidate any remaining assets and pay all of our known and undisputed
liabilities and obligations. In the future, we may establish a contingency reserve to cover any
unknown, disputed or contingent liabilities and intend to distribute remaining amounts to
stockholders as and when our Board of Directors deems appropriate. We intend to distribute
remaining liquidation proceeds as promptly as practicable following the sale or liquidation of
our remaining assets, subject to payment or provisions for the payment of known obligations and
establishing a contingency reserve. It is possible that unanticipated lawsuits or other claims
will be asserted against us, which could result in certain distributions to our stockholders
being delayed for possibly several years until the resolution of any such lawsuit or claim. Any
sales of our assets will be made in private or public transactions and on such terms as are
approved by our Board of Directors. Under the Plan of Dissolution, we may, if we deem it
advisable, enter into commercial leases to enhance or facilitate the disposition of our real
estate.
Amended Credit Facility
As of January 1, 2009 the Amended Credit Facility was terminated.
We entered into standby letters of credit to secure certain obligations, including insurance
programs and duties related to the import of our merchandise. As of July 4, 2009, we had standby
letters of credit which were cash collateralized at 103% of face value, plus a reserve for
future fees (the L/C Cash Collateral) totaling $5.5 million, with Bank of America as issuing
bank. Accordingly, Bank of America has been granted a first priority security interest and lien
upon the L/C Cash Collateral. Amounts held in the L/C Cash Collateral will be refunded to the
Company as letters of credit are reduced, terminated or expire, which the Company expects will
be during 2009.
21
FOOTSTAR, INC. and SUBSIDIARY COMPANIES
Legal Proceedings
The Company is involved in various and routine litigation matters, which arise through the normal
course of business. Management believes that the resolution of these matters will not have a
material adverse effect on the final liquidation of the Company. While it firmly maintains that
all pending claims are meritless, the Company will continue to expend costs as it vigorously
defends against these claims.
Critical Accounting Estimates
Our discussion of results of operations and financial condition relies on our condensed
consolidated financial statements that are prepared based on certain critical accounting estimates
that require management to make judgments and estimates that are subject to varying degrees of
uncertainty. We believe that investors need to be aware of these estimates and how they impact our
financial statements as a whole, as well as our related discussion and analysis presented herein.
While we believe that these accounting estimates are based on sound measurement criteria, actual
future events can and often do result in outcomes that can be materially different from these
estimates or forecasts.
The critical accounting estimates and related risks described in the Companys Annual Report on
Form 10-K for fiscal year ended January 3, 2009 (the 2008 Annual Report) are those that depend
most heavily on these judgments and estimates. As of July 4, 2009, there have been no material
changes to any of the critical accounting estimates contained in the 2008 Annual Report.
Effective January 1, 2008, the Company adopted SFAS No. 157, which defines fair value, establishes
a framework for measuring fair value under generally accepted accounting principles and expands
disclosures about fair value measurements. In February 2008, the FASB issued FSP 157-2, Partial
Deferral of the Effective Date of Statement 157, which deferred the effective date of SFAS No. 157
for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or
disclosed at fair value in the financial statements on a recurring basis (at least annually), to
fiscal years beginning after November 15, 2008. The Company uses the following methods for
determining fair value in accordance with SFAS No. 157. For assets and liabilities that are
measured using quoted prices in active markets for the identical asset or liability, the total fair
value is the published market price per unit multiplied by the number of units held without
consideration of transaction costs (Level 1). Assets and liabilities that are measured using
significant other observable inputs are valued by reference to similar assets or liabilities, such
as quoted prices for similar assets or liabilities, quoted prices in markets that are not active,
or other inputs that are observable or can be corroborated by observable market data (Level 2). For
all remaining assets and liabilities for which there are no significant observable inputs, fair value
is derived using an assessment of various discount rates, default risk, credit quality and the
overall capital market liquidity (Level 3).
