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                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                    FORM 10-K

                  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                    For the fiscal year ended January 3, 1998
                         Commission File Number 1-11681

                                 FOOTSTAR, INC.
             (Exact name of registrant as specified in its charter)

        Delaware                                          22-3439443
(State of incorporation)                       (IRS Employer Identification No.)

                933 MacArthur Boulevard, Mahwah, New Jersey 07430
                    (Address of principal executive offices)

       Registrant's telephone number, including area code: (201) 934-2000

          Securities registered pursuant to Section 12(b) of the Act:

                                                          Name of each exchange
         Title of each class                               on which registered
---------------------------------------                  -----------------------
Common Stock (par value $.01 per share)                  New York Stock Exchange

        Securities registered pursuant to Section 12(g) of the Act: None

                                                     Page 1 of 2 page Cover Page

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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. Yes _X_  No ____

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of registrant's  knowledge,  in the definitive proxy statement incorporated
by reference in Part III of this Form 10-K,  or any amendment to this Form 10-K.
[ ]

The  aggregate  market value of the common stock held by  non-affiliates  of the
Registrant as of January 3, 1998 was $739,767,646.*

Number of shares  outstanding  of the issuer's  Common Stock (par value $.01 per
share) at January 3, 1998: 27,872,207

                      Documents Incorporated by Reference

1.  Portions of the  registrant's  Annual Report to Shareholders  for the fiscal
    year ended  January 3, 1998:  Part I, Item 1; Part II,  Items 5, 6, 7 and 8;
    and Part IV, Item 14.

2.  Portions of the registrant's definitive Proxy Statement expected to be filed
    pursuant  to  Regulation  14A not later  than 120 days  after the end of the
    fiscal year (Janaury 3, 1998): Part III, Items 10, 11, 12 and 13.

                           Forward-Looking Statements

      This Annual Report on Form 10-K and the documents  incorporated  herein by
reference contain statements which constitute  forward-looking statements within
the  meaning of the  Private  Securities  Litigation  Reform Act of 1995.  These
statements  appear in a number of places in this Report as well as the documents
incorporated  by reference and can be  identified by the use of  forward-looking
terminology  such as "believe,"  "expect,"  "estimate,"  "plans," "may," "will,"
"should"  ,"anticipates" or similar  statements or the negative thereof or other
variations thereof. Such forward-looking statements include, without limitation,
statements made as to future operating costs, capital  expenditures,  cash flow,
improvements  in  infrastructure,  distribution  and  replenishment  systems and
operating  efficiencies,  sales and earnings  estimates or trends and  expansion
plans and  projections.  Such  forward-looking  statements  are based on current
expectations and by there nature involve known and unknown internal and external
risks,  uncertainties  and other  factors  which may cause the  actual  results,
performance or achievements to be materially  different from any future results,
performance  or  achievements  expressed  or implied.  Consequently,  all of the
forward-looking  statements  made  herein  are  qualified  by  these  cautionary
statements,  and there can be no assurance that the actual results,  performance
or achievement  will be realized.  The information  contained in this Report and
the documents  incorporated by reference as well as information  contained under
the caption "Risk  Factors" in other  Company  filings with the  Securities  and
Exchange Commission, identifies important factors that could cause such results,
performance  or  achievements  not to be  realized.  The Company  undertakes  no
obligation  to  update   forward-looking   statements   to  reflect   events  or
circumstances after the date such statements were made.

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*   For purposes of this calculation,  only voting stock  beneficially  owned by
    directors and executive  officers or members of their immediate families has
    been excluded. In making such calculation, the registrant does not determine
    the affiliate or non-affiliate status of any shares for any other purpose.


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                                     PART I

ITEM 1. BUSINESS

GENERAL

      Footstar, Inc. (the "Company") is a holding company, which directly or
indirectly, through its wholly owned subsidiaries, owns the capital stock of the
subsidiaries that operate its Footaction and Meldisco businesses and its
discontinued Thom McAn segment. The Company was organized in Delaware on March
21, 1996 and became a publicly traded company as part of the overall
restructuring of Melville Corporation ("Melville"). As part of that
restructuring plan, Melville divested its ownership interest in the Company by
means of a tax-free distribution to its stockholders on October 12, 1996 of all
of the outstanding shares of common stock of the Company.

      The Company is principally a specialty retailer conducting business in the
branded athletic footwear and apparel and discount footwear segments through its
Footaction and Meldisco businesses, respectively. The financial information
concerning industry segments required by Item 101(b) of Regulation S-K is set
forth on page 38 of the Company's Annual Report to Shareholders for the year
ended January 3, 1998 and is incorporated herein by reference.

