10-Q 1 y53290e10-q.txt VENATOR GROUP, INC. 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended August 4, 2001 -------------- Commission file no. 1-10299 ------- VENATOR GROUP, INC. ------------------- (Exact name of registrant as specified in its charter) New York 13-3513936 --------------------------------- ----------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 112 W. 34th Street, New York, New York 10120 ---------------------------------------- ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number: (212) 720-3700 -------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ] Number of shares of Common Stock outstanding at August 31, 2001: 139,802,772 ----------- 2 VENATOR GROUP, INC. TABLE OF CONTENTS
Page No. -------- Part I. Financial Information Item 1. Financial Statements Condensed Consolidated Balance Sheets........................... 1 Condensed Consolidated Statements of Operations.............................................. 2 Condensed Consolidated Statements of Comprehensive Income (Loss)............................. 3 Condensed Consolidated Statements of Cash Flows.............................................. 4 Notes to Condensed Consolidated Financial Statements....................................... 5-11 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.............. 11-15 Part II. Other Information Item 1. Legal Proceedings............................................... 16 Item 4. Submission of Matters to a Vote of Security Holders............. 16 Item 6. Exhibits and Reports on Form 8-K................................ 17 Signature....................................................... 18 Index to Exhibits............................................... 19-21
3 PART I -- FINANCIAL INFORMATION Item 1. Financial Statements VENATOR GROUP, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (in millions, except shares)
August 4, July 29, February 3, 2001 2000 2001 ----------- ----------- ----------- (Unaudited) (Unaudited) (Audited) ASSETS Current assets Cash and cash equivalents ......................................... $ 189 $ 25 $ 109 Merchandise inventories ........................................... 835 799 730 Assets held for disposal .......................................... 27 45 31 Net assets of discontinued operations ............................. 18 63 37 Other current assets .............................................. 99 111 93 ------- ------- ------- 1,168 1,043 1,000 Property and equipment, net .......................................... 643 714 684 Deferred taxes ....................................................... 237 317 234 Goodwill, net ........................................................ 139 147 143 Other assets ......................................................... 184 156 171 ------- ------- ------- $ 2,371 $ 2,377 $ 2,232 ======= ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Short-term debt ................................................... $ -- $ 95 $ -- Accounts payable .................................................. 329 305 264 Accrued liabilities ............................................... 196 198 222 Current portion of repositioning and restructuring reserves ....... 26 24 13 Current portion of reserve for discontinued operations ............ 44 18 76 Current portion of long-term debt and obligations under capital leases ............................................ 54 5 54 ------- ------- ------- 649 645 629 Long-term debt and obligations under capital leases .............................................. 405 310 259 Other liabilities .................................................... 280 267 331 Shareholders' equity Common stock and paid-in capital: 139,730,062; 138,018,853 and 138,690,560 shares, respectively ................ 358 343 351 Retained earnings ................................................. 728 968 705 Accumulated other comprehensive loss .............................. (49) (155) (41) Less: Treasury stock at cost: 22,455; 189,625 and 199,625 shares, respectively .................................... -- (1) (2) ------- ------- ------- Total shareholders' equity ........................................... 1,037 1,155 1,013 ------- ------- ------- $ 2,371 $ 2,377 $ 2,232 ======= ======= =======
See Accompanying Notes to Condensed Consolidated Financial Statements. -1- 4 VENATOR GROUP, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (in millions, except per share amounts)
Thirteen weeks ended Twenty-six weeks ended -------------------------- ------------------------- Aug. 4, July 29, Aug. 4, July 29, 2001 2000 2001 2000 ------- -------- ------- -------- Sales ..................................................... $ 1,048 $ 971 $ 2,120 $ 2,015 Costs and Expenses Cost of sales ........................................... 742 692 1,488 1,425 Selling, general and administrative expenses ............ 227 223 458 461 Depreciation and amortization ........................... 38 39 76 76 Restructuring charge .................................... 32 (1) 32 (1) Interest expense, net ................................... 6 3 10 11 Other income ............................................ (1) (6) (1) (16) ------- ------- ------- ------- 1,044 950 2,063 1,956 ------- ------- ------- ------- Income from continuing operations before income taxes ......................................... 4 21 57 59 Income tax expense......................................... -- 8 21 23 ------- ------- ------- ------- Income from continuing operations ......................... 4 13 36 36 Loss from discontinued operations, net of income tax benefit of $2 and $8, respectively ................... -- (3) -- (12) Loss on disposal of discontinued operations, net of income tax expense of $6 and $1, respectively ............... (18) -- (13) -- Cumulative effect of accounting change, net of income tax benefit of $- ........................................ -- -- -- (1) ------- ------- ------- ------- Net income (loss) ......................................... $ (14) $ 10 $ 23 $ 23 ======= ======= ======= ======= Basic earnings per share: Income from continuing operations .................... $ 0.03 $ 0.09 $ 0.26 $ 0.26 Loss from discontinued operations .................... (0.13) (0.02) (0.09) (0.08) Cumulative effect of accounting change ............... -- -- -- (0.01) ------- ------- ------- ------- Net income (loss) .................................... $ (0.10) $ 0.07 $ 0.17 $ 0.17 ======= ======= ======= ======= Weighted-average common shares outstanding ................ 139.5 137.7 139.0 137.6 Diluted earnings per share: Income from continuing operations .................... $ 0.03 $ 0.09 $ 0.26 $ 0.26 Loss from discontinued operations .................... (0.13) (0.02) (0.09) (0.08) Cumulative effect of accounting change ............... -- -- -- (0.01) ------- ------- ------- ------- Net income (loss) .................................... $ (0.10) $ 0.07 $ 0.17 $ 0.17 ======= ======= ======= ======= Weighted-average common shares assuming dilution .......... 140.8 139.0 143.2 138.8
See Accompanying Notes to Condensed Consolidated Financial Statements. -2- 5 VENATOR GROUP, INC. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited) (in millions)
Thirteen weeks ended Twenty-six weeks ended -------------------------- ------------------------- Aug. 4, July 29, Aug. 4, July 29, 2001 2000 2001 2000 ------- -------- ------- -------- Net income (loss) ......................................... $ (14) $ 10 $ 23 $ 23 Other comprehensive income (loss), net of tax Foreign currency translation adjustments arising during the period .............................................. (1) 2 (8) (13) Change in fair value of derivatives accounted for as hedges, net of deferred tax expense of $- ............... (1) -- -- -- ------- ------- ------- ------- Comprehensive income (loss) ............................... $ (16) $ 12 $ 15 $ 10 ======= ======= ======= =======
See Accompanying Notes to Condensed Consolidated Financial Statements. -3- 6 VENATOR GROUP, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in millions)
