1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
F O R M 10 - Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 1999
-------------
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 incorporation (I.R.S. Employer Identification No.)
or organization)
233 Broadway, New York, New York 10279-0003
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (212) 553-2000
--------------
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 September 3, 1999: 137,382,104
-----------
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 Loss............................................ 3
Condensed Consolidated Statements
of Cash Flows.................................................... 4
Notes to Condensed Consolidated
Financial Statements............................................. 5-9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.................... 9-16
Part II. Other Information
Item 1. Legal Proceedings..................................................... 17
Item 4. Submission of Matters to a Vote of Security Holders................... 17
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)
July 31, August 1, January 30,
1999 1998 1999
-------------- ------------- ------------
(Unaudited) (Unaudited) (Audited)
ASSETS
------
Current assets
Cash and cash equivalents ............................ $ 78 $ 1 $ 193
Merchandise inventories .............................. 812 995 837
Net assets of discontinued operations................. 93 621 97
Assets held for disposal ............................. 82 - -
Other current assets ................................. 164 217 148
------ ------ ------
1,229 1,834 1,275
Property and equipment, net ............................. 941 787 974
Deferred taxes .......................................... 354 334 358
Intangible assets, net .................................. 166 189 183
Other assets ............................................ 90 91 86
------ ------ ------
$2,780 $3,235 $2,876
====== ====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities
Short-term debt ...................................... $ 332 $ 451 $ 250
Accounts payable ..................................... 260 376 245
Accrued liabilities .................................. 215 202 296
Current portion of reserve for discontinued operations 105 27 167
Current portion of long-term debt and obligations
under capital leases ............................... 206 20 6
------- ------- -------
1,118 1,076 964
Long-term debt and obligations under capital leases ..... 313 509 511
Other liabilities ....................................... 349 387 363
Shareholders' equity
Common stock and paid-in capital ..................... 334 327 328
Retained earnings .................................... 855 1,016 897
Accumulated other comprehensive loss ................. (189) (80) (187)
------- ------- -------
Total shareholders' equity .............................. 1,000 1,263 1,038
------- ------- -------
$ 2,780 $ 3,235 $ 2,876
======= ======= =======
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
--------------------------- -----------------------------
July 31, August 1, July 31, August 1,
1999 1998 1999 1998
---- ---- ---- ----
Sales .......................................... $ 1,063 $ 1,043 $ 2,142 $ 2,101
Costs and expenses
Cost of sales ................................ 791 736 1,582 1,484
Selling, general and administrative expenses . 249 254 506 525
Depreciation and amortization ................ 46 36 91 70
Restructuring charge ......................... 52 - 52 -
Interest expense, net ........................ 17 7 28 17
Other income ................................. (25) - (31) (19)
------- ------- ------- -------
1,130 1,033 2,228 2,077
------- ------- ------- -------
Income (loss) from continuing operations
before income taxes ....................... (67) 10 (86) 24
Income tax expense (benefit) ................... (26) 4 (34) 10
------- ------- ------- -------
Income (loss) from continuing operations ....... (41) 6 (52) 14
Income (loss) from discontinued operations,
net of income tax expense (benefit)
of $7, $(11), $7, and $(20), respectively ... 10 (19) 10 (32)
------- ------- ------- -------
Net loss ....................................... $ (31) $(13) $ (42) $ (18)
======= ======= ======= =======
Basic earnings per share:
Income (loss) from continuing operations .. $(0.30) $ 0.04 $ (0.38) $ 0.10
Income (loss) from discontinued operations 0.07 (0.13) 0.07 (0.23)
------- ------- ------- -------
Net loss .................................. $ (0.23) $ (0.09) $ (0.31) $ (0.13)
======= ======= ======= =======
Weighted-average common shares outstanding ..... 137.3 135.4 137.0 135.3
Diluted earnings per share:
Income (loss) from continuing operations .. $ (0.30) $0.04 $ (0.38) $ 0.10
Income (loss) from discontinued operations 0.07 (0.13) 0.07 (0.23)
------- ------- ------- -------
Net loss .................................. $ (0.23) $ (0.09) $ (0.31) $ (0.13)
======= ======= ======= =======
Weighted-average common shares assuming dilution 137.3 136.0 137.0 136.2
See Accompanying Notes to Condensed Consolidated Financial Statements.
-2-
5
VENATOR GROUP, INC.
-------------------
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
-------------------------------------------------------
(Unaudited)
(in millions)
Thirteen weeks ended Twenty-six weeks ended
--------------------- ----------------------
July 31, August 1, July 31, August 1,
1999 1998 1999 1998
---- ---- ---- ----
Net loss .................................. $(31) $(13) $(42) $(18)
Other comprehensive loss, net of tax
Foreign currency translation adjustments
arising during the period, net of
deferred tax benefit of $4, $8, $1
and $1, respectively ................... (6) (13) (2) (1)
---- ---- ---- ----
Comprehensive loss ........................ $(37) $(26) $(44) $(19)
==== ==== ==== ====
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
----------------------
July 31, August 1,
1999 1998
---- ----
From Operating Activities:
Net loss..................................................................... $ (42) $ (18)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities of continuing operations:
Restructuring charge....................................................... 52 -
(Income) loss from discontinued operations, net of tax .................... (10) 32
Depreciation and amortization.............................................. 91 70
Gains on sales of assets and investments................................... (31) (19)
Deferred income taxes...................................................... (23) (22)
Change in assets and liabilities, net of acquisition:
Merchandise inventories.................................................. (26) (241)
Accounts payable and other accruals...................................... (67) 77
Other, net............................................................... (38) (126)
------ -------
Net cash used in operating activities of continuing operations............... (94) (247)
------ -------
From Investing Activities:
Proceeds from sales of assets and investments ............................... 23 27
Capital expenditures......................................................... (97) (224)
Payments for business acquired, net of cash acquired......................... - (29)
------ -------
Net cash used in investing activities of continuing operations............... (74) (226)
------ -------
From Financing Activities:
Increase in short-term debt.................................................. 82 451
Reduction in long-term debt and capital lease obligations.................... (3) (2)
Issuance of common stock..................................................... 5 10
------ -------
Net cash provided by financing activities of continuing operations........... 84 459
------ -------
Net Cash used in Discontinued Operations........................................ (31) (72)
Effect of exchange rate fluctuations on Cash and Cash Equivalents............... - 6
------ -------
Net change in Cash and Cash Equivalents......................................... (115) (80)
Cash and Cash Equivalents at beginning of year.................................. 193 81
------ -------
Cash and Cash Equivalents at end of interim period.............................. $ 78 $ 1
====== =======
Cash paid during the period:
Interest..................................................................... $ 34 $ 24
Income taxes................................................................. $ 7 $ 8
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 January
30, 1999, as filed with the Securities and Exchange Commission (the "SEC") on
April 30, 1999. 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 July 31, 1999 are not necessarily indicative of the
results expected for the year.
Restructuring Charge
During the second quarter of 1999, the Registrant approved a
restructuring plan to exit eight non-core businesses: The San Francisco Music
Box Company, Randy River Canada, Foot Locker Outlets, Colorado, Team Edition,
Going to the Game, Weekend Edition and Burger King franchises. Restructuring
charges of $64 million pre-tax ($39 million after-tax) were recorded in the
second quarter. Major components of the charge included leasehold and real
estate disposition costs ($24 million), fixed asset and other asset impairments
($19 million), inventory markdowns ($12 million) and other exit costs ($9
million). The inventory markdowns of $12 million were included in cost of sales
while the remaining $52 million restructuring charge was included in operating
expenses. The Registrant expects to record a further charge in connection with
the restructuring of approximately $3 million before-tax ($2 million after-tax)
in 1999 related to severance.
The Registrant entered into an agreement during the second quarter to
sell up to 51 of the 87 Weekend Edition stores, and expects to sell a
substantial portion of the seven other businesses held for disposal. The
remaining businesses will be liquidated in the third and fourth quarters and all
dispositions are expected to be complete by the end of the first quarter of
2000. There was no disposition activity charged to the restructuring reserve
during the second quarter. The current portion of the $33 million reserve
balance at July 31, 1999 is included in accrued liabilities ($21 million), and
the balance in other liabilities ($12 million). The inventory, fixed assets and
other long-lived assets of the businesses to be exited of $82 million at net
realizable value have been reclassified as assets held for disposal in the
Condensed Consolidated Balance Sheet as of July 31, 1999.
Sales and net loss for the eight businesses held for disposal for the
thirteen and twenty-six weeks ended July 31, 1999 and August 1, 1998,
respectively are presented below.
Thirteen weeks ended Twenty-six weeks ended
-------------------- ----------------------
(in millions) July 31, August 1, July 31, August 1,
1999 1998 1999 1998
---- ---- ---- ----
Sales ....... $ 51 $ 42 $ 97 $ 81
==== ==== ==== ====
Net loss .... $ (7) $ (4) $(16) $ (9)
==== ==== ==== ====
-5-
8
Segment Information
Sales and operating results for the Registrant's reportable segments
for the thirteen and twenty-six weeks ended July 31, 1999 and August 1, 1998,
respectively, are presented below. Operating results reflect income (loss) from
continuing operations before income taxes, excluding corporate expense (income)
and net interest expense.
Sales:
(in millions) Thirteen weeks ended Twenty-six weeks ended
------------------------- ---------------------------
July 31, August 1, July 31, August 1,
1999 1998 1999 1998
---- ---- ---- ----
Global Athletic Group .................. $ 893 $ 878 $1,824 $1,785
Northern Group ......................... 86 85 155 159
All Other .............................. 84 80 163 157
------ ------ ------ ------
$1,063 $1,043 $2,142 $2,101
====== ====== ====== ======
Operating Results:
(in millions) Thirteen weeks ended Twenty-six weeks ended
------------------------- --------------------------
July 31, August 1, July 31, August 1,
1999 1998 1999 1998
---- ---- ---- ----
Global Athletic Group .................. $(58) $ 36 $(39) $ 82
Northern Group ......................... (6) (7) (22) (16)
All Other .............................. 2 (5) 2 7
---- ---- ---- ----
Operating profit (loss) .......... (62) 24 (59) 73
Corporate expense (income) ....... (12) 7 (1) 32
Interest expense, net ............ 17 7 28 17
---- ---- ---- ----
Income (loss) from continuing operations
before income taxes ................. $(67) $ 10 $(86) $ 24
==== ==== ==== ====
Operating results for the Global Athletic Group for the thirteen and
twenty-six weeks ended July 31, 1999 include restructuring charges of $64
million related to the businesses to be exited.