      In general, the retailing business is seasonal in nature, with peak sales
periods during Easter, "Back-to-School" and the Christmas selling periods.
Competition is generally based upon such factors as price, style, quality,
design of product and location and design of stores.

FOOTACTION:  THE BRANDED ATHLETIC FOOTWEAR AND APPAREL BUSINESS

      Footaction, which opened its first store in 1976, is a leading mall-based
specialty retailer of branded athletic footwear, apparel and related
accessories. Its primary customers are 12 to 24 year olds for whom having the
most up-to-date athletic footwear and apparel is an important consideration. As
of January 3, 1998, Footaction operated 550 stores in 45 states and the
Caribbean region. During 1997, the Company opened 82 new Footaction stores,
including 49 stores converted from the discontinued Thom McAn business, and
remodeled, relocated or expanded 52 existing Footaction stores.

      Footaction's stores are located predominantly in enclosed regional and
neighborhood malls anchored by major department stores to take advantage of
customer traffic and the shopping preferences of Footaction's target customers.
Footaction has been growing significantly in recent years with 1997 sales
increasing 18% to $608 million and operating profit before restructuring charges
increasing 7% to $53 million. For the fiscal year ended January 3 1998,
Footaction accounted for approximately 34% of the Company's net sales and
approximately 31% of the Company's operating profit.

      The ability of Footaction to maintain its level of sales is dependent in
part on a high volume of mall traffic and the continued popularity of mall
shopping among Footaction's primary customers. Its future growth is also
dependent on its ability to open new stores in desirable mall locations.
Unfavorable developments with respect to any of these factors could have a
material adverse effect on the Company.


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      Footaction--Merchandising

      Footaction seeks to be one of the first to offer the most current and
innovative brand-name athletic footwear and apparel available to its target
customer group. Footaction constantly monitors product trends in order to
identify styles which are, or may become, popular. Footaction carries the
leading athletic footwear brands, including Nike, Reebok, Fila, Adidas,
Converse, New Balance, and Asics, as well as outdoor brands such as Timberland.
Footaction offers a selection of brand-name apparel and accessories including
warm-up suits, T-shirts, athletic shorts, caps, socks and shoe care products.
Apparel and accessory brands include Nike, Fila, Adidas and Reebok, among
others. The following table sets forth the approximate percentage of
Footaction's net sales attributable to footwear, apparel and accessories:

                Approximate Percentage of Footaction's Net Sales

                                1997              1996            1995
                                ----              ----            ----

  Footwear                       78%               77%             77%
  Apparel                        16%               17%             16%
  Accessories                     6%                6%              7%
                                ---               ---             --- 
                                100%              100%            100%
                                ===               ===             === 

      Footaction also seeks to differentiate itself from other branded athletic
footwear and apparel retailers by increasing consumer awareness and name
recognition of Footaction and establishing in the minds of its target customer
group the perception that Footaction is one of the first to offer the latest
styles. As part of this strategy, Footaction works with leading vendors such as
Nike, Fila, Adidas and Reebok to design and develop product line exclusives
based on unique designs or variations in color of the latest styles of popular
brand-name footwear.

      Footaction tailors merchandise assortment and store space allocation to
customer preferences at each store location. This is accomplished by recognizing
subtle differences in fashion preferences and demographic factors in the region
or market in which each store is located. This store-by-store merchandising
involves differences in brands, sizes, colors, fabrication and timing or the
assortment and space allocated to present such merchandise. Footaction maintains
information systems designed to manage aged inventory, assuring that its product
lines remain current.

      Footaction--Marketing

      Footaction believes that its core customers--teens and young adults, age
12 to 24--constitute 47% of total branded athletic footwear sales. And, that
within the target age group, male and female teens (age 12-17) are
over-represented among Footaction customers, accounting for 33% of Footaction
shoppers and 41% of sales.

      Footaction's marketing strategy is to build traffic, sales, and brand
awareness with its primary customers by increasing awareness of Footaction among
individuals in the target customer group and by increasing the perception among
these individuals that Footaction is one of the first to have the latest styles.

      Footaction's media advertisements typically feature both Footaction and a
branded product, and may include celebrity endorsements. The Company believes
endorsements of athletic wear by professional athletes, celebrities and other


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trend setters influence purchasing patterns and preferences among Footaction's
image and status-conscious target customers. A portion of the cost of such
advertising is offset by co-operative advertising allowances. Footaction focuses
its mass media advertising during key selling periods on core customers in the
12 to 24 year old age group.