Twenty-six weeks ended -------------------------- Aug. 4, July 29, 2001 2000 ------- -------- From Operating Activities: Net income ............................................................................ $ 23 $ 23 Adjustments to reconcile net income to net cash provided by (used in) operating activities of continuing operations: Restructuring charge ................................................................ 32 -- Loss on disposal of discontinued operations, net of tax ............................. 13 -- Loss from discontinued operations, net of tax ....................................... -- 12 Cumulative effect of accounting change, net of tax .................................. -- 1 Depreciation and amortization ....................................................... 76 76 Gains on sales of investments ....................................................... -- (6) Gains on sales of real estate ....................................................... (1) (10) Deferred taxes ...................................................................... (30) (12) Change in assets and liabilities: Merchandise inventories ........................................................... (108) (106) Accounts payable and other accruals ............................................... 34 41 Repositioning and restructuring reserves .......................................... (20) (26) Other, net ........................................................................ (5) 5 ------ ------ Net cash provided by (used in) operating activities of continuing operations .......... 14 (2) ------ ------ From Investing Activities: Proceeds from sales of investments .................................................... -- 7 Proceeds from sales of real estate .................................................... 1 7 Capital expenditures .................................................................. (39) (43) ------ ------ Net cash used in investing activities of continuing operations ........................ (38) (29) ------ ------ From Financing Activities: Increase in short-term debt ........................................................... -- 24 Issuance of convertible long-term debt ................................................ 150 -- Debt issuance costs ................................................................... (8) -- Reduction in long-term debt and capital lease obligations ............................. (4) (103) Issuance of common stock .............................................................. 8 4 ------ ------ Net cash provided by (used in) financing activities of continuing operations .......... 146 (75) ------ ------ Net Cash used in Discontinued Operations ................................................. (45) (31) Effect of exchange rate fluctuations on Cash and Cash Equivalents ........................ 3 -- ------ ------ Net change in Cash and Cash Equivalents .................................................. 80 (137) Cash and Cash Equivalents at beginning of year ........................................... 109 162 ------ ------ Cash and Cash Equivalents at end of interim period ....................................... $ 189 $ 25 ====== ====== Cash paid during the period: Interest .............................................................................. $ 17 $ 19 Income taxes .......................................................................... $ 21 $ 25
See Accompanying Notes to Condensed Consolidated Financial Statements. -4- 7 VENATOR GROUP, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Basis of Presentation The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the Notes to Consolidated Financial Statements contained in the Registrant's Form 10-K for the year ended February 3, 2001, as filed with the Securities and Exchange Commission (the "SEC") on April 23, 2001. Certain items included in these statements are based on management's estimates. In the opinion of management, all material adjustments, which are of a normal recurring nature, necessary for a fair presentation of the results for the interim periods have been included. The results for the twenty-six weeks ended August 4, 2001 are not necessarily indicative of the results expected for the year. As discussed below, prior year financial statements have been restated to reflect the discontinuance of the Northern Group, the change in method of accounting for layaway sales and the reclassification of shipping and handling fees to revenue and the related costs to cost of sales. Derivative Financial Instruments Effective February 4, 2001, the Registrant adopted Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities," and its related amendment, Statement of Financial Accounting Standards No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities" ("SFAS No. 133"). SFAS No. 133 requires that all derivative financial instruments be recorded in the Consolidated Balance Sheets at their fair values. Changes in fair values of derivatives will be recorded each period in earnings or other comprehensive income (loss), depending on whether a derivative is designated and effective as part of a hedge transaction and, if it is, the type of hedge transaction. The effective portion of the gain or loss on the hedging derivative instrument will be reported as a component of other comprehensive income (loss) and will be reclassified to earnings in the period in which the hedged item affects earnings. To the extent derivatives do not qualify as hedges, or are ineffective, their changes in fair value will be recorded in earnings immediately, which may subject the Registrant to increased volatility. The adoption of SFAS No. 133 in 2001 did not have a material impact on the Registrant's consolidated earnings and reduced accumulated other comprehensive loss by approximately $1 million after-tax. The Registrant operates internationally and utilizes certain derivative financial instruments to mitigate its foreign currency exposures, primarily related to third-party and intercompany forecasted transactions. For a derivative to qualify as a hedge at inception and throughout the hedged period, the Registrant formally documents the nature and relationships between the hedging instruments and hedged items, as well as its risk-management objectives, strategies for undertaking the various hedge transactions and method of assessing hedge effectiveness. Additionally, for hedges of forecasted transactions, the significant characteristics and expected terms of a forecasted transaction must be specifically identified, and it must be probable that each forecasted transaction will occur. If it were deemed probable that the forecasted transaction would not occur, the gain or loss would be recognized in earnings immediately. No such gains or losses were recognized in earnings during the quarter ended August 4, 2001. Derivative financial instruments qualifying for hedge accounting must maintain a specified level of effectiveness between the hedging instrument and the item being hedged, both at inception and throughout the hedged period. The Registrant does not hold derivative financial instruments for trading or speculative purposes. The primary currencies to which the Registrant is exposed are the Euro and the British Pound. When using a forward contract as a hedging instrument, the Registrant excludes the time value from the assessment of effectiveness. The change in a forward contract's time value is reported in earnings. For forward foreign exchange contracts designated as cash flow hedges of inventory, the effective portion of gains and losses is deferred as a component of accumulated other comprehensive loss and is recognized as a component of cost of sales when the related inventory is sold. The effective portion of gains and losses associated with other forward contracts is deferred as a component of accumulated other comprehensive loss until the underlying hedged transaction is reported in earnings. The changes in fair value of forward contracts and option contracts that do not qualify as hedges are recorded in earnings. During the quarter ended August 4, 2001, ineffectiveness related to cash flow hedges was not material. The Registrant is hedging forecasted transactions for no more than the next twelve months and expects all derivative-related amounts reported in accumulated other comprehensive loss to be reclassified to earnings within twelve months. -5- 8 During the quarter ended August 