Short-Term Debt
Outstanding borrowings under the Registrant's revolving credit
agreement amounted to $332 million at July 31, 1999. The facility available at
that date of $393 million was further reduced on August 2, 1999 by $14 million
to $379 million, as a result of the sale of certain assets. If additional assets
are sold or debt or equity is issued, the revolving credit agreement may be
reduced to $350 million, and will, in any event, be reduced to $300 million by
February 15, 2000. Under the terms of the agreement, the Registrant is required
to satisfy certain financial and operating covenants, which include: maximum
ratio of total debt to earnings before interest, taxes, depreciation and
amortization; minimum fixed charge coverage ratio; minimum tangible net worth
and limits on capital expenditures. In addition, the Registrant is required to
fund the repayment of the $200 million 7.0 percent debentures, which are due in
June 2000, by February 15, 2000. This facility is unsecured relating to the
Registrant's inventory; however, it does include collateralization of certain
properties as defined in the agreement. The agreement also restricts
consolidations or mergers with third parties, investments and acquisitions,
payment of dividends and stock repurchases, and requires borrowings under the
agreement to be reduced to not more than $50 million for a period of at least 15
consecutive days during the fourth quarter of each year.
-6-
9
Discontinued Operations
In the third quarter of 1998, the Registrant announced that it was
exiting its International General Merchandise segment and completed the sale of
its 357 store German general merchandise business for $563 million. The
Registrant recorded a net gain of $174 million before-tax, or $39 million
after-tax. The reserve balance of $38 million at July 31, 1999 represents the
costs associated with the disposal of the remaining business of the
International General Merchandise segment, which is expected to be completed in
1999.
The Registrant also announced in the third quarter of 1998 that it was
exiting its Specialty Footwear segment and recorded a net charge to earnings of
$234 million before-tax, or $155 million after-tax for the loss on disposal of
the segment. Disposition activity of approximately $38 million charged to the
reserve for the period from January 30, 1999 to July 31, 1999 represented the
payments for leasehold and real estate disposition expenses, severance and
benefit costs and other related expenses. In the second quarter of 1999, the
Registrant recorded a reduction to the reserve of $17 million before-tax, or $10
million after-tax, reflecting favorable results from real estate disposition
compared to original estimates. The reserve balance of $66 million at July 31,
1999 primarily includes leasehold obligations and related fixed asset
write-offs, $48 million of which is expected to be utilized within twelve months
and the remaining $18 million thereafter.
In 1997, the Registrant announced that it was exiting its Domestic
General Merchandise segment. Net disposition activity for the twenty-six weeks
ended July 31, 1999, respectively, was approximately $16 million, which included
payments for leasehold and real estate disposition expenses, offset by gains
from planned disposals of real estate. The remaining reserve balance of $19
million at July 31, 1999 consists principally of real estate disposition costs.
Prior year financial statements have been restated to present the
operating results of these business segments as discontinued operations. The
following is a summary of the net assets of discontinued operations:
(in millions) July 31, August 1, Jan. 30,
1999 1998 1999
---- ---- ----
International General Merchandise
Assets .................................... $ 45 $825 $ 47
Liabilities ............................... 7 368 11
---- ---- ----
Net assets of discontinued operations ..... $ 38 $457 $ 36
---- ---- ----
Specialty Footwear
Assets .................................... $ 55 $195 $ 63
Liabilities ............................... 9 41 17
---- ---- ----
Net assets of discontinued operations ..... $ 46 $154 $ 46
---- ---- ----
Domestic General Merchandise
Assets .................................... $ 13 $ 17 $ 23
Liabilities ............................... 4 7 8
---- ---- ----
Net assets of discontinued operations ..... $ 9 $ 10 $ 15
---- ---- ----
Total net assets of discontinued operations $ 93 $621 $ 97
==== ==== ====
-7-
10
The assets of the International General Merchandise and Specialty
Footwear segments consist primarily of inventory and fixed assets. The assets of
the Domestic General Merchandise segment primarily include fixed assets and
deferred tax assets. The liabilities of the International General Merchandise
segment at August 1, 1998 predominantly included pension liabilities and amounts
due to vendors. The decrease in net assets of International General Merchandise
discontinued operations at January 30, 1999 and July 31, 1999 reflects the sale
of the German general merchandise operations on October 22, 1998. The
liabilities of the Specialty Footwear and Domestic General Merchandise segments
primarily reflect accrued liabilities.
1991 Restructuring and 1993 Repositioning Reserves
In connection with the 1991 restructuring and 1993 repositioning
programs, the Registrant recorded an adjustment of $6 million in selling,
general and administrative expenses for the twenty-six weeks ended July 31,
1999, to reflect revisions based on actual experience better than original
estimates relating to lease costs and operating expenses. The remaining reserve
balance of $12 million at July 31, 1999 will be required to satisfy the lease
cancellations or property sales over the next few years.
Earnings Per Share
Basic earnings per share is computed as net income (loss) divided by
the weighted-average number of common shares outstanding for the period. Diluted
earnings per share reflects the potential dilution that could occur from common
shares issuable through stock-based compensation including stock options,
restricted stock awards and other convertible securities. A reconciliation of
weighted-average common shares outstanding to weighted-average common shares
assuming dilution follows:
Thirteen weeks ended Twenty-six weeks ended
------------------------ ------------------------
(in millions) July 31, August 1, July 31, August 1,
1999 1998 1999 1998
----- ----- ----- -----
Weighted-average common shares outstanding ..... 137.3 135.4 137.0 135.3
Incremental common shares issuable ............. - 0.6 - 0.9
----- ----- ----- -----
Weighted-average common shares assuming dilution 137.3 136.0 137.0 136.2
===== ===== ===== =====
Incremental common shares were not included in the computation for the
quarter and year-to-date period ended July 31, 1999 since their inclusion in
periods when the Registrant reported a loss from continuing operations would be
antidilutive. Antidilutive options were not included in the computation of
diluted earnings per share and would not have a material impact on diluted
earnings per share.
Accumulated Other Comprehensive Loss
Accumulated other comprehensive loss was comprised of foreign currency
translation adjustments of $146 million, $35 million, and $144 million, and
minimum pension liability adjustments of $43 million, $45 million, and $43
million, at July 31, 1999, August 1, 1998, and January 30, 1999, respectively.
Reclassifications
Certain balances in prior periods have been reclassified to conform
with the presentation adopted in the current period. All financial statements
have been restated to reflect the discontinuance of the Specialty Footwear and
International General Merchandise segments in the third quarter of 1998. As
discussed above, the inventory, fixed assets and other long-lived assets of the
eight businesses to be exited have been reclassified as assets held for disposal
in the Condensed Consolidated Balance Sheet as of July 31, 1999.
-8-
11
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS No. 133"), which was
effective for fiscal quarters of fiscal years beginning after June 15, 1999. In
June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative Instruments
and Hedging Activities - Deferral of the Effective Date of FASB No. 133, an
Amendment of FASB Statement No. 133," which defers the implementation of SFAS
No. 133 by one year. The statement will now be effective for the Registrant in
2001.
SFAS No. 133 establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts, and hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. The Registrant is in the
process of evaluating SFAS No. 133 to determine its impact on the consolidated
financial statements.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
As discussed more fully in the footnotes to the Condensed Consolidated
Financial Statements, the Registrant discontinued its Specialty Footwear and its
International General Merchandise segments in the third quarter of 1998.
Accordingly, prior year financial statements have been restated to present these
business segments as discontinued operations.
RESULTS OF OPERATIONS
Sales of $1,063 million for the second quarter of 1999 increased 1.9
percent from sales of $1,043 million for the second quarter of 1998, reflecting
the impact of 51 net additional stores at the end of the quarter. Sales for the
twenty-six weeks ended July 31, 1999 increased 2.0 percent to $2,142 million as
compared to $2,101 million for the twenty-six weeks ended August 1, 1998.
Comparable-store sales were flat for both the quarter and year-to-date periods.
Excluding the effect of foreign currency fluctuations and sales from businesses
disposed and held for disposal, sales increased 1.4 percent and 1.7 percent for
the second quarter and year-to-date periods of 1999, respectively, as compared
to the corresponding prior-year periods.
Gross margin, as a percentage of sales, declined by approximately 380
basis points to 25.6 percent in the second quarter of 1999 and from 29.4 percent
to 26.1 percent for the twenty-six weeks ended July 31, 1999, as compared to the
corresponding prior-year periods. This decline principally reflects increased
occupancy costs in the Global Athletic Group as a result of additional stores at
July 31, 1999 compared to August 1, 1998, and inventory markdowns of $12 million
in the second quarter of 1999 associated with the Registrant's restructuring
plan to exit eight non-core businesses. Excluding the inventory markdowns of $12
million, gross margin declined by approximately 270 basis points in the second
quarter.
Selling, general and administrative expenses ("SG&A") of $249 million
declined approximately 90 basis points to 23.4 percent of sales in the second
quarter of 1999 as compared with the corresponding prior-year period. SG&A of
$506 million for the twenty-six weeks ended July 31, 1999, declined
approximately 140 basis points to 23.6 percent of sales. These declines reflect
the Registrant's successful cost cutting initiatives at both the corporate and
divisional levels. The Registrant expects to reduce its 1999 corporate and
divisional operating expenses by $100 million, compared to 1998, and to further
cut corporate costs to one percent of sales by 2001.