On May 28, 2009, the FASB issued SFAS No. 165, Subsequent Events, which became effective for
periods ended after June 15, 2009. The statement requires the Company to evaluate subsequent events
through the date the consolidated financial statements are filed with
the SEC. Management performed an evaluation of the Companys activities through the time of filing this
Quarterly Report on Form 10-Q on August 13, 2009, and has concluded that, other than as noted
22
FOOTSTAR, INC. and SUBSIDIARY COMPANIES
below, there are no significant subsequent events requiring recognition or disclosure in these
consolidated financial statements.
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk.
Derivatives
As of July 4, 2009, we were not materially exposed to changes in the underlying values of our
assets or liabilities nor were we materially exposed to changes in the value of expected foreign
currency cash flows. We historically have not entered into derivative instruments for any purpose
other than to manage our interest rate exposure. That is, we do not hold derivative financial
investments for trading or speculative purposes.
Interest Rates
As of July 4, 2009, the Company had a mortgage totaling $1.3 million which bears a fixed annual
rate of interest of 8.08% and $5.5 million of cash collaterized standby letters of credit
outstanding.
Foreign Exchange
We do not have material exposure to cash flows denominated in foreign currencies nor have net
foreign exchange gains or losses been material to operating results in the reporting periods
presented in this report.
ITEM 4. Controls and Procedures.
The Company has established controls and procedures designed to ensure that information required to
be disclosed in the reports that the Company files or submits under the Exchange Act is recorded,
processed, summarized and reported, within the time periods specified in the SECs rules and forms
and is accumulated and communicated to management, including our Chief Executive Officer and Chief
Financial Officer to allow timely decisions regarding required disclosure. The Companys
management, with the participation of our Chief Executive Officer and Chief Financial Officer,
conducted an evaluation of the effectiveness of the design and operation of our disclosure controls
and procedures (as such term is defined in Rules 13a-15(e) or 15d-15(e) under the Exchange Act) as
of the end of the period covered by this report (the Evaluation Date). There are inherent
limitations to the effectiveness of any system of disclosure controls and procedures, including the
possibility of human error and the circumvention or overriding of the controls and procedures.
Accordingly, even effective disclosure controls and procedures can only provide reasonable
assurance of achieving their control objectives. Based on such evaluation, our Chief Executive
Officer and Chief Financial Officer, concluded that, as of the Evaluation Date, our disclosure
controls and procedures were effective.
In connection with the evaluation described above, we identified no change in our internal control
over financial reporting that occurred during the quarterly period covered by this report that has
materially affected, or is reasonably likely to materially affect, our internal control over
financial reporting.
23
FOOTSTAR, INC. and SUBSIDIARY COMPANIES
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings.
The information set forth under the caption Litigation Matters in Note 9 to the Condensed
Consolidated Financial Statements is incorporated herein by reference.
ITEM 1A. Risk Factors.
There are many factors that our shareholders should consider when deciding whether to invest in our
common stock. Such factors include the risk factors set out in our publicly filed reports,
including our Annual Report on Form 10-K for the fiscal year ended January 3, 2009, which report is
incorporated herein by reference, as well as the factors set forth below.
We cannot determine with certainty the amount of distributions that will be made to our
shareholders.
We cannot determine with precision at this time the amount of distributions to our shareholders
pursuant to the Plan. This determination depends on a variety of factors, including, but not
limited to, the amount required to settle known and unknown debts and liabilities, the resolution
of any contingent liabilities, the amount of any necessary or appropriate contingency reserve, the
net proceeds, if any, from the sale of our remaining assets, and other factors.
Adverse U.S. economic conditions and the current turmoil in the U.S. capital and credit markets
could limit demand for our owned property in Mahwah, New Jersey, which contains our corporate
headquarters building, improvements and 21 acres of underlying land, and, thus, we may not be able
to timely sell our property in Mahwah or on acceptable terms.