4, 2001, accumulated comprehensive loss was increased by approximately $1 million after-tax due to both the changes in fair value of derivative financial instruments designated as hedges and the reclassification to earnings. During the quarter ended August 4, 2001, the Registrant recorded a gain of approximately $1 million for the changes in fair value of derivative instruments not designated as hedges, which was offset by a foreign exchange loss related to the underlying transactions. Revenue Recognition In the fourth quarter of 2000, the Registrant changed its method of accounting for sales under its layaway program, in accordance with Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements," effective as of the beginning of the year. Under the new method, revenue from layaway sales is recognized when the customer receives the product, rather than when the initial deposit is paid. The cumulative effect of the change was a $1 million after-tax charge, or $0.01 per diluted share. The impact on each of the quarters in 2000 was not material. Revenue was restated in the fourth quarter of 2000, in accordance with Emerging Issues Task Force Issue No. 00-10, "Accounting for Shipping and Handling Fees and Costs," to include shipping and handling fees for all periods presented. Shipping and handling fees of $5 million and $12 million, respectively, were reclassified to sales from selling, general and administrative expenses for the thirteen and twenty-six weeks ended August 4, 2001 and the associated costs of $4 million and $9 million, respectively, were reclassified from selling, general and administrative expenses to cost of sales. Discontinued Operations On January 23, 2001, the Registrant announced that it was exiting its 694 store Northern Group segment. During the second quarter of 2001, the Registrant completed the liquidation of the 324 stores in the United States and entered into a contract on September 7, 2001, to dispose of the 370 stores in Canada. The Registrant recorded a charge to earnings of $252 million before-tax, or $294 million after-tax, in the fourth quarter of 2000 for the loss on disposal of the segment. Major components of the charge included expected cash outlays for lease buyouts and real estate disposition costs of $68 million, severance and personnel related costs of $23 million and operating losses and other exit costs from the measurement date through the expected date of disposal of $24 million. Non-cash charges included the realization of a $118 million currency translation loss, resulting from the movement in the Canadian dollar during the period the Registrant held its investment in the segment and asset write-offs of $19 million. The Registrant also recorded a tax benefit for the liquidation of the Northern U.S. stores of $42 million, which was offset by a valuation allowance of $84 million to reduce the deferred tax assets related to the Canadian operations to an amount that is more likely than not to be realized. In the first quarter of 2001, the Registrant recorded a tax benefit of $5 million as a result of the implementation of tax planning strategies related to the discontinuance of the Northern Group. In the second quarter, the Registrant recorded a charge to earnings of $12 million before-tax, or $19 million after-tax, comprising the write-down of the net assets of the Canadian business to their net realizable value pursuant to the pending transaction, which was partially offset by reduced severance costs as a result of the transaction and favorable results from the liquidation of the U.S. stores and real estate disposition activity. Net disposition activity of $82 million in the first half of 2001 included operating losses of $31 million, a $5 million interest expense allocation based on intercompany debt balances, real estate disposition activity of $20 million, severance of $4 million and asset impairments and other costs of $22 million. Of the remaining reserve balance of $45 million at August 4, 2001, $32 million is expected to be utilized within twelve months and the remaining $13 million thereafter. The net loss from discontinued operations for the thirteen and twenty-six weeks ended July 29, 2000, include sales of $76 million and $146 million, respectively, and interest expense allocations of $3 million and $4 million, respectively, based on intercompany debt balances. In 1998, the Registrant exited both its International General Merchandise and Specialty Footwear segments. In the second quarter of 2001, the Registrant recorded a tax benefit of $1 million related to the settlement of tax liabilities in Germany associated with exiting the International General Merchandise segment. In 1997, the Registrant announced that it was exiting its Domestic General Merchandise segment. The remaining reserve balances totaled $29 million as of August 4, 2001, $12 million of which is expected to be utilized within twelve months. -6- 9 Disposition activity related to the reserves is presented below: NORTHERN GROUP -------------- (in millions)
Balance Net Charge/ Balance 2/3/2001 Usage (Income) 8/4/2001 -------- ------- -------- -------- Real estate & lease liabilities $ 68 $ (20) $ (11) $ 37 Severance & personnel 23 (4) (14) 5 Operating losses & other costs 24 (58) 37 3 ------- ------- ------- ------- Total $ 115 $ (82) $ 12 $ 45 ======= ======= ======= =======
INTERNATIONAL GENERAL MERCHANDISE --------------------------------- (in millions)
Balance Net Charge/ Balance 2/3/2001 Usage (Income) 8/4/2001 -------- ------- -------- -------- The Bargain! Shop $ 7 $ (1) $ -- $ 6 ======= ======= ======= =======
SPECIALTY FOOTWEAR ------------------ (in millions)
Balance Net Charge/ Balance 2/3/2001 Usage (Income) 8/4/2001 -------- ------- -------- -------- Real estate & lease liabilities $ 9 $ (1) $ -- $ 8 Other costs 3 (1) -- 2 ------- ------- ------- ------- Total $ 12 $ (2) $ -- $ 10 ======= ======= ======= =======
DOMESTIC GENERAL MERCHANDISE ---------------------------- (in millions)
Balance Net Charge/ Balance 2/3/2001 Usage (Income) 8/4/2001 -------- ------- -------- -------- Real estate & lease liabilities $ 16 $ (4) $ -- $ 12 Other costs 2 (1) -- 1 ------- ------- ------- ------- Total $ 18 $ (5) $ -- $ 13 ======= ======= ======= =======
The following is a summary of the net assets of discontinued operations:
DOMESTIC NORTHERN SPECIALTY GENERAL (in millions) GROUP FOOTWEAR MERCHANDISE TOTAL ------------- -------- --------- ----------- ------- 8/4/2001 -------- Assets $ 32 $ 2 $ 8 $ 42 Liabilities 21 1 2 24 ------- ------- ------- ------- Net assets of discontinued operations $ 11 $ 1 $ 6 $ 18 ======= ======= ======= ======= 7/29/2000 --------- Assets $ 102 $ 4 $ 11 $ 117 Liabilities 48 2 4 54 ------- ------- ------- ------- Net assets of discontinued operations $ 54 $ 2 $ 7 $ 63 ======= ======= ======= ======= 2/3/2001 -------- Assets $ 64 $ 3 $ 8 $ 75 Liabilities 33 1 4 38 ------- ------- ------- ------- Net assets of discontinued operations $ 31 $ 2 $ 4 $ 37 ======= ======= ======= =======
The Northern Group's assets comprise inventory, fixed assets and other current assets. The Northern Group's liabilities comprise accounts payable, restructuring reserves and other accrued liabilities. The assets of the Specialty Footwear and Domestic General Merchandise segments consist primarily of fixed assets and deferred tax assets and liabilities reflect accrued liabilities. -7- 10 Restructuring Programs 1999 Restructuring Total restructuring charges of $96 million before-tax were recorded in 1999 for the Registrant's restructuring program. In the second quarter of 1999, the Registrant announced its plan to sell or liquidate eight non-core businesses: The San Francisco Music Box Company, Randy River Canada, Foot Locker Outlets, Colorado, Team Edition, Going to the Game!, Weekend Edition and Burger King franchises. In the fourth quarter of 1999, the Company announced a further restructuring plan, which included an accelerated store closing program in the United States and Asia, corporate headcount reduction and a distribution center shutdown. In the first quarter of 2000, the Registrant recorded an additional restructuring charge of $5 million related to its non-core businesses. Throughout 2000, the disposition of Randy River