-9-
12
During the second quarter of 1999, the Registrant approved a
restructuring plan to exit eight non-core businesses: The San Francisco Music
Box Company, Randy River Canada, Foot Locker Outlets, Colorado, Team Edition,
Going to the Game, Weekend Edition and Burger King franchises. Restructuring
charges of $64 million pre-tax ($39 million after-tax) were recorded in the
second quarter. Inventory markdowns of $12 million were included in cost of
sales while the remaining $52 million restructuring charge was included in
operating expenses. The Registrant expects to record a further charge in
connection with the restructuring of approximately $3 million before-tax ($2
million after-tax) in 1999 related to severance.
Depreciation and amortization of $46 million and $91 million for the
second quarter and the twenty-six weeks ended July 31, 1999 increased
approximately 30 percent compared to the corresponding prior-year periods. The
increase reflects depreciation and amortization of assets included in the 1998
capital expenditure program, which concentrated on new store openings and
remodeling of existing facilities, and also included management information
systems.
Interest expense, net of interest income, increased $11 million for the
twenty-six weeks ended July 31, 1999, as compared with the corresponding
prior-year period. The increase reflects $8 million incremental interest expense
attributable to higher interest rates and fees, and increased levels of average
short-term borrowing during 1999. Interest income of $5 million for the
twenty-six weeks ended July 31, 1999 primarily related to income tax refunds in
the first quarter of 1999, whereas the corresponding prior-year period included
interest income of $8 million, which reflected the franchise tax settlement in
the second quarter of 1998.
Corporate income, included in other income, of $31 million for the
twenty-six weeks ended July 31, 1999, reflects real estate gains of $24 million
primarily related to the second quarter sale of two properties, and the
recognition of $7 million of the deferred gain recorded on the 1998 sale of the
corporate headquarters. This compares to other income of $19 million recorded in
the first quarter of 1998 for the sale of the Registrant's Garden Centers
nursery business.
The Registrant reported a net loss for the quarter and year-to-date
periods ended July 31, 1999 of $31 million and $42 million, respectively, or
$0.23 and $0.31 per diluted share. The second quarter of 1999 includes income
from discontinued operations of $10 million after-tax, or $0.07 per diluted
share, which reflects favorable results from Specialty Footwear real estate
disposition compared to original estimates. The Registrant reported a net loss
for the thirteen and twenty-six weeks ended August 1, 1998 of $13 million and
$18 million, respectively, or $0.09 and $0.13 per diluted share, which include
$19 million and $32 million loss from discontinued operations, respectively.
STORE COUNT
Jan. 30, July 31, Aug. 1,
1999 Opened Closed 1999 1998
---- ------ ------ ---- ----
Global Athletic Group 3,925 78 126 3,877 3,793
Northern Group ...... 940 15 17 938 872
All Other ........... 1,137 12 49 1,100 1,199
----- ----- ----- ----- -----
Total ............ 6,002 105 192 5,915 5,864
===== ===== ===== ===== =====
Included in the store count at July 31, 1999 are 134 Global Athletic
stores and 337 All Other stores related to the eight non-core businesses held
for disposal. During the twenty-six weeks ended July 31, 1999, the Registrant
remodeled or relocated 148 stores.
-10-
13
SALES
The following table summarizes sales by segment, after reclassification
for businesses disposed and held for disposal. The disposed and held for
disposal category represents all businesses sold or closed or held for disposal
other than the discontinued segments, and are therefore included in continuing
operations.
Thirteen weeks ended Twenty-six weeks ended
----------------------- -------------------------
(in millions) July 31, August 1, July 31, August 1,
1999 1998 1999 1998
---- ---- ---- ----
Global Athletic Group ........ $ 874 $ 870 $1,788 $1,769
Northern Group ............... 86 85 155 159
All Other .................... 52 45 102 88
Disposed and held for disposal 51 43 97 85
------ ------ ------ ------
Total sales ............... $1,063 $1,043 $2,142 $2,101
====== ====== ====== ======
Global Athletic Group sales increased by 0.5 percent and by 1.1 percent
for the 1999 second quarter and year-to-date periods, as compared with the
corresponding prior-year periods. These increases were primarily attributable to
improved sales performance at remodeled and relocated stores, offset by a
comparable-store sales decline of 0.4 percent for both the second quarter and
year-to-date periods. Sales for 1999 were impacted by continued weak sales of
branded and licensed apparel, offset by increased sales of high-end performance
athletic footwear, primarily running.
Excluding the impact of foreign currency fluctuations, Northern Group
sales remained flat for the second quarter of 1999 and declined by 1.2 percent
for the year-to-date period. Comparable-store sales declined by 3.6 percent for
the second quarter, reflecting an improvement over first quarter trends.
The increase in sales of the All Other category was driven by the
continued double-digit growth in the Afterthoughts jewelry format. Comparable-
store sales increased by 6.0 percent and by 15.0 percent for the 1999 second
quarter and year-to-date periods, respectively.
-11-
14
OPERATING RESULTS
Operating results reflect income (loss) from continuing operations
before income taxes, excluding corporate expense (income) and net interest
expense. The following table summarizes operating profit (loss) by segment,
after reclassification for businesses disposed and held for disposal.
Thirteen weeks ended Twenty-six weeks ended
----------------------- -------------------------
(in millions) July 31, August 1, July 31, August 1,
1999 1998 1999 1998
---- ---- ---- ----
Global Athletic Group .......... $ 14 $ 38 $ 43 $ 87
Northern Group ................. (6) (7) (22) (16)
All Other ...................... 5 - 10 (2)
Disposed and held for disposal . (75) (7) (90) 4
---- ---- ---- ----
Total operating profit (loss) $(62) $ 24 $(59) $ 73
==== ==== ==== ====
The Global Athletic Group's operating profit declined by 63.2 percent
and by 50.6 percent for the thirteen and twenty-six weeks ended July 31, 1999 as
compared with the corresponding prior-year periods. These declines principally
reflect higher occupancy costs, increased markdowns in most formats, offset, in
part, by reduced promotional markdown activity in Europe in the first half of
1999 compared to 1998, as well as the additional depreciation and amortization
of remodeled stores in 1999.
The Northern Group reported operating losses for both the quarter and
year-to-date periods in 1999, as a result of declining sales and continued
markdown activity in order to achieve optimal inventory assortments, while
Afterthoughts, included in the All Other category, reported operating profits of
$5 million and $10 million for the thirteen and twenty-six weeks ended July 31,
1999, reflecting increased sales and improved gross margins compared to the
corresponding prior-year periods.
Operating results for businesses disposed and held for disposal include
restructuring charges of $64 million related to the eight non-core businesses to
be exited for the thirteen and twenty-six weeks ended July 31, 1999, and the $19
million gain on the sale of the Garden Centers nursery business for the
twenty-six weeks ended August 1, 1998.
SEASONALITY
The Registrant's businesses are seasonal in nature. Historically, the
greatest proportion of sales and net income is generated in the fourth quarter
and the lowest proportions of sales and net income are generated in the first
and second quarters, reflecting seasonal buying patterns. As a result of these
seasonal sales patterns, inventory generally increases in the third quarter in
anticipation of the strong fourth quarter sales.
-12-
15
LIQUIDITY AND CAPITAL RESOURCES
The Registrant's primary sources of working capital have been cash
flows from operations, borrowings under the revolving credit agreement,
financing real estate with operating leases, and proceeds from the sale of
non-strategic assets. The principal use of cash has been to finance inventory
requirements, which are generally at their peak during the third and fourth
quarters, capital expenditures related to store openings, store remodelings and
management information systems, and to fund other general working capital
requirements.
Operating activities of continuing operations reduced cash by $94
million for the twenty-six weeks ended July 31, 1999, as compared with $247
million in the corresponding prior-year period. These amounts reflect the net
loss reported by the Registrant in those periods, adjusted for non-cash items
and working capital changes. The change in cash used for merchandise inventories
and accounts payable primarily reflects the additional inventory purchases in
1998 related to the opening of new larger-size athletic formats, coupled with
the decline in inventories per square foot in 1999. Merchandise inventories of
$862 million at July 31, 1999 (including $50 million related to the eight
non-core businesses to be exited included in assets held for disposal) declined
by $133 million from $995 million at August 1, 1998. Included in other cash
flows from operations for the twenty-six weeks ended August 1, 1998 is the cash
outlay for occupancy costs for an additional month of approximately $45 million
due to the timing of the month-end.
Net cash used in investing activities of continuing operations was $74
million and $226 million for the first half of 1999 and 1998, respectively.
Capital expenditures of $97 million for the twenty-six weeks ended July 31, 1999
primarily related to store remodelings as compared with $224 million for the
corresponding prior-year period. Planned capital expenditures of $175 million
for 1999 include expenditures for 350 new and remodeled stores, management
information systems, logistics and other support facilities. Proceeds from real
estate disposition activities contributed $23 million in 1999, which primarily
reflected the sale of two properties in the second quarter. In the first quarter
of 1998, cash used for the acquisition of Athletic Fitters of $29 million, was
offset by $22 million cash proceeds received from the sale of the Garden Centers
nursery business.
Financing activities for the Registrant's continuing operations
contributed $84 million in cash for the twenty-six weeks ended July 31, 1999 and
$459 million in cash for the corresponding prior-year period. Outstanding
borrowings under the Registrant's revolving credit agreement were $332 million
and $451 million at July 31, 1999 and August 1, 1998, respectively and have been
classified as short-term debt. The Registrant incurred incremental interest
expense for the first half of 1999 compared to 1998, attributable to higher
interest rates and fees, and increased levels of average short-term borrowings.
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. The Registrant expects to fund the repayment of its $200 million 7.0
percent debentures due in June 2000 through future financing and/or asset sales.
-13-
16
YEAR 2000 READINESS DISCLOSURE
The Year 2000 ("Y2K") issue is the result of computer programs being
written using two digits, rather than four, to define the applicable year.
