Footstar, Inc. announced that, in order to effect a financial and operational restructuring, it and substantially all of its subsidiaries filed voluntary petitions on March 2, 2004 with the U.S. Bankruptcy Court for the Southern District of New York in White Plains for reorganization under Chapter 11 of the U.S. Bankruptcy Code. The Company also provided an update on the status of its previously announced restatement of financial results for the period from 1997 through mid-2002.
On February 12, 2004, Footstar said that it was pursuing a number of alternatives to obtain necessary liquidity and restructure its debt and that, if none of these alternatives were successful in the near term, the Company would be required to file under Chapter 11.
Footstar also announced Wednesday that, to support its operations as it restructures, it has secured a $300 million debtor-in-possession (DIP) financing facility from a group led by Fleet National Bank and GECC Capital Markets Group, Inc. Subject to Bankruptcy Court approval, these funds will be used to satisfy obligations associated with conducting Footstar's business, including payment under normal terms for goods and services provided after today's filing and payment of wages and benefits to active employees.
Dale W. Hilpert, Chairman, President and Chief Executive Officer of Footstar, said: “With today's filing, we are proceeding on a difficult but necessary path to address Footstar's financial needs. Our objective is to use the Chapter 11 process to create a financially stable company and to maximize value for our creditors. Toward this end, we are taking a hard look at our business and all of our alternatives and expect to refocus our resources on a more profitable business base. We deeply appreciate the dedication and efforts of our associates, who have worked exceedingly hard during this challenging period for Footstar. We look forward to the support of our vendors and business partners as we move through the reorganization process.”
The Company's operations are open today and conducting business as usual. Meldisco, a leader in the licensed and discount footwear sectors and a strong cash generator, has operated the footwear departments of Kmart stores for more than 30 years. Meldisco generated revenues of approximately $1.0 billion in 2003. As of January 31, 2004, the Company's Athletic segment consists of its 431-store Footaction chain and its Just For Feet division with 88 stores. The Athletic segment posted revenues of approximately $973 million in 2003.
Among the factors contributing to the recent downturn in the Company's business were challenges associated with the Company's Just For Feet acquisition, including the high costs of its leases, as well as the loss of Meldisco sales and profitability from the closing of approximately 600 Kmart stores, where it operates leased footwear departments. In addition, over the past 15 months, the Company has been working to complete its financial restatement, requiring significant management attention and resources.
Footstar had previously announced in a press release dated January 30, 2004 that it expected to file its Form 10-K for fiscal year 2002 no later than February 27, 2004. The Company did not file by this deadline but believes its work related to the restatement is substantially complete. The Company continues to work with KPMG as it completes its work and audit.