Canada, Foot Locker Outlets, Colorado, Going to the Game!, and Weekend Edition and the accelerated store closing programs were essentially completed. In the third quarter of 2000, management decided to continue to operate Team Edition as a manufacturing business, primarily as a result of the resurgence of the screen print business. In connection with the disposition of several of its non-core businesses, the Registrant reduced sales support and corporate staff by over 30 percent, reduced divisional staff and consolidated the management of Kids Foot Locker and Lady Foot Locker into one organization. As of August 4, 2001, 5 of the originally planned 400 positions have yet to be eliminated. In addition, the Registrant closed its Champs Sports distribution center in Maumelle, Arkansas and consolidated its operations with the Foot Locker facility located in Junction City, Kansas. In the first quarter of 2000, the Registrant recorded a reduction to the corporate reserve of $5 million, which related to the agreement to sublease its Maumelle distribution center and sell the associated fixed assets, which had been impaired in 1999, for proceeds of approximately $3 million. In the second quarter of 2001, the Registrant recorded a restructuring charge of approximately $32 million before-tax, or $22 million after-tax, as a result of the terms of current negotiations to sell The San Francisco Music Box Company. The Registrant expects to complete this disposition in addition to the sale of the Burger King franchises by the end of 2001. The remaining reserve balance at August 4, 2001 totaled $25 million, $24 million of which is expected to be utilized within twelve months. Disposition activity related to the reserves is presented below: NON-CORE BUSINESSES ------------------- (in millions)
Balance Net Charge/ Balance 2/3/2001 Usage (Income) 8/4/2001 -------- ------- -------- -------- Real estate $ 4 $ (2) $ -- $ 2 Asset impairment -- (15) 15 -- Severance 2 -- -- 2 Other disposition costs 3 -- 17 20 ------- ------- ------- ------- Total $ 9 $ (17) $ 32 $ 24 ======= ======= ======= =======
CORPORATE OVERHEAD AND LOGISTICS -------------------------------- (in millions)
Balance Net Charge/ Balance 2/3/2001 Usage (Income) 8/4/2001 -------- ------- -------- -------- Severance $ 2 $ (1) $ -- $ 1 ======= ======= ======= =======
TOTAL RESTRUCTURING RESERVES ---------------------------- (in millions)
Balance Net Charge/ Balance 2/3/2001 Usage (Income) 8/4/2001 -------- ------- -------- -------- Real estate $ 4 $ (2) $ -- $ 2 Asset impairment -- (15) 15 -- Severance 4 (1) -- 3 Other disposition costs 3 -- 17 20 ------- ------- ------- ------- Total $ 11 $ (18) $ 32 $ 25 ======= ======= ======= =======
-8- 11 Sales and operating losses, excluding restructuring charges, of the above non-core businesses and under-performing stores, excluding Team Edition, included in the consolidated results of operations for the thirteen and twenty-six weeks ended August 4, 2001 and July 29, 2000, respectively, are presented below.
Thirteen weeks ended Twenty-six weeks ended -------------------------- ---------------------------- (in millions) August 4, July 29, August 4, July 29, 2001 2000 2001 2000 --------- -------- --------- -------- Sales ....................................... $ 17 $ 27 $ 34 $ 55 ======= ======= ======= ======= Operating loss .............................. $ (4) $ (4) $ (7) $ (11) ======= ======= ======= =======
Inventory, fixed assets and other long-lived assets of all businesses to be exited have been valued at the lower of cost or net realizable value. These assets, totaling $27 million, $45 million and $31 million, have been reclassified as assets held for disposal in the Consolidated Balance Sheets as of August 4, 2001, July 29, 2000 and February 3, 2001, respectively. The assets of Team Edition have not been reflected as assets held for disposal as of August 4, 2001 and February 3, 2001 as management has decided to retain its operations. 1993 Repositioning and 1991 Restructuring In the first half of 2001, disposition activity reduced the reserve balance by approximately $2 million. The remaining reserve balance of $4 million comprises future lease obligations of $3 million and other facilities-related costs of $1 million. Earnings Per Share Basic earnings per share is computed as net earnings divided by the weighted-average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur from common shares issuable through the exercise of stock options and the conversion of convertible long-term debt. The following table reconciles the numerator and denominator used to compute basic and diluted earnings per share for continuing operations.
Thirteen weeks ended Twenty-six weeks ended -------------------------- ---------------------------- (in millions) Aug. 4, July 29, Aug. 4, July 29, 2001 2000 2001 2000 --------- -------- --------- -------- Numerator: ---------- Income from continuing operations ......................... $ 4 $ 13 $ 36 $ 36 Effect of Dilution: Convertible debt .......................................... -- -- 1 -- ------- ------- ------- ------- Income from continuing operations assuming dilution ....... $ 4 $ 13 $ 37 $ 36 ======= ======= ======= ======= Denominator: ------------ Weighted-average common shares outstanding ................ 139.5 137.7 139.0 137.6 Effect of Dilution: Stock options and awards .................................. 1.3 1.3 1.2 1.2 Convertible debt .......................................... -- -- 3.0 -- ------- ------- ------- ------- Weighted-average common shares assuming dilution .......... 140.8 139.0 143.2 138.8 ======= ======= ======= =======
-9- 12 For the thirteen weeks ended August 4, 2001, 5.9 million incremental common shares issuable upon conversion of the Registrant's 5.50% notes were not included in the computation of diluted earnings per share because of their antidilutive effect. Options to purchase 3.1 million and 3.3 million shares of common stock were not included in the computation for the thirteen and twenty-six weeks ended August 4, 2001, respectively, because the exercise price of the options was greater than the average market price of the common shares and, therefore, the effect would be antidilutive. Segment Information Sales and operating results for the Registrant's reportable segments for the thirteen and twenty-six weeks ended August 4, 2001 and July 29, 2000, respectively, are presented below. Operating results reflect income from continuing operations before income taxes, excluding corporate expense, corporate gains and net interest expense. Sales: (in millions)
Thirteen weeks ended Twenty-six weeks ended -------------------------- ---------------------------- (in millions) August 4, July 29, August 4, July 29, 2001 2000 2001 2000 --------- -------- --------- -------- Global Athletic Group: Retail Stores $ 964 $ 900 $ 1,941 $ 1,862 Direct to Customers 67 52 145 116 ------- ------- ------- ------- 1,031 952 2,086 1,978 All Other (1) 17 19 34 37 ------- ------- ------- ------- $ 1,048 $ 971 $ 2,120 $ 2,015 ======= ======= ======= =======
Operating Results: (in millions)
Thirteen weeks ended Twenty-six weeks ended -------------------------- ---------------------------- (in millions) August 4, July 29, August 4, July 29, 2001 2000 2001 2000 --------- -------- --------- -------- Global Athletic Group: Retail Stores (2) $ 64 $ 48 $ 137 $ 112 Direct to Customers 1 (5) 5 (8) ------- ------- ------- ------- 65 43 142 104 All Other (1) (36) (4) (39) (13) ------- ------- ------- ------- Operating profit 29 39 103 91 Corporate expense (3) 19 15 36 21 Interest expense, net 6 3 10 11 ------- ------- ------- ------- Income from continuing operations before income taxes $ 4 $ 21 $ 57 $ 59 ======= ======= ======= =======