Mistaking "00" for the year 1900 could result in miscalculations and errors and
cause significant business interruptions for the Registrant, as well as for the
government and most other companies. The Registrant has instituted a plan to
assess its state of readiness for Y2K, to remediate those systems that are
non-compliant and to assure that material third parties will be Y2K compliant.
State of Readiness
The Registrant has assessed all operating and application systems
(including point of sale) for Y2K readiness, giving the highest priority to
those information technology applications (IT) systems that are considered
critical to its business operations. Those applications considered most
critical to the Registrant's business operations have been remediated. The
necessary enhancements to the point of sale equipment are complete and all
stores have been upgraded with the Y2K remediated release of store systems
software. Code changes have been made to the merchandising and logistics legacy
systems, and remediation is complete. In July, the Registrant performed a test
of its Y2K compliant (and recently upgraded) operating software on an isolated
processor, and the Registrant considered the results of the test to be
satisfactory. In-house certification testing of all application systems
continues and the Registrant expects to complete its testing of application
software using this upgraded operating system infrastructure by the end of the
third quarter.
Apart from the Y2K issue, the Registrant has developed and installed
throughout its businesses beginning in 1997 an information computer system
("ECLIPSE"), which will be installed in most divisions for the finance and human
resources functions during 1999. The ECLIPSE project was undertaken for business
reasons unrelated to Y2K. However, the installation of ECLIPSE eliminates the
need to reprogram or replace certain existing software for Y2K compliance.
The Registrant has compiled a comprehensive inventory of its non-IT
systems, which include those systems containing embedded chip technology
commonly found in buildings and equipment connected with a building's
infrastructure. Management has established the priority of systems identified as
non-compliant and ongoing testing and implementation of any changes required for
the non-IT systems will be performed throughout 1999. Investigations of the
embedded chip systems indicate that Y2K will not affect systems such as heating,
ventilation and security in most store locations.
Material Third Parties
The Registrant purchased approximately 44 percent of its 1998
merchandise from one major vendor. As a result, the Registrant's ability to
operate could be materially affected by the non-compliance of this key
supplier. Management has determined through several meetings and interviews
that this vendor's Y2K readiness program is substantially complete. Electronic
Data Interchange software was successfully tested with this vendor, as well as
other key vendors, and joint contingency plans have been developed for
distribution and order entry. Management does not expect the state of readiness
of other vendors to have a material adverse impact on the Registrant's ability
to operate. The level of compliance of the Registrant's major providers of
banking services, transportation, telecommunications and utilities and the
related risks continue to be evaluated.
-14-
17
Y2K Costs
The Registrant is utilizing both internal and external resources to
address the Y2K issue. Internal resources reflect the reallocation of IT
personnel to the Y2K project from other IT projects. In the opinion of
management, the deferral of such other projects will not have a significant
adverse effect on continuing operations. The total direct cost, excluding
ECLIPSE, to remediate the Y2K issue is estimated to be approximately $5.8
million, of which $3 million was spent in 1998 and a further $1.2 million in the
first half of 1999. All costs, excluding ECLIPSE, are being expensed as incurred
and are funded through operating cash flows. The Registrant's Y2K costs are
based on management's best estimates and may be updated, as additional
information becomes available. Management does not expect the total Y2K
remediation costs to be significant to its results of operations or financial
condition.
Contingency Plan/Risks
The Registrant's contingency plans for those areas that might be
affected by Y2K are substantially complete. Contingency store operating
procedures will be distributed to store managers to be used in the event of
foreseeable business interruptions. Joint contingency plans have been developed
with the Registrant's key vendor to provide for a smooth flow of inventory from
this vendor to the Registrant over the year-end. If distribution channels were
to be disrupted, the Registrant expects to have alternative methods of
delivering merchandise to its stores in place. Certain IT and other personnel
will be available throughout the millennium date change to correct any issues
that may arise. Although the full consequences are unknown, the failure of
either the Registrant's critical systems or those of its material third party
suppliers to be Y2K compliant would result in the interruption of the
Registrant's business, which could have a significant adverse effect on its
results of operations or financial condition. However, if any business
interruptions occur in January 2000, and they are promptly corrected,
management expects it would not significantly impact the Registrant's results
of operations or financial position. Typically, at that time of year, after the
holiday season, there is lower customer demand and borrowing requirements are
not at their peak. In addition, successful inventory and working capital
management, along with the contingency plans for store operations, will help
mitigate the risks associated with the Y2K issue. However, some business
disruptions may occur even with defensive contingency plans.
IMPACT OF EUROPEAN MONETARY UNION
The European Union is comprised of fifteen member states, eleven of
which adopted a common currency, the "euro," effective January 1, 1999. From
that date until January 1, 2002, the transition period, the national currencies
will remain legal tender in the participating countries as denominations of the
euro. Monetary, capital, foreign exchange and interbank markets have converted
to the euro and non-cash transactions will be possible in euros. On January 1,
2002, euro bank notes and coins will be issued and the former national
currencies will be withdrawn from circulation no later than July 1, 2002.
The Registrant has reviewed the impact of the euro conversion on its
information systems, accounting systems, vendor payments and human resources.
Modifications required to be made to the point of sale hardware and software
will be facilitated by the Y2K remediation.
The adoption of a single European currency will lead to greater product
pricing transparency and a more competitive environment. The Registrant will
display the euro equivalent price of merchandise as a customer service during
the transition period, as will many retailers, until the official euro
conversion in 2002. The euro conversion is not expected to have a significant
effect on the Registrant's results of operations or financial condition.
-15-
18
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
Management's Discussion and Analysis of Financial Condition and Results
of Operations contains forward-looking statements within the meaning of the
federal securities laws. All statements, other than statements of historical
facts, which address activities, events or developments that the Registrant
expects or anticipates will or may occur in the future, including such things as
future capital expenditures, expansion, strategic plans, growth of the
Registrant's business and operations, Y2K and euro related actions and other
such matters are forward-looking statements. These forward-looking statements
are based on many assumptions and factors including effects of currency
fluctuations, consumer preferences and economic conditions worldwide and the
ability of the Registrant to implement, in a timely manner, the programs and
actions related to the Y2K and euro issues. Any changes in such assumptions or
factors could produce significantly different results.
-16-
19
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 or
results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
Information on the results of the Registrant's 1999 annual meeting of
shareholders, which was held on July 16, 1999, is incorporated herein
by reference to the Registrant's report on Form 8-K filed with the
Securities and Exchange Commission on August 19, 1999.
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 19 through 21. 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 19, 1999 (date of
earliest event reported) reporting sales and earnings for the first
quarter ended May 1, 1999.
-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 9, 1999 /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 4.2 of the
Registration Statement on Form S-8
(Registration No. 333-62425) previously
filed with the SEC).
4.1 The rights of holders of the
Registrant's equity securities are
defined in the Registrant's Certificate
of Incorporation, as amended
(incorporated herein by reference to
Exhibits 3(i)(a) and 3(i)(b) to the July
26, 1997 Form 10-Q and Exhibit 4.2(a) to
the Registration Statement on Form S-8
(Registration No. 333-62425) previously
filed with the SEC).
4.2 Rights Agreement dated as of March
11, 1998 ("Rights Agreement"), between
Venator Group, Inc. and First Chicago
Trust Company of New York, as Rights
Agent (incorporated herein by reference
to Exhibit 4 to the Form 8-K dated March
11, 1998).
4.2(a) Amendment No. 1 to the Rights
Agreement, dated as of May 28, 1999
(incorporated herein by reference to
Exhibit 4.2(a) to the Quarterly Report
on Form 10-Q for the quarterly period
ended May 1, 1999, filed by the
Registrant with the SEC on June 4,
1999).
-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 % Debentures due 2022
(incorporated herein by reference to
Exhibit 4 to the Registrant's Form 8-K
dated January 16, 1992).
4.6 Purchase Agreement dated June 1,
1995 and Form of 7% Notes due 2000
(incorporated herein by reference to
Exhibits 1 and 4, respectively, to the
Registrant's Form 8-K dated June 7,
1995).
4.7 Distribution Agreement dated July
13, 1995 and Forms of Fixed Rate and
Floating Rate Notes (incorporated herein
by reference to Exhibits 1, 4.1 and 4.2,
respectively, to the Registrant's Form
8-K dated July 13, 1995).
5 *
8 *
9 *
10 Agreement with John F. Gillespie dated
June 23, 1999.
11 *
12 Computation of Ratio of Earnings to Fixed
Charges.
13 *
15 Letter re: Unaudited Interim Financial
Statements.
-20-
23
Exhibit No. in Item 601
of Regulation S-K Description
- ----------------------- -----------
16 *
17 *
18 *
19 *
20 *
21 *
22 *
23 *
24 *
25 *
26 *
27.1 Financial Data Schedule - July 31,
1999 (which is submitted electronically
to the SEC for information only and not
filed).
27.2 Restated Financial Data Schedule -
August 1, 1998 (which is submitted
electronically to the SEC for
information only and not filed).
99 Independent Accountants' Review
Report.
* Not applicable
-21-
24
Exhibits filed with this Form 10-Q:
Exhibit No. Description
----------- -----------
10 Agreement with John F. Gillespie
dated June 23, 1999.
12 Computation of Ratio of Earnings to
Fixed Charges.
15 Letter re: Unaudited Interim Financial
Statements.
27.1 Financial Data Schedule - July 31,
1999.
27.2 Restated Financial Data Schedule -
August 1, 1998.
99 Independent Accountants' Review
Report.
1
EXHIBIT 10
June 23, 1999
Mr. John F. Gillespie
8 Pond Edge Road
Westport, Connecticut 06880
Dear John:
This letter sets forth our understanding and agreement with respect to
your resignation as Senior Vice President - Human Resources of Venator Group,
Inc. (the "Company"), effective on the Termination Date, as hereinafter defined,
and sets forth the arrangements to which we have agreed.