      In-store visual merchandising programs are also an important part of
Footaction's marketing effort. Footaction believes these initiatives create
excitement at the store level and support the marketplace message that
Footaction carries the latest products. Footaction has developed a "Coming Soon"
display to announce upcoming product launches, enhancing its presentation of new
product with a "New Arrivals" tower for the latest lines, and uses "exclusive
tags" to highlight products only available at Footaction.

      Footaction has created a preferred customer card, called the Star Card,
which is designed to build a marketing database that enables Footaction to
communicate directly with customers and gain more information about their buying
habits. Star Card members receive customized birthday greetings, selected vendor
mailings and Footaction Star magazine. The Footaction Star is a magazine/catalog
combination that is mailed to Star Card holders four times a year. It is an
entertaining and informative marketing tool featuring the latest in athletic
footwear and apparel along with product availability dates. It also includes
interviews with popular athletes who appear in current Footaction advertising
campaigns, vendor profiles and other teen-relevant sports features.

      In 1997, we added a new feature with our web site at www.footaction.com,
allowing customers to view the latest in athletic footwear and apparel.

      Footaction--Competitive Environment

      Historically, the athletic footwear industry has been served by a variety
of distribution channels, including mall-based specialty athletic footwear
retailers, department stores, discount retailers, traditional shoe stores,
sporting goods stores, and "category killers" (i.e. retailers providing a
dominant assortment of selected lines of merchandise at competitive prices).
Footaction competes in the brand-name segment of the athletic footwear market,
and faces competition primarily from other mall-based athletic footwear and
sporting goods stores.

      Within the mall-based specialty athletic footwear retail environment,
Footaction's primary competitors are Woolworth Athletic, Athletes Foot and The
Finish Line. Woolworth Athletic is the largest athletic footwear retailer,
offering multiple formats designed to compete in this market segment including
Foot Locker, Lady Foot Locker, Kids Foot Locker, Champs, Athletic Express and
Going To The Game. The Finish Line competes on the basis of price, while
Footaction, Woolworth Athletic and Athletes Foot are full-price retailers.
Footaction believes that it differentiates itself from its competitors by
offering the latest styles demanded by fashion-conscious, status-oriented
consumers in an exciting shopping environment. However, there can be no
assurances that in the future these or other competitors will not have a
material adverse effect on the Company.

MELDISCO: THE DISCOUNT FOOTWEAR BUSINESS

      Meldisco has operated leased footwear departments in discount chains since
1961 and is the leading operator of leased footwear departments today. As of
January 3, 1998, Meldisco operated leased footwear departments in 2,136 Kmart
department stores, 400 PayLess Drug Stores and Thrifty Drug Stores (collectively


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"Payless Thrifty Drug Stores"), and 14 Tesco department stores located in the
Czech Republic, Slovakia and Hungary. In its Kmart leased footwear departments,
Meldisco sells a wide variety of family footwear, including men's, women's and
children's dress, casual and athletic footwear, work shoes and slippers. The
majority of the shoes offered by Meldisco in its leased footwear departments are
private label brands, although Meldisco also sells some brand-name merchandise
at discounted prices.

      For the fiscal year ended January 3 1998, Meldisco's net sales from
Kmart's operations accounted for approximately 64% of the Company's net sales
and 96% of Meldisco's net sales.

      Pursuant to an agreement between the Company and Kmart Corporation
("Kmart") entered into effective July 1, 1995, and amended as of March 1996
(collectively, the "Kmart Agreement"), and an agreement between the Company and
PayLess Drug Stores Northwest, Inc. dated October 10, 1988, the Company has the
exclusive right to operate the footwear departments in Kmart and Payless thrifty
Drug Stores. All license agreements relating to the Kmart leased departments
expire July 1, 2012 and all agreements relating to Payless thrifty Drug Stores
have terms of 25 years. All of these agreements are subject to certain
performance standards. Rental payments under all such license agreements are
based on a percentage of sales, with additional payments to be made under
certain of the license agreements with Kmart based on profits. The Company has a
51% equity interest, and Kmart has a 49% equity interest, in all the
subsidiaries which operate leased departments in Kmart stores, with the
exception of 39 such subsidiaries in which the Company has a 100% equity
interest (the "Meldisco Subsidiaries"). The Company has a 100% equity interest
in all the subsidiaries which operate leased departments in PayLess Thrifty Drug
Stores.