(1) All formats presented as "All Other" were either disposed or held for disposal at August 4, 2001. Both periods presented for 2001 include restructuring charges of $32 million. Twenty-six weeks ended July 29, 2000 includes a restructuring charge of $5 million. (2) Both periods presented for 2000 include a $3 million reduction in the 1999 second quarter restructuring charge, offset by a $2 million restructuring charge. (3) Twenty-six weeks ended July 29, 2000 includes a $5 million reduction in the 1999 fourth quarter restructuring charge. Accumulated Other Comprehensive Loss Accumulated other comprehensive loss comprised foreign currency translation adjustments of $49 million, $153 million, and $41 million at August 4, 2001, July 29, 2000 and February 3, 2001, respectively. Accumulated other comprehensive loss included a minimum pension liability adjustment of $2 million at July 29, 2000. -10- 13 Long-Term and Short-Term Debt On June 8, 2001, the Registrant completed its offering of $125 million of subordinated convertible notes due 2008 and an option to exercise an additional $25 million was completed by July 9, 2001. The notes bear interest at 5.50% and are convertible into the Registrant's common stock at the option of the holder, at a conversion price of $15.806 per share. The net proceeds of the proposed offering are being used for working capital and general corporate purposes and to reduce reliance on bank financing. The Registrant filed a Form S-3 on July 11, 2001, and an amendment on July 30, 2001, to register the convertible notes, which became effective on August 1, 2001. Simultaneous with this offering, the Registrant amended and restated its $300 million revolving credit agreement to a reduced $190 million three-year facility. Business Combinations and Goodwill In July 2001, the FASB issued Statement of Financial Accounting Standards No. 141, "Business Combinations" ("SFAS No. 141") and Statement of Financial Accounting Standards No. 142, "Goodwill and Intangible Assets" ("SFAS No. 142"). SFAS No. 141 eliminates the pooling-of-interests method of accounting for business combinations and requires all business combinations initiated or completed after June 30, 2001 to be accounted for using the purchase method. Under SFAS No. 142, goodwill and intangible assets with indefinite lives are no longer amortized but are reviewed annually (or more frequently if impairment indicators arise) for impairment. Separable intangible assets that are not deemed to have indefinite lives will continue to be amortized over their useful lives (but with no maximum life). The amortization provisions of SFAS No. 142 apply to goodwill and intangible assets acquired after June 30, 2001. Amortization expense related to goodwill was $8 million and $4 million for the year ended February 3, 2001 and the six months ended August 4, 2001, respectively. With respect to goodwill and intangible assets acquired prior to July 1, 2001, the Registrant is required to adopt SFAS No. 142 effective as of the beginning of fiscal 2002 and is currently evaluating the impact on its results of operations and financial position. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations References included herein to businesses disposed and held for disposal relate to The San Francisco Music Box Company, Foot Locker Outlets, Going To The Game!, Randy River Canada, Burger King franchises and Foot Locker Asia. As discussed in the footnotes to the Condensed Consolidated Financial Statements, the Registrant discontinued its Northern Group segment in the fourth quarter of 2000. Accordingly, prior year financial statements have been restated to present this business segment as a discontinued operation. RESULTS OF OPERATIONS Sales of $1,048 million for the second quarter of 2001 increased 7.9 percent from sales of $971 million for the second quarter of 2000. For the twenty-six weeks ended August 4, 2001, sales of $2,120 million increased 5.2 percent from sales of $2,015 million for the twenty-six weeks ended July 29, 2000. These increases were primarily attributable to the improved sales performance of ongoing formats. Excluding the effect of foreign currency fluctuations and sales from businesses disposed and held for disposal, sales increased 9.8 percent and 6.8 percent for the second quarter and year-to-date periods of 2001, respectively, as compared with the corresponding prior-year periods, reflecting increases of 7.7 percent and 6.2 percent in comparable-store sales. Gross margin, as a percentage of sales, of 29.2 percent in the second quarter of 2001 and 29.8 percent for the twenty-six weeks ended August 4, 2001, improved slightly as compared with 28.7 percent and 29.3 percent, respectively, in the corresponding prior-year periods. These improvements reflect management's continued initiatives with regard to effective merchandising and promotional activity. -11- 14 Selling, general and administrative expenses ("SG&A") of $227 million declined to 21.7 percent of sales in the second quarter of 2001 as compared with 23.0 percent in the corresponding prior-year period. SG&A of $458 million for the twenty-six weeks ended August 4, 2001, declined approximately 130 basis points to 21.6 percent of sales. These declines reflect the operating efficiencies achieved by the ongoing store-base in the first half of 2001 as compared with a year earlier, as a result of previous cost-cutting initiatives and restructuring programs. For the thirteen and twenty-six weeks ended July 29, 2000, SG&A also included one-time Internet costs of approximately $2 million and $4 million, respectively, related to website development. Interest expense of $10 million was essentially flat for the thirteen weeks ended August 4, 2001 and declined by 14.3 percent to $18 million for the twenty-six weeks ended August 4, 2001, as compared with the corresponding prior-year periods. The decrease is primarily due to reduced short-term interest expense as there were no outstanding borrowings under the revolving credit agreement in 2001. Interest income amounted to $4 million and $7 million, respectively, for the thirteen weeks ended August 4, 2001 and July 29, 2000 and included intercompany interest income related to the Northern Group segment of $2 million and $3 million, respectively. For the year-to-date period, interest income totaled $8 million in 2001 and $10 million in 2000 and included intercompany interest income related to the Northern Group segment of $5 million and $4 million, respectively. The offsetting interest expense was included in the loss from discontinued operations through the measurement date for 2000 and subsequently, in 2001, was charged to the reserve for discontinued operations. Interest income related to income tax settlements and refunds of $4 million was also included in the second quarter of 2000. During the second quarter of 2001, the Registrant recorded a $6 million tax credit related to a state income tax settlement, partially offset by a $2 million charge from the impact of Canadian tax rate reductions on existing deferred tax assets. The combined effect of this credit offset, in part, by the impact of non-deductible goodwill reduced the effective tax rate for the twenty-six weeks ended August 4, 2001 to 36.75 percent, as compared with 39.0 percent for both the 2000 second quarter and year-to-date periods. The Registrant expects the effective tax rate to be 39.0 percent for the second half of 2001. Income from continuing operations of $4 million, or $0.03 per diluted share, for the thirteen weeks ended August 4, 2001, declined by $0.06 per diluted share from $13 million for the thirteen weeks ended July 29, 2000, and remained unchanged at $36 million, or $0.26 per diluted share, for the twenty-six weeks ended August 4, 2001. Income from continuing operations for the 2001-quarter and year-to-date periods included a restructuring charge of $22 million after-tax, or $0.16 per diluted share. For the quarter ended August 4, 2001, the Registrant reported a net loss of $14 million, or $0.10 per diluted share, which included a loss on disposal of discontinued operations of $18 million, or $0.13 per diluted share, compared to net income of $10 million, or $0.07 per diluted share for the corresponding prior-year period, which included a $3 million loss from discontinued operations, or $0.02 per diluted share. Net income of $23 million, or $0.17 per diluted share, for the twenty-six weeks ended August 4, 2001 also remained unchanged from the corresponding prior-year period. STORE COUNT The following table summarizes store count by segment, after reclassification for businesses disposed and held for disposal. During the twenty-six weeks ended August 4, 2001, the Registrant remodeled or relocated 83 ongoing stores.