You and the Company are parties to a Senior Executive Severance
Agreement dated May 5, 1999 (the "Severance Agreement"), a copy of which is
annexed hereto as Attachment A, and the arrangements set forth in this letter
agreement are intended to memorialize the obligations of each party to the other
thereunder in light of your resignation.
1. Termination of Employment. Your employment with the Company shall
continue until July 2, 1999 (the "Termination Date"). You shall resign as Senior
Vice President - Human Resources of the Company, and from all other positions
you hold with the Company or any of its subsidiaries, as of the close of
business on the Termination Date and you shall execute and deliver a letter of
resignation in the form annexed hereto as Attachment B as of such date.
2. Payments. Provided you continue to be employed by the Company on the
Termination Date and have satisfactorily performed your responsibilities through
such date, the Company shall make the following payments to you:
(a) On the latter of the Termination Date or the eighth day following
the day you sign and return this agreement to us, $177,500, being 50 percent of
the total Severance Benefit payable to you under the provisions of the Severance
Agreement, payable pursuant to the provisions of Section 3(a) thereof.
(b) On the latter of the Termination Date or the eighth day following
the day you sign and return this agreement to us, an additional amount of
$29,585.
(c) On the first anniversary of the Termination Date, provided you have
met the requirements set out in Sections 3(b) and 3(c) of the Severance
Agreement, $177,500 plus interest for the period from the Termination Date to
the date on which payment is made, calculated at the prime rate of interest as
stated in The Wall Street Journal on the Termination Date. For purposes of
determining
2
whether you have engaged in "Competition" under Section 3(c) of the Severance
Agreement, a "business in competition with any business conducted by any member
of the Control Group for which Executive worked at any time", as used in Section
1(i) of the Severance Agreement, shall be any retail or wholesale business
located in North America, the European Union, Japan, or Australia selling
athletic footwear, athletic apparel, or sporting goods to or through retail
stores, catalogs, or the Internet.
(d) On the Termination Date, in accordance with the Company"s normal
policies and practices, (i) salary and reimbursement of any business expenses
related to the period prior to the Termination Date and (ii) an amount in lieu
of any accrued but unused vacation as of the Termination Date.
(e) You shall not be entitled to receive any payment under the Annual
Incentive Compensation Plan for 1999 or under the Long-Term Incentive
Compensation Plan for any period.
(f) All amounts payable to you hereunder shall be subject to
appropriate withholding for federal, state, and local income taxes.
3. Stock Option and Stock Purchase Plans. (a) All unexercised stock
options granted to you prior to the date hereof and not exercised or cancelled
on or before the Termination Date, pursuant to the provisions of the 1995 or the
1998 Venator Group Stock Option and Award Plans (the "Award Plans"), shall
remain exercisable in accordance with the relevant provisions of the Award
Plans. Your "effective date of termination" for purposes of the Award Plans
shall be the Termination Date and your termination shall, for the purposes of
such plans, be treated as your resignation from your position with the Company.
(b) The restrictions on the Restricted Stock granted to you on February
1, 1999 under the Award Plans shall not lapse and such shares of Restricted
Stock shall revert to the Company as of the Termination Date.
(c) Your right to participate in the 1994 Venator Group Employees Stock
Purchase Plan shall be in accordance with the terms of such plan and shall cease
as of the Termination Date.
4. Pension Benefits. You are not vested under the Venator Group
Retirement Plan and the Excess Cash Balance Plan, and you shall not be entitled
to any payments or other benefits from such plans or from the Supplemental
Executive Retirement Plan.
5. Other Benefits. (a) You shall continue to be eligible, following the
Termination Date, to continue to participate in any group medical, dental, or
life insurance plan you have participated in immediately prior to the
Termination Date, in accordance with, and for the time periods specified, in
Section 3(e) of the Severance Agreement. Your participation in the group
disability and voluntary accidental death and dismemberment plans for active
employees of the Company shall cease on the
2
3
Termination Date. The Company will continue payment of the premiums for the
universal life insurance policy with MetLife presently in place, which policy is
owned by you, for the same period you are eligible to continue to participate in
group medical, dental, or life insurance plans under the provisions of Section
3(e) of the Severance Agreement.
(b) The Company shall provide to you, at its expense, until the earlier
of the first anniversary of the Termination Date or such time as you shall have
secured other full-time employment, the services of an out-placement consultant
selected by the Company.
6. Confidential Information and Non-Disparagement. (a) You acknowledge
that, following the Termination Date, you will continue to be bound by the
provisions of Section 14 of the Severance Agreement ("Confidentiality"). You
shall not, between the date hereof and the Termination Date, remove any
Confidential Information from the offices of the Company and you shall, on or
before the Termination Date, return all Confidential Information in your
possession, in whatever form, to the Company. The existence of this agreement
and the terms hereof shall be considered to be Confidential Information.
(b) During the period during which you are receiving, or entitled to
receive, any payments hereunder, you shall not make any statements or comments
(i) to any form of media or likely to come to the attention of any form of media
of a negative nature that reasonably could be considered to have an adverse
impact on the business or reputation of the Company or of any officer, employee,
or director thereof, or (ii) to any employee of the Company or to any supplier
or customer of the Company of a negative nature that could reasonably be
considered to have an adverse impact on the business of the Company or of any
officer, employee, or director of the Company; provided, however, that in no
event shall the foregoing limitations apply to (V) compliance with legal process
or subpoena, (W) statements in response to an inquiry from a court or regulatory
body, (X) in rebuttal of media stories with regard to you, (Y) to a possible
future employer in connection with employment discussions, or (Z) in response to
an inquiry from the Company.
You acknowledge that a violation by you of the provisions of this Section 6 or
of the provisions of Section 14 of the Severance Agreement would cause
irreparable injury to the Company for which there would be no adequate remedy at
law.
7. Release from Claims. In consideration of all of the foregoing, you,
for yourself and for your heirs, executors, administrators, successors, and
assigns, hereby agree to release and forever discharge the Company and its
subsidiaries and affiliates, and their respective officers and directors, from
any and all actions, causes of action, claims, demands, and liabilities of
whatsoever nature arising out of, or in connection with, your employment with
the Company and any of its subsidiaries and affiliates, or otherwise, whether
arising before or after the date hereof. The foregoing shall include, but not be
limited to, any claim of employment discrimination under the Age Discrimination
in Employment Act of 1967, the New York State Human Rights Law, or any other
federal or state labor relation law, equal employment opportunity law, or civil
rights law, regulation or order. Federal law requires that we advise you to
consult with an attorney of your choice (at your own cost).
3
4
In addition, federal law also provides that you have 21 days from the date of
this letter to consider your decision to agree to the terms of this agreement,
including any release of the Company and its subsidiaries, from liability as
provided in this paragraph. Furthermore, you have the right to change your mind
at any time within one week after signing. In addition, you hereby acknowledge
that you have been given full opportunity to review this letter, including
sufficient opportunity to review this letter, including sufficient opportunity
for appropriate review with any advisors selected by you. The foregoing shall
not constitute a release of any and all claims you may have against the Company
for breach of any of the provisions of this letter agreement.
You understand and agree that the payments and benefits provided for in
this letter agreement shall be in lieu of any and all amounts that would be
payable to you, and that no other amounts will be paid to you for any reason
whatsoever.
8. Assignment. Neither this letter agreement, nor any of the rights
arising hereunder, may be assigned by you. You agree to execute such additional
documents as the Company may require to carry out this letter agreement.
9. Miscellaneous. This letter agreement and the Severance Agreement
represent our total understanding and agreement with regard to the subject
matter hereof, and supersede any previous discussions or writings. This letter
agreement may not be amended or modified, and no term or provision hereof may be
waived or discharged, unless agreed to in writing by you and the Company. The
invalidity or unenforceability of any provision of this letter agreement shall
not affect the validity or enforceability of any other provision hereof.
The section headings herein are for convenience of reference only and
shall not affect or be utilized in the construction or interpretation of this
letter agreement.
This letter agreement may be executed in counterparts, each of which,
when so executed, shall be deemed an original and all of which, when taken
together, shall constitute one and the same agreement.
The offer of the Company contained in this letter agreement shall
terminate and be of no further force and effect at 12:01 A.M. New York City time
on the twenty-second day following the delivery of this letter to you, unless
you have signed and returned the letter to us, unaltered, before such date and
time.
10. Governing Law. This letter agreement shall be governed by, and
construed under, the laws of the State of New York applicable to contracts made
between residents of such state and to be wholly performed in such state.
4
5
If this letter agreement correctly sets forth our agreement, please
execute the duplicate copy of this letter agreement enclosed for that purpose,
and deliver it to us, at which time this letter agreement shall serve as a
binding and enforceable agreement between us.
Very truly yours,
VENATOR GROUP, INC.
By:/s/ Dale W. Hilpert
-------------------
President
Agreed:
/s/ John F. Gillespie
- ---------------------
John F. Gillespie
Witnessed:
/s/ Cynthia Williams
- --------------------
Date:6/24/99
-------
5
6
ATTACHMENT A
AGREEMENT
THIS AGREEMENT made as of May 5, 1999 by and between VENATOR GROUP,
INC., a New York corporation with its principal office at 233 Broadway, New
York, New York 10279 (the "Company") and John F. Gillespie, residing at Eight
Pond Edge Road, Westport, Connecticut 06880 (the "Executive").
W I T N E S S E T H:
WHEREAS, the Company believes that the establishment and maintenance of
a sound and vital management of the Company is essential to the protection and
enhancement of the interests of the Company and its shareholders; and
WHEREAS, the Company wishes to offer a form of protection to the
Executive, as one of a select group of officers and key employees of the Company
and its Affiliates, in the event the Executive's employment with the Control
Group terminates; and
WHEREAS, the Company also recognizes that the possibility of a Change
in Control of the Company, with the attendant uncertainties and risks, might
result in the departure or distraction of the Executive to the detriment of the
Company; and
WHEREAS, the Company wishes to induce the Executive to remain with the
Control Group, and to reinforce and encourage the Executive's continued
attention and dedication, when faced with the possibility of a Change in Control
of the Company; and
WHEREAS, this Agreement amends and supersedes any employment agreement,
severance plan, policy and/or practice of the Company in effect for the
Executive.