The economy in the United States is currently experiencing unprecedented disruptions, including
increased levels of unemployment, the failure and near failure of a number of large financial
institutions, reduced liquidity and increased credit risk premiums for a number of market
participants. Economic conditions may be affected by numerous factors, including inflation and
employment levels, energy prices, recessionary concerns, changes in currency exchange rates, the
availability of debt and interest rate fluctuations. At this time, it is unclear whether, and to
what extent, the actions taken by the U.S. government, including the passage of the Emergency
Stabilization Act of 2008, the Troubled Assets Relief Program, the American Recovery and
Reinvestment Act of 2009 and other measures currently being implemented or contemplated will
mitigate the effects of the crisis. The current turmoil in the capital and credit markets could
limit demand for our owned Mahwah Real Estate, which consists of our corporate headquarters
building, improvements and 21 acres of underlying land and which we have been marketing since March
2007. At this time we cannot predict the extent or duration of any negative impact that the current
disruptions in the U.S. economy will have on our ability to timely sell the Mahwah Real Estate or
on acceptable terms.
24
FOOTSTAR, INC. and SUBSIDIARY COMPANIES
We may not be able to settle all of our obligations to creditors.
We have current obligations to creditors. Our estimate of ultimate distributions to our
shareholders takes into account all of our known obligations and our best estimate of the amount
reasonably required to satisfy such obligations. As part of our Dissolution process, we will
attempt to settle those obligations with our creditors. We cannot assure you that we will be able
to settle all of these obligations or that they can be settled for the amounts we have estimated
for purposes of calculating the likely distribution to shareholders. If we are unable to reach
agreement with a creditor relating to an obligation, that creditor may bring a lawsuit against us.
Amounts required to settle obligations or defend lawsuits in excess of the estimated amounts will
result in distributions to shareholders that are smaller than those that we presently estimate or
may eliminate distributions entirely.
We continue to incur claims, liabilities and expenses, which will reduce the amount available for
distribution to shareholders.
We continue to incur claims, liabilities and expenses (such as salaries and benefits, directors
and officers insurance, payroll and local taxes, facilities costs, legal, accounting and
consulting fees and miscellaneous office expenses) as we wind up. These expenses reduce the amount
ultimately available for distribution to our shareholders.
Each shareholder may be liable to our creditors for an amount up to the amount distributed to such
shareholder by us if our reserves for payments to creditors are inadequate.
Even though we are a dissolved corporation, as required by Delaware law we continue to exist as a
non-operating entity for at least three years after the Dissolution became effective, which was on
May 5, 2009, or for such longer period as the Delaware Court of Chancery directs, for the purpose
of prosecuting and defending lawsuits, settling and closing our business, disposing of our
property, discharging our liabilities and distributing to our shareholders any remaining assets.
Under applicable Delaware law, in the event we do not resolve all claims against the Company, each
of our shareholders could be held liable for payment to our creditors up to the amount distributed
to such shareholder in the liquidation. In such event, a shareholder could be required to return up
to all amounts received as distributions pursuant to the Plan and ultimately could receive nothing
under the Plan. Moreover, even though a shareholder has paid taxes on amounts previously received,
a repayment of all or a portion of such amount will not result in a recalculation of the gain or loss
on the liquidation. Instead, a shareholders repayment will generally be deductible as a capital
loss in the year in which the contingent liability is paid, and such capital loss cannot be carried
back to offset any liquidation gain recognized earlier. We cannot assure you that any contingency
reserve that we may establish will be adequate to cover all expenses and liabilities.
We stopped recording transfers of our common stock on our stock transfer books on May 5, 2009 and
therefore it is no longer possible for shareholders to change record ownership of our stock.
As of May 5, 2009 (the Final Record Date), the date we filed our certificate of dissolution with
the Delaware Secretary of State, we stopped recording transfers of our common stock on our stock
transfer books. Accordingly, from and after the Final Record Date, certificates representing our
common stock are not assignable or transferable on the books of the Company except by will,
intestate succession or operation of law. However, until trading is halted through termination of
registration of our shares of common stock with the Securities and Exchange Commission, we
25
FOOTSTAR, INC. and SUBSIDIARY COMPANIES
believe that any trades of shares of our common stock after the Final Record Date are being tracked
and marked with a due bill by brokers.
We intend in the future to make liquidation distributions pursuant to the Plan of Dissolution.