      The business relationship between Meldisco and Kmart is very significant
to the Company, and the loss of Meldisco's Kmart operations would have a
material adverse effect on the Company. The Kmart Agreement or any license
agreement for a particular Kmart store, may only be terminated: (i) by Kmart
with respect to any Kmart store with a footwear department which is to cease to
operate and be open for business to the public; (ii) by Kmart or Meldisco with
respect to any affected Kmart store, in the event that any footwear department
premises become unfit for use and occupancy by reason of material damage or
destruction, or as a result of condemnation; (iii) by Kmart or Meldisco if the
other party fails to make any material payments when due or to deliver any
material accounting reports as required by the Kmart Agreement, or in the event
of a material breach of any covenant, representation or warranty by the other
party, subject to the right of the party so charged to cure the breach or
failure within a specified period; (iv) by either party if Kmart or Meldisco
shall fail to pay its debts when due or becomes subject to certain insolvency,
bankruptcy or similar events; (v) at the option of the non-selling or
non-transferring party, in the event of a sale or transfer of a majority of the
outstanding shares of the other party to a single person or entity or an
affiliated group under common control; or (vi) in the event that the Meldisco
Subsidiaries fail to achieve the performance standards outlined in the Kmart
Agreement.

      Meldisco--Merchandising

      Meldisco's merchandising strategy focuses on solidifying and building upon
its current industry position while attracting Kmart shoppers who do not
currently purchase their footwear at Kmart. The essence of this two-pronged
strategy is to satisfy Meldisco's core customer with high in-stock availability
rates of its footwear products while generating interest among Kmart's


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non-footwear shoppers by providing a wider selection of well known national
brands.

      Meldisco's traditional strength has been in seasonal, work, value-priced
athletic, and children's shoes. Meldisco works to solidify its strength in these
segments by ensuring high levels of customer service and satisfaction.
Meldisco's "narrow and deep" merchandising strategy and its planned systems
innovations are designed to ensure that each store is well stocked in product
lines that are particularly popular with Meldisco's core customers. Meldisco's
demand-driven merchandise replenishment system has been designed to permit
inventory management at the store, stock unit and size level.

      Meldisco also seeks to attract more affluent Kmart non-footwear shoppers
into the footwear department from other areas of the store. To this end,
Meldisco increasingly offers selected high-quality footwear licensed by well
known national brands at prices significantly lower than comparable merchandise
sold by full-price retailers. These branded products are also intended to change
customer perceptions of "sameness" among discount footwear retailers. Licensed
brands available only at Meldisco include "Route 66", "Texas Steer" and "Cobbie
Cuddlers," a brand name licensed from and styled by Nine West. Meldisco also
launched in November 1997 the "Thom McAn" line of premium-quality shoes for men.
Meldisco is currently conducting consumer research to assess the fit of
additional brands in terms of price, positioning, and discount category
suitability.

      Meldisco is taking steps to increase customer perception of assortment
availability without increasing store inventories. Meldisco believes that
customer satisfaction and perception of assortment availability should improve
as Meldisco develops and implements systems enabling it to offer the optimal
product mix at the individual store level.

      Meldisco--Marketing

      Meldisco believes that Kmart's typical footwear shopper generally
parallels the average Kmart softlines shopper who is a "busy, budget-conscious
mom" in the 25 to 49 age group, employed at least part-time, has at least one
child under the age of 18 and reports a total annual household income between
$25,000 and $65,000. Kmart's apparel and footwear shoppers do, however, tend to
be less affluent than Kmart's overall customer base. Meldisco's marketing
initiatives are designed to support its overall business strategy of increasing
purchases among traditional Kmart footwear shoppers while attracting more
affluent current Kmart non-footwear shoppers into the footwear department from
hardlines and other areas of the store.

      Meldisco's marketing strategy is designed to convey to prospective Kmart
customers that Meldisco carries the right combination of product selection,
quality, and price to position Meldisco-operated Kmart leased footwear
departments as their discount footwear destination of choice.

      This message is communicated through weekly advertising in Kmart's
newspaper insert. Meldisco currently pays Kmart a sales promotional fee that
Kmart applies toward its footwear advertisements in the Kmart weekly newspaper
insert, a publication with a circulation of approximately 70 million. Meldisco
advertises primarily through the Kmart newspaper insert but continuously
evaluates other alternatives for promotion of its products. Meldisco's marketing
strategy is supported by the announced Kmart "Big K" concept remodelling program
which relocates the footwear department to an improved location near the center
of the softlines area of the store.