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, the parties hereto hereby agree as follows:
1. Definitions. The following terms shall have the meanings set
forth in this section as follows:
(a) "Affiliate" shall mean the Company and any entity affiliated with
the Company within the meaning of Code Section 414(b) with respect to a
controlled group of corporations, Code Section 414(c) with respect to trades or
businesses under common control with the Company, Code Section 414(m) with
respect to affiliated service groups and any other entity required to be
aggregated with
7
the Company under Section 414(o) of the Code. No entity shall be treated as an
Affiliate for any period during which it is not part of the controlled group,
under common control or otherwise required to be aggregated under Code Section
414.
(b) "Beneficiary" shall mean the individual designated by the
Executive, on a form acceptable by the Committee, to receive benefits payable
under this Agreement in the event of the Executive's death. If no Beneficiary is
designated, the Executive's Beneficiary shall be his or her spouse, or if the
Executive is not survived by a spouse, the Executive's estate.
(c) "Board" shall mean the Board of Directors of the Company.
(d) "Bonus" shall mean an amount equal to the target bonus expected to
be earned by the Executive under the Company's Annual Incentive Compensation
Plan or such other annual bonus plan or program that may then be applicable to
the Executive in a fiscal year, if the applicable target performance goal is
satisfied.
(e) "Cause" shall mean (with regard to the Executive's termination of
employment with the Control Group): (i) the refusal or willful failure by the
Executive to substantially perform his or her duties, (ii) with regard to the
Control Group or any of their assets or businesses, the Executive's dishonesty,
willful misconduct, misappropriation, breach of fiduciary duty or fraud, or
(iii) the Executive's conviction of a felony (other than a traffic violation) or
any other crime involving, in the sole discretion of the Committee, moral
turpitude.
(f) "Change in Control" shall have the meaning set forth in Appendix A
attached hereto.
(g) "Code" shall mean the Internal Revenue Code of 1986, as amended and
as hereafter amended from time to time.
(h) "Committee" shall mean the Compensation Committee of the Board or
an administrative committee appointed by the Compensation Committee.
(i) "Competition" shall mean the (i) participating, directly or
indirectly, as an individual proprietor, stockholder, officer, employee,
director, joint venturer, investor, lender, or in any capacity whatsoever
(within the United States of America, or in any country where any of the
Executive's former employing members of the Control Group does business) in a
business in competition with any business conducted by any member of the Control
Group for which the Executive worked at any time, provided, however, that such
participation shall not include (A) the mere ownership of not more than 1
percent of the total outstanding stock of a publicly held company; (B) the
performance of services for any enterprise to the extent such services are not
performed, directly or indirectly, for a business in which any of the Employee's
employing members of the Control Group is engaged; or (C) any activity engaged
in with the prior written approval of the Board or the Committee; or (ii)
intentional recruiting, soliciting or inducing, of any employee or employees of
the Control Group to
2
8
terminate their employment with, or otherwise cease their relationship with the
former employing members of the Control Group where such employee or employees
do in fact so terminate their employment.
(j) "Control Group" shall mean the Company and its Affiliates.
(k) "Good Reason" shall mean (with respect to an Executive's
termination of employment with the Control Group): (i) any material demotion of
the Executive or any material reduction in the Executive's authority or
responsibility, except in each case in connection with the termination of the
Executive's employment for Cause or disability or as a result of the Executive's
death, or temporarily as a result of the Executive's illness or other absence;
(ii) prior to a Change in Control, a reduction in the Executive's rate of base
salary as payable from time to time, other than a reduction that occurs in
connection with, and in the same percentage as, an across-the-board reduction
over any three-year period in the base salaries of all executives of the Company
of a similar level and where the reduction is less than 20 percent of the
Executive's base salary measured from the beginning of such three-year period;
(iii) on or after a Change in Control, any reduction in the Executive's rate of
base salary as payable from time to time; (iv) a reduction in the Executive's
annual bonus classification level other than in connection with a redesign of
the applicable bonus plan that affects all employees at the Executive's bonus
level; (v) a failure of the Company to continue in effect the benefits
applicable to, or the Company's reduction of the benefits applicable to, the
Executive under any benefit plan or arrangement (including without limitation,
any pension, life insurance, health or disability plan) in which the Executive
participates as of the date of the Change in Control without implementation of a
substitute plan(s) providing materially similar benefits in the aggregate to
those discontinued or reduced, except for a discontinuance of, or reduction
under, any such plan or arrangement that is legally required and/or generally
applies to all executives of the Company of a similar level, provided that in
either such event the Company provides similar benefits (or the economic effect
thereof) to the Executive in any manner determined by the Company; or (vi)
failure of any successor to the Company to assume in writing the obligations
hereunder.
(l) "Salary" shall mean an Executive's base monthly cash compensation
rate for services paid to the Executive by the Company or an Affiliate at the
time of his or her termination of employment from the Control Group. Salary
shall not include commissions, bonuses, overtime pay, incentive compensation,
benefits paid under any qualified plan, any group medical, dental or other
welfare benefit plan, noncash compensation or any other additional compensation
but shall include amounts reduced pursuant to an Executive's salary reduction
agreement under Sections 125 or 401(k) of the Code (if any) or a nonqualified
elective deferred compensation arrangement to the extent that in each such case
the reduction is to base salary.
(m) "Severance Benefit" shall mean (i) in the case of the Executive's
termination of employment that does not occur within the 24 month period
following a Change in Control, two weeks' Salary plus prorated Bonus multiplied
by the Executive's Years of Service, with a minimum of 26 weeks; or (ii) in the
case of an Executive's termination of employment within the 24 month period
3
9
following a Change in Control, two weeks' Salary plus prorated Bonus multiplied
by the Executive's Years of Service, with a minimum of 104 weeks. The
Executive's prorated Bonus for one week shall equal the Executive's Bonus
divided by 52. In no event, however, shall the Severance Benefit payable to an
Executive hereunder be less than 12 months' Salary.
(n) "Severance Period" shall mean (i) in the case of the Executive's
termination of employment that does not occur within the 24 month period
following a Change in Control, two weeks multiplied by the Executive's Years of
Service, with a minimum of 52 weeks; or (ii) in the case of an Executive's
termination of employment within the 24 month period following a Change in
Control, two weeks multiplied by the Executive's Years of Service, with a
minimum of 104 weeks.
(o) "Year of Service" shall mean each 12 consecutive month period
commencing on the Executive's date of hire by the Company or an Affiliate and
each anniversary thereof in which the Executive is paid by the Company or an
Affiliate for the performance of full-time services as an Executive. For
purposes of this section, full-time services shall mean that the Employee is
employed for at least 30 hours per week. A Year of Service shall include any
period during which an Employee is not working due to disability, leave of
absence or layoff so long as he or she is being paid by the Employer (other than
through any employee benefit plan). A Year of Service also shall include service
in any branch of the armed forces of the United States by any person who is an
Executive on the date such service commenced, but only to the extent required by
applicable law.
2. Term. The initial term of this Agreement shall end on December 31 of
the year following the year in which this Agreement is entered into. On December
31 of each year, the term shall be automatically renewed for an additional one
year so that the term shall then be for two years, unless the Committee notifies
the Executive prior to any December 31 that the term shall not be renewed.
Notwithstanding anything in this Agreement to the contrary, if the Company
becomes obligated to make any payment to the Executive pursuant to the terms
hereof at or prior to the expiration of this Agreement, then this Agreement
shall remain in effect until all of the Company's obligations hereunder are
fulfilled.
3. Benefits Upon Termination. In the event the Executive's employment
with the Control Group is terminated without Cause or the Executive terminates
employment with the Control Group within 60 days after the occurrence of a Good
Reason event with regard to the Executive, the Executive shall be entitled to a
Severance Benefit as set forth below.
(a) The Executive shall receive 50 percent of his or her Severance
Benefit in the form of a lump sum cash payment as soon as administratively
feasible following his or her termination of employment with the Control Group,
provided, however, that interest shall be payable beginning on the tenth day
following such termination of employment at the prime rate of interest as stated
in The Wall Street Journal.
4
10
(b) The Executive shall receive the remaining 50 percent of his or her
Severance Benefit in the form of a lump sum cash payment as soon as
administratively feasible following the one year anniversary of the Executive's
termination of employment with the Control Group, subject to (c) below,
provided, however, that interest shall be payable beginning on the tenth day
following such termination of employment at the prime rate of interest as stated
in The Wall Street Journal. Notwithstanding the foregoing, if a Change in
Control occurs prior to the Executive's receipt of the remaining 50 percent of
his or her Severance Benefit, the Executive shall receive such remaining 50
percent within 10 days following the Change in Control (and, if not paid within
such 10 day period, with interest payable beginning on the tenth day following
the Change in Control at the prime rate of interest as stated in The Wall Street
Journal).
(c) The Executive shall only be entitled to the portion of his or her
Severance Benefit described in (b) above if the Executive does not engage in
Competition during the one year period following his or her termination of
employment with the Control Group and if the Executive has not materially
violated the provisions of Section 14 hereof. If the Executive does engage in
Competition or violates the provisions of Section 14 during such one year
period, the portion of the Executive's Severance Benefit described in (b) above
shall be forfeited. If the restriction set forth in this subsection is found by
any court of competent jurisdiction to be unenforceable because it extends for
too long a period of time or over too great a range of activities or in too
broad a geographic area, it shall be interpreted to extend over the maximum
period of time, range of activities or geographic area as to which it may be
enforceable.