February 3, August 4, July 29, 2001 Opened Closed 2001 2000 ----------- ------ ------ --------- -------- Global Athletic Group................................................. 3,582 27 54 3,555 3,636 Disposed and held for disposal........................................ 170 12 4 178 180 ----- --- --- ----- ----- Total........................................................... 3,752 39 58 3,733 3,816 ===== === === ===== =====
-12- 15 SALES The following table summarizes sales by segment, after reclassification for businesses disposed and held for disposal.
Thirteen weeks ended Twenty-six weeks ended -------------------------- ---------------------------- (in millions) August 4, July 29, August 4, July 29, 2001 2000 2001 2000 --------- -------- --------- -------- Global Athletic Group: Retail Stores $ 964 $ 899 $ 1,941 $ 1,861 Direct to Customers 67 52 145 116 ------- ------- ------- ------- 1,031 951 2,086 1,977 Disposed and held for disposal 17 20 34 38 ------- ------- ------- ------- Total sales $ 1,048 $ 971 $ 2,120 $ 2,015 ======= ======= ======= =======
Global Athletic Group sales increased by 8.4 percent and by 5.5 percent, respectively, for the 2001 second quarter and year-to-date periods as compared with the corresponding prior-year periods, reflecting comparable-store sales increases of 7.7 percent and 6.2 percent, respectively. Sales from ongoing retail store formats increased by 7.2 percent and by 4.3 percent, respectively, reflecting stronger sales performance in all formats, particularly in Europe. Footwear, basketball in particular, continued to drive the sales growth across all formats, as the number of launches of marquee and exclusive footwear products was increased significantly in the first half of 2001. In addition, the second quarter of 2001 was also positively impacted by a one-week calendar shift, which included an additional week of back-to-school business. Apparel sales remained strong in 2001 and reflected a balanced mix of branded, licensed and private label products. Direct to Customers sales increased by 28.8 percent and by 25.0 percent for the thirteen and twenty-six weeks ended August 4, 2001 as compared with the corresponding prior-year periods. Catalog sales increased by 11.6 percent to $48 million in the second quarter of 2001 and by 8.2 percent to $105 million for the year-to-date period. Internet sales more than doubled for both the thirteen and twenty-six weeks ended August 4, 2001 to $19 million and $40 million, respectively, as compared with the corresponding periods in 2000. OPERATING RESULTS Operating results reflect income from continuing operations before income taxes, excluding corporate expense, corporate gains and net interest expense. The following table summarizes operating profit by segment, after reclassification for businesses disposed and held for disposal.
Thirteen weeks ended Twenty-six weeks ended -------------------------- ---------------------------- (in millions) August 4, July 29, August 4, July 29, 2001 2000 2001 2000 --------- -------- --------- -------- Global Athletic Group: Retail Stores $ 64 $ 47 $ 137 $ 113 Direct to Customers 1 (5) 5 (8) ------- ------- ------- ------- 65 42 142 105 Disposed and held for disposal (4) (4) (7) (10) Restructuring charges (32) 1 (32) (4) ------- ------- ------- ------- Total operating profit $ 29 $ 39 $ 103 $ 91 ======= ======= ======= =======
-13- 16 The Global Athletic Group reported increases in operating profit of 54.8 percent and 35.2 percent to $65 million and $142 million, respectively, for the thirteen and twenty-six weeks ended August 4, 2001, as compared with the corresponding prior-year periods. Operating profit from ongoing retail stores increased by 36.2 percent and 21.2 percent, respectively, for the 2001 second quarter and year-to-date periods. These increases reflect strong sales growth, gross margin rate and operating expense efficiencies, as operating profit, as a percentage of sales, increased to 6.6 percent in the second quarter of 2001 from 5.2 percent in the corresponding prior-year period and to 7.1 percent from 6.1 percent for the year-to-date period. Direct to Customers operating results improved by $6 million and $13 million, respectively, for the thirteen and twenty-six weeks ended August 4, 2001, as compared with the corresponding periods ended July 29, 2000, which included one-time Internet development costs of approximately $2 million and $4 million, respectively. In the second quarter of 2001, the Registrant recorded a restructuring charge of approximately $32 million before-tax, or $22 million after-tax, as a result of the terms of current negotiations to sell The San Francisco Music Box Company. The Registrant expects to complete this disposition in addition to the sale of the Burger King franchises by the end of 2001. Related to the disposition of these and other restructured businesses, the Registrant recorded a $5 million charge in the first quarter of 2000 and a net reduction of $1 million in the second quarter of 2000. LIQUIDITY AND CAPITAL RESOURCES Generally, the Registrant's primary sources of cash have been from operations, borrowings under the revolving credit agreement and proceeds from the sale of non-strategic assets. As noted below, the Registrant raised $150 million in cash through the issuance of subordinated convertible notes. The Registrant generally finances real estate with operating leases. The principal use of cash has been to finance inventory requirements, capital expenditures related to store openings, store remodelings and management information systems, and to fund other general working capital. Operating activities of continuing operations provided cash of $14 million for the twenty-six weeks ended August 4, 2001, as compared with $2 million cash used in the corresponding prior-year period. These amounts reflect the income from continuing operations reported by the Registrant in those periods, adjusted for non-cash items and working capital changes. Net cash used in investing activities of continuing operations of $38 million and $29 million for the first half of 2001 and 2000, respectively, primarily reflected capital expenditures. Planned capital expenditures of $120 million and lease acquisition costs of $30 million for 2001 comprise $110 million for new store openings and remodeling of existing stores, and $40 million for management information systems, logistics and other support facilities. Financing activities for the Registrant's continuing operations provided cash of $146 million for the twenty-six weeks ended August 4, 2001 compared to cash used in financing activities of $75 million for the corresponding prior-year period. On June 8, 2001, the Registrant completed its offering of $125 million of subordinated convertible notes due 2008 and an option to exercise an additional $25 million was completed by July 9, 2001. The notes bear interest at 5.50% and are convertible into the Registrant's common stock at the option of the holder, at a conversion price of $15.806 per share. The net proceeds of the proposed offering are being used for