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      Meldisco--Competitive Environment

      The discount footwear industry is a highly competitive environment that
has experienced significant consolidation. Competition within the discount
segment is heavily concentrated among four retailers. Payless ShoeSource, Inc.
("Payless") (which is not affiliated with PayLess Thrifty Drug Stores), and two
discount department stores, Wal-Mart and Dayton Hudson's Target, are Meldisco's
primary retail footwear competitors. These competitors have grown more rapidly
and have substantially greater resources than the Company. The Company believes
that it has been able to maintain its overall unit market share during this
period of rapid growth by its primary competitors due to the relative strength
of Meldisco's business. There can be no assurance however that in the future the
operations of competitors will not have a material effect on the Company.

      J. Baker,Inc.'s Morse Shoe division ("Morse") is Meldisco's primary
competitor among operators of leased footwear departments. Morse, through its
subsidiaries, operates leased self-selection footwear departments in discount
and promotional department store chains located throughout the U.S., including
footwear departments at Hills, Bradlees, Ames and ShopKo stores. Morse
constitutes a competitor insofar as Meldisco is seeking to expand its leased
footwear department operations. Neither Morse nor any other operator, however,
is a competitor with respect to Kmart since the Meldisco agreement with Kmart
provides for Meldisco's continued operation of Kmart's footwear departments
through 2012, unless terminated earlier in the case of breach or certain other
limited circumstances.

      The Meldisco business competes with the other discounters on the basis of
price and that product selection, style and brand recognition are important
factors that differentiate Meldisco from other discount footwear retailers.

Fashion Trends

      The success of the Company depends in part on its ability to anticipate
and respond to changing fashion and merchandise trends and consumer demands in a
timely manner. Accordingly, any failure by the business segments to identify and
respond to emerging trends could adversely affect consumer acceptance of the
merchandise which in turn could adversely affect the Company's business.

Key Vendors

      Footaction's product sourcing is driven by its relationships with athletic
footwear and apparel vendors. In 1997, approximately 85% of Footaction's net
sales were generated by merchandise purchased from Nike, Fila, Reebok and Adidas
with the most significant percentage attributable to Nike. The loss of the
Company's relationship with certain key vendors could have a material adverse
impact on the Company.

Foreign Purchasing

      The Company's sourcing and purchasing of product is conducted by the
merchandising department of each of its segments. A significant percentage of
the Company's products are sourced or manufactured offshore, with China
accounting for approximately 84% of all such offshore sources. There are risks
inherent in foreign sourcing and manufacturing and although the Company has not
historically experienced any material adverse effects from these risks, there
can be no assurances that they will not have a material adverse effect in the
future.


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Trademarks and Service Marks

      The Company or its subsidiaries own all rights to "Footaction" for use as
a trademark or service mark in connection with footwear and related products and
services. The Company or its subsidiaries have registered or have common law
rights to over 100 trademarks and/or service marks under which the Company
markets private label merchandise or its services. The Company either has
registered or is in the process of registering its trademarks and service marks
in foreign countries in which it may operate in the future. As necessary, the
Company vigorously protects its trademarks and service marks both domestically
and internationally.

Employees

      As of January 3 1998, the Company had approximately 15,200 employees
including approximately 8,200 at Meldisco and 7,000 at Footaction. Of
Meldisco's, approximately 3,800 were employed full-time, and 4,400 were
part-time employees. As of January 3, 1998, Footaction had approximately 2,000
full-time and 5,000 part-time employees.

Discontinuation of Thom McAn Segment

      Thom McAn, which had been part of Melville since 1922, was primarily a
mall-based, specialty retailer, marketing moderately-priced men's and women's
private label footwear and accessories. As a result of extreme competitive
pressures in the moderately-priced footwear retail market, Melville decided to
exit the Thom McAn business in 1996 by converting 76 Thom McAn stores to
Footaction stores, and selling or closing the remaining locations. As of January
3, 1998, all Thom McAn stores are closed.

ITEM 2.  PROPERTIES

      Footaction has a nationwide presence. As of January 3, 1998, it operated
550 stores in 45 states and the Caribbean. Footaction's prototype store design
is a 4,000 to 6,500 square foot large store format, which the Company believes
operates more profitably while satisfying the needs of its customers more
effectively than its 2,500 square foot traditional store format. At January 3,
1998, 275 of the Company's 550 Footaction stores were of the large store format
and 275 were of the traditional store format. Footaction stores are all leased
with a typical lease term of 10 years. These leases call for minimum annual rent
subject to periodic adjustments, plus other charges, including a proportionate
share of taxes, insurance and common area maintenance, and percentage rent based
on the store's sales volume.