(d) Notwithstanding anything to the contrary contained herein, if the
Executive's employment with the Control Group is terminated as described in the
introductory paragraph to this Section 3 following a Change in Control, (i) the
Executive shall receive 100 percent of his or her Severance Benefit in the form
of a lump sum cash payment within 10 days following his or her termination of
employment with the Control Group (and, if not paid within such 10 day period,
with interest payable beginning on the tenth day following such termination of
employment at the prime rate of interest as stated in The Wall Street Journal),
and (ii) the restriction on competition contained in Section 3(c) shall not
apply.
(e) The Executive shall continue, to the extent permitted under legal
and underwriting requirements (if any), to participate during his or her
Severance Period in any group medical, dental or life insurance plan he or she
participated in prior to his or her termination of employment, under
substantially similar terms and conditions as an active Employee; provided
participation in such group medical, dental and life insurance benefits shall
correspondingly cease at such time as the Executive becomes eligible for a
future employer's medical, dental and/or life insurance coverage (or would
become eligible if the Executive did not waive coverage). Notwithstanding the
foregoing, the Executive may not continue to participate in such plans on a
pre-tax or tax-favored basis. Notwithstanding anything else herein, the
Executive shall not be entitled to any benefits during the Severance Period
other than the benefits provided in Section 3 herein and, without limiting the
generality of the foregoing, the Executive specifically shall not be entitled to
continue to participate
5
11
in any group disability or voluntary accidental death or dismemberment insurance
plan he or she participated in prior to his or her termination of employment.
Without limiting the generality of the foregoing, the Executive shall not accrue
additional benefits under any pension plan of the Employer (whether or not
qualified under Section 401(a) of the Code) during the Severance Period,
provided, however, that payment of any Severance Benefit shall be included in
the Executive's earnings for purposes of calculating the Executive's benefit
under the Venator Group Retirement Plan, Venator Group 401(k) Plan, and Venator
Group Excess Cash Balance Plan.
(f) In the event of the Executive's death after becoming eligible for
the portion of the Severance Benefit described in (a) above and prior to payment
of such amount, such portion of the Severance Benefit shall be paid to the
Executive's Beneficiary. In addition to the foregoing, in the event of the
Executive's death prior to payment of the portion of the Severance Benefit
described in (b) above, such amount shall be paid to the Executive's
Beneficiary, but only to the extent that the Executive satisfied the provisions
set forth in (c) above for the period following the Executive's termination of
employment with the Control Group and prior to his or her death.
(g) Notwithstanding anything else herein, to the extent the Executive
would be subject to the excise tax under Section 4999 of the Code on the amounts
in (a) or (b) above and such other amounts or benefits he or she received from
the Company and its Affiliates required to be included in the calculation of
parachute payments for purposes of Sections 280G and 4999 of the Code, the
amounts provided under this Agreement shall be automatically reduced to an
amount one dollar less than that, when combined with such other amounts and
benefits required to be so included, would subject the Executive to the excise
tax under Section 4999 of the Code, if, and only if, the reduced amount received
by the Executive, would be greater than the unreduced amount to be received by
the Executive minus the excise tax payable under Section 4999 of the Code on
such amount and the other amounts and benefits received by the Executive and
required to be included in the calculation of a parachute payment for purposes
of Sections 280G and 4999 of the Code.
4. No Duty to Mitigate/Set-off. The Company agrees that if the
Executive's employment with the Company is terminated during the term of this
Agreement, the Executive shall not be required to seek other employment or to
attempt in any way to reduce any amounts payable to the Executive by the Company
pursuant to this Agreement. Further, except to the extent provided for in
Section 3(c), the amount of the Severance Benefit provided for in this Agreement
shall not be reduced by any compensation earned by the Executive or benefit
provided to the Executive as the result of employment by another employer or
otherwise. Except as otherwise provided herein, the Company's obligations to
make the payments provided for in this Agreement and otherwise to perform its
obligations hereunder shall not be affected by any circumstances, including
without limitation, any set-off, counterclaim, recoupment, defense or other
right which the Company may have against the Executive. The Executive shall
retain any and all rights under all pension plans, welfare plans, equity plans
and other plans, including other severance plans, under which the Executive
would otherwise be entitled to benefits.
6
12
5. Funding. Severance Benefits shall be funded out of the general
assets of the Company as and when they are payable under this Agreement. The
Executive shall be solely a general creditor of the Company. If the Company
decides to establish any advance accrued reserve on its books against the future
expense of benefits payable hereunder, or if the Company is required to fund a
trust under this Agreement, such reserve or trust shall not under any
circumstances be deemed to be an asset of this Agreement.
6. Administration. This Agreement shall be administered by the
Committee. The Committee (or its delegate) shall have the exclusive right,
power, and authority, in its sole and absolute discretion, to administer, apply
and interpret the Agreement and to decide all matters arising in connection with
the operation or administration of the Agreement. Without limiting the
generality of the foregoing, the Committee shall have the sole and absolute
discretionary authority: (a) to take all actions and make all decisions with
respect to the eligibility for, and the amount of, benefits payable under the
Agreement; (b) to formulate, interpret and apply rules, regulations and policies
necessary to administer the Agreement in accordance with its terms; (c) to
decide questions, including legal or factual questions, relating to the
calculation and payment of benefits under the Agreement; (d) to resolve and/or
clarify any ambiguities, inconsistencies and omissions arising under the
Agreement; (e) to decide for purposes of paying benefits hereunder, whether,
based on the terms of this Agreement, a termination of employment is for Good
Reason or for Cause; and (f) except as specifically provided to the contrary
herein, to process and approve or deny benefit claims and rule on any benefit
exclusions. All determinations made by the Committee (or any delegate) with
respect to any matter arising under the Agreement shall be final, binding and
conclusive on all parties.
Decisions of the Committee shall be made by a majority of its members
attending a meeting at which a quorum is present (which meeting may be held
telephonically), or by written action in accordance with applicable law. All
decisions of the Committee on any question concerning the interpretation and
administration of the Agreement shall be final, conclusive and binding upon all
parties.
No member of the Committee and no officer, director or employee of the
Company or any other Affiliate shall be liable for any action or inaction with
respect to his or her functions under this Agreement unless such action or
inaction is adjudged to be due to gross negligence, willful misconduct or fraud.
Further, no such person shall be personally liable merely by virtue of any
instrument executed by him or her or on his or her behalf in connection with
this Agreement.
The Company shall indemnify, to the full extent permitted by law and
its Certificate of Incorporation and By-laws (but only to the extent not covered
by insurance) its officers and directors (and any employee involved in carrying
out the functions of the Company under the Agreement) and each member of the
Committee against any expenses, including amounts paid in settlement of a
liability, which are reasonably incurred in connection with any legal action to
which such person is a party by reason of his or her duties or responsibilities
with respect to the Agreement, except with regard to matters as to which he or
she shall be adjudged in such action to be liable for gross negligence, willful
misconduct or fraud in the performance of his or her duties.
7
13
7. Claims Procedures. Any claim by the Executive or Beneficiary
("Claimant") with respect to participation, contributions, benefits or other
aspects of the operation of the Agreement shall be made in writing to the
Secretary of the Company or such other person designated by the Committee from
time to time for such purpose. If the designated person receiving a claim
believes, following consultation with the Chairman of the Committee, that the
claim should be denied, he or she shall notify the Claimant in writing of the
denial of the claim within 90 days after his or her receipt thereof (this period
may be extended an additional 90 days in special circumstances and, in such
event, the Claimant shall be notified in writing of the extension). Such notice
shall (a) set forth the specific reason or reasons for the denial making
reference to the pertinent provisions of the Agreement on which the denial is
based, (b) describe any additional material or information necessary to perfect
the claim, and explain why such material or information, if any, is necessary,
and (c) inform the Claimant of his or her right pursuant to this section to
request review of the decision.
A Claimant may appeal the denial of a claim by submitting a written
request for review to the Committee, within 60 days after the date on which such
denial is received. Such period may be extended by the Committee for good cause
shown. The claim will then be reviewed by the Committee. A Claimant or his or
her duly authorized representative may discuss any issues relevant to the claim,
may review pertinent documents and may submit issues and comments in writing. If
the Committee deems it appropriate, it may hold a hearing as to a claim. If a
hearing is held, the Claimant shall be entitled to be represented by counsel.
The Committee shall decide whether or not to grant the claim within 60 days
after receipt of the request for review, but this period may be extended by the
Committee for up to an additional 60 days in special circumstances. Written
notice of any such special circumstances shall be sent to the Claimant. Any
claim not decided upon in the required time period shall be deemed denied. All
interpretations, determinations and decisions of the Committee with respect to
any claim shall be made in its sole discretion based on the Agreement and other
relevant documents and shall be final, conclusive and binding on all persons.
8. Incompetency; Payments to Minors. In the event that the Committee
finds that a Participant is unable to care for his or her affairs because of
illness or accident, then benefits payable hereunder, unless claim has been made
therefor by a duly appointed guardian, committee, or other legal representative,
may be paid in such manner as the Committee shall determine, and the application
thereof shall be a complete discharge of all liability for any payments or
benefits to which such Participant was or would have been otherwise entitled
under this Agreement. Any payments to a minor pursuant to this Agreement may be
paid by the Committee in its sole and absolute discretion (a) directly to such
minor; (b) to the legal or natural guardian of such minor; or (c) to any other
person, whether or not appointed guardian of the minor, who shall have the care
and custody of such minor. The receipt by such individual shall be a complete
discharge of all liability under the Agreement therefor.
8
14
9. Withholding. The Company shall have the right to make such
provisions as it deems necessary or appropriate to satisfy any obligations it
may have to withhold federal, state or local income or other taxes incurred by
reason of payments pursuant to this Agreement. In lieu thereof, the Employer
shall have the right to withhold the amount of such taxes from any other sums
due or to become due from the Employer to the Executive upon such terms and
conditions as the Committee may prescribe.
10. Assignment and Alienation. Except as provided herein, the benefits
payable under this Agreement shall not be subject to alienation, transfer,
assignment, garnishment, execution or levy of any kind, and any attempt to cause
any benefits to be so subjected shall not be recognized.