From and after the Final Record Date, and subject to applicable law, each holder of our common
stock will have the right to receive liquidation distributions pursuant to, and in accordance with,
the Plan of Dissolution until the final liquidation distribution is made. The proportionate
interests of all of the shareholders of the Company have been fixed in the books of the Company on
the basis of their respective stock holdings at the close of business on the Final Record Date.
Therefore, any liquidation distributions we make in the future will be made solely to the
shareholders of record at the close of business on the Final Record Date, except as may be
necessary to reflect subsequent transfers recorded on the books of the Company as a result of any
assignments by will, intestate succession or operation of law. The
Company believes that the settlement of any due bills and trades of
shares of its common stock after the Final Record Date are being
undertaken by third parties and brokers without the involvement of
the Company. The final liquidation distribution
under the Plan of Dissolution will be in complete cancellation of all of the outstanding shares of
our common stock.
Although we intend to seek relief from the SEC of certain of our public company reporting
requirements, we cannot assure you that we will be successful in obtaining such relief.
We intend to seek relief from the SEC of certain of our public company reporting requirements. If
we are able to obtain such relief from the SEC, we will continue to file current reports on Form
8-K to disclose material events relating to our liquidation, along with any other reports that the
SEC may require. Obtaining SEC relief is contingent upon a number of factors, some of which are
outside of our control. Accordingly, no assurance can be given that we will be able to obtain such
relief from the SEC. If we are unable to obtain such relief, we will be required to continue to
file annual and quarterly reports with the SEC, which will require us to continue to incur
significant accounting, legal and other administrative costs in connection with preparing,
reviewing and filing the reports with the SEC.
Shareholders may not be able to recognize a loss for federal income tax purposes until they receive
a final distribution from us, which may be three years or more after our Dissolution.
As a result of our liquidation, for federal income tax purposes shareholders will recognize gain or
loss equal to the difference between (1) the sum of the amount of cash and the aggregate fair
market value of any property distributed to them (reduced by any liability assumed or subject to
which it is taken), and (2) their tax basis in their shares of our common stock. A shareholders
tax basis in our shares will depend upon various factors, including the shareholders cost and the
amount and nature of any distributions received with respect thereto. A shareholder generally may
recognize a loss only when he, she or it has received a final distribution from us, which may be as
much as three years (or up to ten years if the Company elects to comply with Section 281(b) of the
Delaware General Corporation Law) after our Dissolution. However, if we are unable to sell the
Mahwah Real Estate prior to May 5, 2012, we may transfer such property into a liquidating trust, in
which event we may make a final distribution after May 5, 2012.
See Forward-Looking Statements in Part I, Item 2 for additional risk factors to consider.
26
FOOTSTAR, INC. and SUBSIDIARY COMPANIES
ITEM 4. Submission of Matters to a Vote of Security Holders.
The following matter was submitted to a vote of stockholders at a Special Meeting of Stockholders
held on May 5, 2009:
|
1. |
|
The Amended Plan of Complete Dissolution and Liquidation of Footstar, Inc. and the
voluntary dissolution and liquidation of the Company in accordance therewith was approved
by stockholders by the following vote: |
|
|
|
|
|
|
|
|
|
|
|
|
|
BROKER NON- |
FOR |
|
AGAINST |
|
ABSTAIN |
|
VOTES |
11,397,191
|
|
8,275
|
|
4,253
|
|
10,142,251 |
ITEM 6. Exhibits.
|
|
|
2.1
|
|
The Amended Plan of Complete Dissolution and Liquidation of Footstar,
Inc. (incorporated herein by reference to Annex A to the Companys
Schedule 14A filed on April 6, 2009). |
|
|
|
31.1
|
|
Certification of Chief Executive Officer of the Company, pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
31.2
|
|
Certification of Chief Financial Officer of the Company, pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
32.1
|
|
Certification of Chief Executive Officer and Chief Financial Officer
of the Company, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
|
Footstar, Inc.
|
|
Date: August 13, 2009 |
By: |
/s/ Jonathan M. Couchman
|
|
|
Jonathan M. Couchman |
|
|
President, Chief Executive Officer and Chief Financial Officer |
|
27