      At January 3, 1998, Meldisco operated leased footwear departments in 2,550
stores. Collectively, these leased departments are located in all 50 states,
Guam, Puerto Rico, the U.S. Virgin Islands, the Czech Republic, Slovakia and
Hungary. All but 414 of the leased departments operated at January 3, 1998 were
located in Kmart discount department stores. Of these 414 stores, 400 leased
departments were located in Payless Thrifty Drug Stores and 14 in Tesco
department stores.


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      Kmart and Payless Thrifty Drug stores provide Meldisco with store space to
sell footwear in exchange for certain payments. Meldisco-operated footwear
departments in traditional Kmart stores average 2,900 square feet and 3,600
square feet in Super Kmart Centers. Meldisco's footwear departments in Payless
Thrifty Drug Stores generally occupy approximately 100 linear feet of selling
space.

      Company headquarters and Meldisco's corporate offices are located in
190,000 square feet of leased office space in Mahwah, New Jersey. Footaction's
corporate offices are located in 50,000 square feet of leased office space in
Irving, Texas. Meldisco operates out of its two new distribution facilities
located in Mira Loma, California and Gaffney, South Carolina, with a total of
906,500 square feet. Footaction leases distribution facilities in Dallas, Texas
with a total of 180,000 square feet. In the fourth quarter of 1997 the Company
announced plans to combine Footaction's distribution network with Meldisco's.
Footaction's distribution operations will be serviced from the Meldisco facility
in Gaffney, South Carolina. Plans are to close the Footaction distribution
center in Texas by approximately the Spring of 1999.

ITEM 3.  LEGAL PROCEEDINGS

      The Company is from time to time involved in litigation incidental to the
conduct of its business, none of which, the Company believes, will have a
material adverse effect on its financial position or results of operations.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

      There were no matters submitted to a vote of security holders, through
solicitation of proxies or otherwise, during the fourth quarter of the fiscal
year ended January 3, 1998.


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                      EXECUTIVE OFFICERS OF THE REGISTRANT

      The following information sets forth the name, age and business experience
during the past five years of the executive officers of the registrant. For each
officer named below, the term of office extends to the date of the Board of
Directors Meeting following the next Annual Meeting of Stockholders of the
registrant.

      J.M. Robinson, age 52, is and has been the Chairman, Chief Executive
Officer and President of the Company since October 12, 1996. Mr. Robinson was
President and Chief Executive Officer of the Meldisco division of Melville since
June 1988.

      Carlos E. Alberini, age 42, is and has been the Senior Vice President,
Chief Financial Officer of the Company since October 12, 1996. From February,
1996 to July 10, 1996, Mr. Alberini was the Acting Chief Financial Officer of
Melville, having joined Melville in May 1995 as Vice President of Finance. Prior
to that time, Mr. Alberini served as the Chief Financial Officer and Senior Vice
President (1990-1995) of The Bon Ton Stores Inc., a chain of 64 department
stores.

      Maureen Richards, age 41, is and has been the Vice President, General
Counsel and Corporate Secretary of the Company since October 12, 1996. From
October 1995, Ms. Richards had been Vice President, Corporate Counsel and
Assistant Secretary of Melville and its Corporate and Trademark Counsel and
Assistant Secretary from October 1991 to October 1995.

      Donald V. Roach, age 40, is and has been the Vice President and Corporate
Controller of the Company since October 12, 1996. Prior to that time Mr. Roach
served as Senior Vice President, Chief Financial Officer (1994-1996) and Vice
President, Chief Financial Officer (1991-1994) of Footaction USA. Effective with
the 1998 fiscal year Mr. Roach was named Senior Vice President, Finance and
Operations of Footaction USA and will no longer be an executive officer of the
Registrant.

                                    PART II

ITEM 5. MARKET PRICES OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
        RELATED STOCKHOLDER MATTERS

      The information required by this item is included in the registrant's
Annual Report to Shareholders for the year ended January 3, 1998 on pages 20, 23
and 39 and is incorporated herein by reference.

ITEM 6. SELECTED FINANCIAL DATA

      The information required by this item is included in the registrant's
Annual Report to Shareholders for the fiscal year ended January 3, 1998 on page
40 and is incorporated herein by reference.