11. Successors; Binding Agreement. In addition to any obligations
imposed by law upon any successor to the Company, the Company will require any
successor (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Company to expressly assume and agree in writing to perform this Agreement in
the same manner and to the same extent that the Company would be required to
perform it if no such succession had taken place. This Agreement shall inure to
the benefit of and be enforceable by the Executive's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If the Executive shall die while any amount would still
be payable to the Executive hereunder if the Executive had continued to live,
all such amounts, unless otherwise provided herein, shall be paid in accordance
with the terms of this Agreement to the Executive's Beneficiary, or the
executors, personal representatives or administrators of the Executive's estate.
12. Miscellaneous. No provisions of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing and signed by the Executive and such officer as may be specifically
designated by the Board. No waiver by either party hereto at any time of any
breach by the other party hereto of, or compliance with, any condition or
provision shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof have been made by either party which are not expressly set
forth in this Agreement. All references to sections of the Code or any other law
shall be deemed also to refer to any successor provisions to such sections and
laws.
13. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
14. Confidentiality. The Executive shall not at any time during the
term of this Agreement, or thereafter, communicate or disclose to any
unauthorized person, or use for the Executive's own account, without the prior
written consent of the Board, any proprietary processes, or other confidential
information of the Company or any subsidiary concerning their business or
affairs, accounts or customers, it being understood, however, that the
obligations of this section shall not
9
15
apply to the extent that the aforesaid matters (a) are disclosed in
circumstances in which the Executive is legally required to do so, or (b) become
generally known to and available for use by the public other than by the
Executive's wrongful act or omission.
15. Severability. If any provisions of this Agreement shall be declared
to be invalid or unenforceable, in whole or in part, such invalidity or
unenforceability shall not affect the remaining provisions hereof which shall
remain in full force and effect.
16. Arbitration. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration,
conducted before a panel of three arbitrators in New York, New York, or in such
other city in which the Executive is then located, in accordance with the rules
of the American Arbitration Association then in effect. The determination of the
arbitrators, which shall be based upon a de novo interpretation of this
Agreement, shall be final and binding and judgment may be entered on the
arbitrators' award in any court having jurisdiction. The Company shall pay all
costs of the American Arbitration Association and the arbitrator.
17. Non-Exclusivity of Rights. Nothing in this Agreement shall prevent
or limit the Executive's continuing or future participation in any benefit,
bonus, incentive or other plan or program provided by the Company or any of its
subsidiary companies and for which the Executive may qualify.
18. Governing Law. This Agreement shall be construed, interpreted, and
governed by the Employee Retirement Income Security Act of 1974, as amended. To
the extent not so governed, it shall be governed by the laws of the State of New
York (without reference to rules relating to conflicts of law).
19. Top-hat Plan. This Agreement is intended to be a "top-hat" welfare
plan within the meaning of Department of Labor Regulation Section 2520.104-24.
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed and the Executive's hand has hereunto been set as of the date first set
forth above.
VENATOR GROUP, INC.
By: /s/ Gary M. Bahler
-------------------
/s/ John F. Gillespie
---------------------
John F. Gillespie
10
16
APPENDIX A
----------
Change in Control
-----------------
A Change in Control shall mean any of the following: (i) (A) the making
of a tender or exchange offer by any person or entity or group of associated
persons or entities (within the meaning of Section 13(d)(3) or 14(d)(2) of the
Securities Exchange Act of 1934 (a "Person") (other than the Company or its
Affiliates) for shares of common stock of the Company pursuant to which
purchases are made of securities representing at least twenty percent (20%) of
the total combined voting power of the Company's then issued and outstanding
voting securities; (B) the merger or consolidation of the Company with, or the
sale or disposition of all or substantially all of the assets of the Company to,
any Person other than (a) a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving or parent entity) fifty percent (50%) or
more of the combined voting power of the voting securities of the Company or
such surviving or parent entity outstanding immediately after such merger or
consolidation; or (b) a merger or capitalization effected to implement a
recapitalization of the Company (or similar transaction) in which no Person is
or becomes the beneficial owner, directly or indirectly (as determined under
Rule 13d-3 promulgated under the Securities Exchange Act of 1934), of securities
representing more than the amounts set forth in (C) below; (C) the acquisition
of direct or indirect beneficial ownership (as determined under Rule 13d-3
promulgated under the Securities Exchange Act of 1934), in the aggregate, of
securities of the Company representing twenty percent (20%) or more of the total
combined voting power of the Company's then issued and outstanding voting
securities by any Person acting in concert as of the date of this Agreement;
provided, however, that the Board may at any time and from time to time and in
the sole discretion of the Board, as the case may be, increase the voting
security ownership percentage threshold of this item (C) to an amount not
exceeding forty percent (40%); or (D) the approval by the shareholders of the
Company of any plan or proposal for the complete liquidation or dissolution of
the Company or for the sale of all or substantially all of the assets of the
Company; or (ii) during any period of not more than two (2) consecutive years,
individuals who at the beginning of such period constitute the Board, and any
new director (other than a director designated by a person who has entered into
agreement with the Company to effect a transaction described in clause (i))
whose election by the Board or nomination for election by the Company's
stockholders was approved by a vote of at least two-thirds ( ) of the directors
then still in office who either were directors at the beginning of the period or
whose election or nomination for election was previously so approved, cease for
any reason to constitute at least a majority thereof.
17
ATTACHMENT B
- ------------
July 2, 1999
Board of Directors
Venator Group, Inc.
233 Broadway
New York, New York 10279
Gentlemen:
I hereby resign my position as Senior Vice President - Human Resources
of Venator Group, Inc. (the "Company"), and from any other position as an
officer or director that I may hold with the Company or with any subsidiary or
affiliate thereof, effective at the close of business on July 2, 1999.
Yours truly,
1
EXHIBIT 12
VENATOR GROUP, INC.
-------------------
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
-------------------------------------------------
(Unaudited)
($ in millions)
26-weeks ended Fiscal Years Ended
---------------------- ---------------------------------------------------------
July 31, Aug. 1, Jan. 30, Jan. 31, Jan. 25, Jan. 27, Jan. 28,
1999 1998 1999 1998 1997 1996 1995
NET EARNINGS
Income (loss) from continuing
operations, after-tax ................ $ (52) 14 3 213 209 29 23
Income tax expense (benefit) .......... (34) 10 (42) 120 139 34 41
Interest expense, excluding capitalized
interest ............................. 33 25 57 36 53 91 85
Portion of rents deemed representative
of the interest factor (1/3) ......... 90 82 180 163 162 157 150
----- ----- ----- ----- ----- ----- -----
$ 37 131 198 532 563 311 299
===== ===== ===== ===== ===== ===== =====
FIXED CHARGES
Gross interest expense ................ $ 34 27 64 36 53 91 85
Portion of rents deemed representative
of the interest factor (1/3) ......... 90 82 180 163 162 157 150
----- ----- ----- ----- ----- ----- -----
$ 124 109 244 199 215 248 235
===== ===== ===== ===== ===== ===== =====
RATIO OF EARNINGS TO FIXED
CHARGES .............................. 0.3 1.2 0.8 2.7 2.6 1.3 1.3
----- ----- ----- ----- ----- ----- -----
Earnings were not adequate to cover fixed charges by $87 for the twenty-six
weeks ended July 31, 1999 and by $46 million for the fiscal year ended January
30, 1999.
1
EXHIBIT 15
Accountants' Acknowledgment
---------------------------
Venator Group, Inc.
New York, New York
Board of Directors:
Re: Registration Statements Numbers 33-10783, 33-91888, 33-91886, 33-97832,
333-07215, 333-21131 and 333-62425 on Form S-8 and Numbers 33-43334 and
33-86300 on Form S-3
With respect to the subject registration statements, we acknowledge our
awareness of the use therein of our report dated August 18, 1999 related to our
review of interim financial information.
Pursuant to Rule 436(c) under the Securities Act of 1933, such report is not
considered a part of a registration statement prepared or certified by an
accountant or a report prepared or certified by an accountant within the meaning
of Sections 7 and 11 of the Act.
/s/ KPMG LLP
New York, New York
September 9, 1999
5
1,000,000
6-MOS
JAN-29-2000
JAN-31-1999
JUL-31-1999
78
0
0
0
812
1,229
0
0
2,780
1,118
313
0
0
0
1,000
2,780
2,142
2,142
1,582
1,582
91
0
28
(86)
(34)
(52)
10
0
0
(42)
(0.31)
(0.31)
5
1,000,000
6-MOS
JAN-30-1999
FEB-01-1998
AUG-01-1998
1
0
0
0
995
1,834
0
0
3,235
1,076
509
0
0
0
1,263
3,235
2,101
2,101
1,484
1,484
51
0
17
24
10
14
(32)
0
0
(18)
(0.13)
(0.13)
1
EXHIBIT 99
Independent Accountants' Review Report
--------------------------------------
The Board of Directors and Shareholders
Venator Group, Inc.:
We have reviewed the accompanying condensed consolidated balance sheets of
Venator Group, Inc. and subsidiaries as of July 31, 1999 and August 1, 1998, and
the related condensed consolidated statements of operations, comprehensive loss,
and cash flows for the twenty-six week periods ended July 31, 1999 and August 1,
1998. These condensed consolidated financial statements are the responsibility
of Venator Group, Inc. management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the condensed consolidated financial statements referred to above for
them to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Venator Group, Inc. and
subsidiaries as of January 30, 1999, and the related consolidated statements of
operations, comprehensive loss, shareholders' equity, and cash flows for the
year then ended (not presented herein); and in our report dated March 10, 1999,
except for note 23 which is as of March 19, 1999, we expressed an unqualified
opinion on those consolidated financial statements. In our opinion, the
information set forth in the accompanying condensed consolidated balance sheet
as of January 30, 1999, is fairly stated, in all material respects, in relation
to the consolidated balance sheet from which it has been derived.
/s/ KPMG LLP
New York, New York
August 18, 1999