working capital and general corporate purposes and to reduce reliance on bank financing. The Registrant filed a Form S-3 on July 11, 2001, and an amendment on July 30, 2001, to register the convertible notes, which became effective on August 1, 2001. Simultaneous with this offering, the Registrant amended and restated its $300 million revolving credit agreement to a reduced $190 million three-year facility. During the first half of 2000, the Registrant purchased $13 million of its $200 million 7.00% debentures and on June 1, 2000, the remaining balance of $87 million was repaid with restricted cash funds set aside on February 15, 2000, as required by the revolving credit agreement. There were no short-term borrowings outstanding during substantially all of the entire first half of 2001, whereas outstanding borrowings under the Registrant's revolving credit agreement amounted to $95 million at July 29, 2000, an increase of $24 million for the first half of 2000. Management believes current domestic and international credit facilities and cash provided by operations will be adequate to finance its working capital requirements and support the development of its short-term and long-term strategies. Net cash used in discontinued operations includes the Northern Group loss from discontinued operations in 2000, the change in assets and liabilities of the discontinued segments and disposition activity charged to the reserves for both periods presented. -14- 17 NEW ACCOUNTING PRONOUNCEMENTS In July 2001, the FASB issued Statement of Financial Accounting Standards No. 141, "Business Combinations" ("SFAS No. 141") and Statement of Financial Accounting Standards No. 142, "Goodwill and Intangible Assets" ("SFAS No. 142"). SFAS No. 141 eliminates the pooling-of-interests method of accounting for business combinations and requires all business combinations initiated or completed after June 30, 2001 to be accounted for using the purchase method. Under SFAS No. 142, goodwill and intangible assets with indefinite lives are no longer amortized but are reviewed annually (or more frequently if impairment indicators arise) for impairment. Separable intangible assets that are not deemed to have indefinite lives will continue to be amortized over their useful lives (but with no maximum life). The amortization provisions of SFAS No. 142 apply to goodwill and intangible assets acquired after June 30, 2001. Amortization expense related to goodwill was $8 million and $4 million for the year ended February 3, 2001 and the six months ended August 4, 2001, respectively. With respect to goodwill and intangible assets acquired prior to July 1, 2001, the Registrant is required to adopt SFAS No. 142 effective as of the beginning of fiscal 2002 and is currently evaluating the impact on its results of operations and financial position. IMPACT OF EUROPEAN MONETARY UNION The European Union comprises 15 member states, 12 of which adopted a common currency, the "euro." From January 1, 1999 until January 1, 2002, the transition period, the national currencies will remain legal tender in the participating countries as denominations of the euro. Monetary, capital, foreign exchange and interbank markets have converted to the euro, and non-cash transactions are possible in euros. On January 1, 2002, euro bank notes and coins will be issued and the former national currencies will be withdrawn from circulation no later than February 28, 2002. The Registrant has substantially completed the necessary modifications to its information systems, accounting systems, vendor payments and human resource systems. Plans to upgrade or modify the point of sale hardware and software are in progress and are expected to be finalized throughout the remainder of 2001. The adoption of a single European currency will lead to greater product pricing transparency and a more competitive environment. The Registrant currently displays the euro equivalent price of merchandise, as do many retailers. The euro conversion is not expected to have a significant effect on the Registrant's results of operations or financial condition. DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements within the meaning of the federal securities laws. All statements, other than statements of historical facts, which address activities, events or developments that the Registrant expects or anticipates will or may occur in the future, including, but not limited to, such things as future capital expenditures, expansion, strategic plans, growth of the Registrant's business and operations and euro related actions and other such matters are forward-looking statements. These forward-looking statements are based on many assumptions and factors including, but not limited to, customer demand, fashion trends, competitive market forces, uncertainties related to the effect of competitive products and pricing, customer acceptance of the Registrant's merchandise mix and retail locations, economic conditions worldwide, effects of currency fluctuations, the ability of the Registrant to execute its business plans effectively with regard to each of its operating units, consumer preferences and economic conditions worldwide and the ability of the Registrant to implement, in a timely manner, the programs and actions related to the euro issue. Any changes in such assumptions or factors could produce significantly different results. The Registrant undertakes no obligation to publicly update forward-looking statements, whether as a result of new information, future events or otherwise. -15- 18 PART II -- OTHER INFORMATION Item 1. Legal Proceedings The only legal proceedings pending against the Registrant or its consolidated subsidiaries consist of ordinary, routine litigation, including administrative proceedings, incident to the businesses of the Registrant, as well as litigation incident to the sale and disposition of businesses that have occurred in the past several years. Management does not believe that the outcome of such proceedings will have a material effect on the Registrant's consolidated financial position, liquidity, or results of operations. Item 4. Submission of Matters to a Vote of Security Holders (a) The Registrant's annual meeting of shareholders was held on June 14, 2001, in New York, New York. Proxies were solicited by management of the Registrant pursuant to Regulation 14A under the Securities Exchange Act of 1934; there was no solicitation in opposition to management's nominees as listed in the Notice of 2001 Annual Meeting and Proxy Statement, both dated May 1, 2001. (b) Each of James E. Preston, Matthew D. Serra, Christopher A. Sinclair and Dona D. Young was elected as a director in Class I for a three-year term ending at the annual meeting of shareholders of the Registrant in 2004. Cheryl Turpin was elected as a director in Class III for a two-year term ending at the annual meeting in 2003. All of such individuals previously served as directors of the Registrant. J. Carter Bacot, Purdy Crawford, Philip H. Geier Jr., Jarobin Gilbert Jr. and David Y. Schwartz, having previously been elected directors of the Registrant for terms continuing beyond the 2001 annual meeting of shareholders, continue in office as directors. (c) The matters voted upon and the results of the voting were as follows: (1) Election of Directors:
Abstentions and Name Votes For Votes Withheld Broker Non-Votes ---- ----------- -------------- ---------------- James E. Preston 119,424,659 2,235,111 0 Matthew D. Serra 119,418,725 2,241,045 0 Christopher A. Sinclair 119,428,337 2,231,433 0 Cheryl Turpin 119,418,651 2,241,119 0 Dona D. Young 113,716,899 7,942,871 0
(2) Proposal to ratify the appointment of independent accountants:
Votes For Votes Against Abstentions Broker Non-Votes --------- ------------- ----------- ---------------- 120,768,246 761,106 130,418 0
(3) Proposal to reapprove the performance goals of the Long-Term Incentive Compensation Plan:
Votes For Votes Against Abstentions Broker Non-Votes --------- ------------- ----------- ---------------- 111,712,861 9,642,716 304,193 0
At the close of business on the record date of April 27, 2001, there were outstanding 138,838,548 shares of the Registrant's Common Stock, par value $0.01 per share ("Common Stock"). There were represented at the meeting, in person or by proxy, 121,659,770 shares of Common Stock. Such shares represented 87.63 percent of the total number of shares of such class of stock outstanding on the record date. -16- 19 Item 6. Exhibits and Reports on Form 8-K (a) Exhibits An index of the exhibits that are required by this item, and which are furnished in accordance with Item 601 of Regulation S-K, appears on pages 18 through 20. The exhibits which are in this report immediately follow the index. (b) Reports on Form 8-K The Registrant filed a report on Form 8-K dated May 17, 2001 (date of earliest event reported) reporting sales and earnings for the first quarter ended May 5, 2001. The Registrant filed a report on Form 8-K dated May 24, 2001 (date of earliest event reported) reporting condensed consolidated balance sheets as of May 5, 2001 and April 29, 2000. The Registrant filed a report on Form 8-K dated May 30, 2001 (date of earliest event reported) reporting its intention to offer at least $125 million of subordinated convertible notes due 2008. On Form 8-K dated June 11, 2001 (date of earliest event reported) the Registrant reported the completion of the offering, simultaneous with the amendment and restatement of its revolving credit facility. -17- 20 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. VENATOR GROUP, INC. ---------------------------------------- (Registrant) Date: September 18, 2001 /s/ Bruce Hartman ---------------------------------------- BRUCE HARTMAN Senior Vice President and Chief Financial Officer -18- 21 VENATOR GROUP, INC. INDEX OF EXHIBITS REQUIRED BY ITEM 6(a) OF FORM 10-Q AND FURNISHED IN ACCORDANCE WITH ITEM 601 OF REGULATION S-K
Exhibit No. in Item 601 of Regulation S-K Description ----------------------- ----------- 1 * 2 * 3(i)(a) Certificate of Incorporation of the Registrant, as filed by the Department of State of the State of New York on April 7, 1989 (incorporated herein by reference to Exhibit 3(i)(a) to the Quarterly Report on Form 10-Q for the quarterly period ended July 26, 1997, filed by the Registrant with the SEC on September 4, 1997 (the "July 26, 1997 Form 10-Q")). 3(i)(b) Certificates of Amendment of the Certificate of Incorporation of the Registrant, as filed by the Department of State of the State of New York on (a) July 20, 1989 (b) July 24, 1990 (c) July 9, 1997 (incorporated herein by reference to Exhibit 3(i)(b) to the July 26, 1997 Form 10-Q) and (d) June 11, 1998 (incorporated herein by reference to Exhibit 4.2(a) of the Registration Statement on Form S-8 (Registration No. 333-62425) previously filed with the SEC). 3(ii) By-laws of the Registrant, as amended (incorporated herein by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q for the quarterly period ended May 5, 2001, filed by the Registrant with the SEC on June 13, 2001. 4.1 The rights of holders of the Registrant's equity securities are defined in the Registrant's Certificate of Incorporation, as amended (incorporated herein by reference to Exhibits 3(i)(a) and 3(i)(b) to the July 26, 1997 Form 10-Q and Exhibit 4.2(a) to the Registration Statement on Form S-8 (Registration No. 333-62425) previously filed with the SEC). 4.2 Rights Agreement dated as of March 11, 1998 ("Rights Agreement"), between Venator Group, Inc. and First Chicago Trust Company of New York, as Rights Agent (incorporated herein by reference to Exhibit 4 to the Form 8-K dated March 11, 1998). 4.2(a) Amendment No. 1 to the Rights Agreement, dated as of May 28, 1999 (incorporated herein by reference to Exhibit 4.2(a) to the Quarterly Report on Form 10-Q for the quarterly period ended May 1, 1999, filed by the Registrant with the SEC on June 4, 1999).
-19- 22
Exhibit No. in Item 601 of Regulation S-K Description ----------------------- ----------- 4.3 Indenture dated as of October 10, 1991 (incorporated herein by reference to Exhibit 4.1 to the Registration Statement on Form S-3 (Registration No. 33-43334) previously filed with the SEC). 4.4 Forms of Medium-Term Notes (Fixed Rate and Floating Rate) (incorporated herein by reference to Exhibits 4.4 and 4.5 to the Registration Statement on Form S-3 (Registration No. 33-43334) previously filed with the SEC). 4.5 Form of 8 1/2% Debentures due 2022 (incorporated herein by reference to Exhibit 4 to the Registrant's Form 8-K dated January 16, 1992). 4.6 Distribution Agreement dated July 13, 1995 and Forms of Fixed Rate and Floating Rate Notes (incorporated herein by reference to Exhibits 1, 4.1 and 4.2, respectively, to the Registrant's Form 8-K dated July 13, 1995). 4.7 Indenture dated as of June 8, 2001 (incorporated herein by reference to Exhibit 4.1 to the Registration Statement on Form S-3 (Registration No. 333-64930) previously filed with the SEC). 4.8 Form of 5.50% Convertible Subordinated Note (incorporated herein by reference to Exhibit 4.2 to the Registration Statement on Form S-3 (Registration No. 333-64930) previously filed with the SEC). 4.9 Registration Rights Agreement dated as of June 8, 2001 (incorporated herein by reference to Exhibit 4.3 to the Registration Statement on Form S-3 (Registration No. 333-64930) previously filed with the SEC). 5 * 8 * 9 *
-20- 23
Exhibit No. in Item 601 of Regulation S-K Description ----------------------- ----------- 10.1 Amendment No. 5 dated as of June 8, 2001 to the Credit Agreement dated as of April 9, 1997. 11 * 12 Computation of Ratio of Earnings to Fixed Charges. 13 * 15 Letter re: Unaudited Interim Financial Statements. 16 * 17 * 18 * 19 * 20 * 21 * 22 * 23 * 24 * 25 * 26 * 99 Independent Accountants' Review Report.
* Not applicable -21- 24 Exhibits filed with this Form 10-Q:
Exhibit No. Description ----------- ----------- 10.1 Amendment No. 5 dated as of June 8, 2001 to the Credit Agreement dated as of April 9, 1997. 12 Computation of Ratio of Earnings to Fixed Charges. 15 Letter re: Unaudited Interim Financial Statements. 99 Independent Accountants' Review Report.