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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

      The information required by this item is included in the registrant's
Annual Report to Shareholders for the fiscal year ended January 3, 1998 on pages
20 through 23 and is incorporated herein by reference.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

      The information required by this item is included in the registrant's
Annual Report to Shareholders for the fiscal year ended January 3, 1998 on pages
24 through 40 and is incorporated herein by reference.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

      None

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

      Information regarding the executive officers is furnished under the
heading "EXECUTIVE OFFICERS OF THE REGISTRANT" in Part I of this Report since
such information will not be furnished in the registrant's definitive proxy
statement other than for Mr. Robinson.

      Any other information required by this Part III (Items 10, 11, 12 and 13)
will be included in the registrant's definitive proxy statement to be filed with
the Commission pursuant to Regulation 14A and is incorporated herein by
reference. The Compensation Committee report on executive compensation and the
performance graph included in such proxy statement shall not be deemed
incorporated herein by reference.


                                       12
<PAGE>

                                    PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)(l)   Financial Statements

The following financial statements and reports are incorporated by reference to
pages 24 through 40 of the Company's Annual Report to Shareholders for the
fiscal year ended January 3, 1998.

   Independent Auditors' Report                                               24

   Consolidated Statements of Operations for the fiscal
      years ended January 3, 1998, December 28, 1996 and
      December 31, 1995                                                       25

   Consolidated Balance Sheets as of January 3, 1998 and
      December 28, 1996                                                       26

   Consolidated Statements of Shareholders' Equity for the
      fiscal years ended January 3, 1998, December 28, 1996
      and December 31, 1995                                                   27

   Consolidated Statements of Cash Flows for the fiscal
      years ended January 3, 1998, December 28, 1996 and
      December 31, 1995                                                       28

   Notes to Consolidated Financial Statements                                 29

   Five-Year Historical Financial Summary                                     40

(a)(2) Schedules
                                                                            Page
                                                                            ----
   The following schedules are included in Part IV of this                  
      Report:                      

   Independent Auditors' Report on Schedule                                  F-1

   Schedule II - Valuation and Qualifying Accounts for the
      fiscal years ended January 3, 1998, December 28, 1996
      and December 31, 1995                                                  F-2

Schedules not included above have been omitted because they are not applicable
or the required information is shown in the consolidated financial statements or
related notes.


                                       13
<PAGE>

(a)(3) Exhibits

The exhibits to this Report are listed in the Exhibit Index included elsewhere
herein.

(b) Reports on Form 8-K

    None


                                       14
<PAGE>

                                   SIGNATURES

      Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                       FOOTSTAR, INC.

                                       By  /s/ J.M. Robinson
                                           -------------------------------------
                                           J. M. Robinson, Chairman
                                           of the Board, Chief Executive
                                           Officer,President and Director

      Pursuant to the requirements of the Securities Act of 1934, this
registration statement has been signed by the following persons in the
capacities and on the date indicated.

        Signature                          Title                       Date
        ---------                          -----                       ----

 /s/ J.M. Robinson               Chairman of the Board, Chief 
---------------------------      Executive Officer, President     March 30, 1998
J. M. Robinson                   and Director

 /s/ Carlos E. Alberini          Senior Vice President and        March 30, 1998
---------------------------      Chief Financial Officer
Carlos E. Alberini

 /s/ George S. Day               Director                         March 30, 1998
---------------------------
George S. Day

 /s/ Stanley P. Goldstein        Director                         March 30, 1998
---------------------------
Stanley P. Goldstein

 /s/ Terry R. Lautenbach         Director                         March 30, 1998
---------------------------
Terry R. Lautenbach

 /s/ Bettye Martim Musham        Director                         March 27, 1998
---------------------------
Bettye Martin Musham

 /s/ Kenneth S.  Olshan          Director                         March 30, 1998
---------------------------
Kenneth S. Olshan

/s/ M. Cabell Woodward, Jr.      Director                         March 30, 1998
---------------------------
M. Cabell Woodward, Jr.


                                       15
<PAGE>

                    Independent Auditor's Report on Schedule

To the Board of Directors and Shareholders of Footstar, Inc.:

Under the date of February 12, 1998, we reported on the consolidated balance
sheets of Footstar, Inc. and Subsidiary Companies as of January 3, 1998 and
December 28, 1996, and the related consolidated statements of operations,
shareholders' equity and cash flows for each of the years in the three-year
period ended January 3, 1998, as contained in the 1997 Annual Report to
Shareholders. These consolidated financial statements and our report thereon are
incorporated by reference in the Annual Report on Form 10-K for the year ended
January 3, 1998. In connection with our audits of the aforementioned
consolidated financial statements, we also have audited the related financial
statement schedule listed in answer to Part IV, Item 14(a)(2) of Form 10-K. This
financial statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion on this financial statement schedule
based on our audits.

In our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.

                                                  /s/ KPMG Peat Marwick LLP

New York, New York
February 12, 1998


                                      F-1
<PAGE>

                                  Schedule II
                    FOOTSTAR, INC. AND SUBSIDIARY COMPANIES
                       Valuation and Qualifying Accounts
      Years ended January 3, 1998, December 28, 1996 and December 31, 1995
                                ($ in Millions)

                                      Additions                    
                         Balance at   Charged to                   
                          Beginning   Costs and                     Balance at
   Description             of Year     Expenses    Deductions (1)   End of Year
   -----------             -------     --------    --------------   -----------
                                                                  
Accounts Receivable:

Allowance for 
   Doubtful Accounts:

Year Ended 
   January 3, 1998           $0.4        $1.1           $0.0            $1.5
                             ====       =====          =====            ====

Year Ended 
   December 28, 1996         $1.0       $(0.3)         $(0.3)           $0.4
                             ====       =====          =====            ====

Year Ended 
   December 31, 1995         $0.6        $0.5          $(0.1)           $1.0
                             ====       =====          =====            ====

(1) Write-offs, net of recoveries


                                      F-2
<PAGE>

                                 Exhibit Index

 Exhibit
  Number                          DESCRIPTION
  ------                          -----------

   2.1      Form of Distribution Agreement among Melville Corporation
            ("Melville"), Footaction Center, Inc., and the Registrant.
            Incorporated by reference to Exhibit 2.1 to Footstar, Inc.'s Form
            10/A Information Statement dated September 26, 1996.

   3.1      Amended and Restated Articles of Incorporation of the Registrant.
            Incorporated by reference to Exhibit 3.1 to Footstar, Inc.'s Form
            10/A Information Statement dated September 26, 1996.

   3.2      Amended and Restated Bylaws of the Registrant. Incorporated by
            reference to Exhibit 3.2 to Footstar, Inc.'s Form 10/A Information
            Statement dated September 26, 1996.

   10.1     Master Agreement, dated as of June 9, 1995, between Kmart
            Corporation and the Registrant, as amended. Incorporated by
            reference to Exhibit 10.1 to Footstar, Inc.'s Form 10/A Information
            Statement dated September 26, 1996. Certain portions of this Exhibit
            have been accorded confidential treatment.

   10.2     Tax Disaffiliation Agreement between Melville and the Registrant.
            Incorporated by reference to Exhibit 10.2 to Footstar, Inc.'s Form
            10/A Information Statement dated September 26, 1996.

   10.3     1996 Incentive Compensation Plan of Registrant. Incorporated by
            reference to Exhibit 10.3 to Footstar, Inc.'s Form 10/A Information
            Statement dated September 26, 1996.*

   10.4     1996 Non-Employee Director Stock Plan of Registrant. Incorporated by
            reference to Exhibit 10.4 to Footstar, Inc.'s Form 10/A Information
            Statement dated September 26, 1996.*

   10.5     Employment Agreements with Executive Officers. Incorporated by
            reference to Exhibit 10.5 to Footstar, Inc's 1996 Annual Report on
            Form 10-K.*

   10.6     Credit Agreement, dated as of September 18,1997, among the Banks
            listed therein, the Bank of New York, as Issuing Bank, Morgan
            Guaranty Trust Company of New York, as Administrative Agent and
            Swingline Lender, and the Registrant. Incorporated by reference to
            Exhibit 10.6 to Footstar, Inc.'s Form 10-Q dated November 10, 1997.

   10.8     Footstar Deferred Compensation Plan. Incorporated by reference to
            Exhibit 10.8 to Footstar, Inc's 1996 Annual Report on Form 10-K.*

   10.9     Supplemental Executive Retirement Plan for select senior management.
            Incorporated by reference to Exhibit 10.9 to Footstar, Inc's 1996
            Annual Report on Form 10-K.*

   13.1     Portions of Annual Report to Shareholders for the fiscal year ended
            January 3, 1998.

   21.1     A list of subsidiaries of the Registrant.


                                       18
<PAGE>

 Exhibit
  Number                          Description
  ------                          -----------

   23.1     Consent of KPMG Peat Marwick LLP
   27.1     Financial Data Schedule for the fiscal year ended January 3, 1998.

   *  Management contract or compensatory plan.


                                       19