<PAGE>
1 of 75 pages
Exhibit Index
appears on Page 23.
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
-----
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For fiscal year ended December 3, 1993
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
-----
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ______ to ______.
Commission File Number: 1-4404
------
THE STRIDE RITE CORPORATION
-------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Massachusetts 04-1399290
- ---------------------------- ------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
Five Cambridge Center, Cambridge, Massachusetts 02142
-------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 617-491-8800
-------------
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
- ------------------- ---------------------
Common Stock $.25 par value New York Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required 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 report), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
-Continued-
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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 definitive proxy or information statements
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 registrant's Common Stock $.25 par value, held
by non-affiliates of the registrant as of February 24, 1994, was
$764,588,940.70 based on the closing price on that date on the New York
Stock Exchange. As of February 24, 1994, 50,061,194 shares of the
registrant's Common Stock, $.25 par value, were outstanding and 6,257,649
of the registrant's Preferred Stock Purchase Rights, which trade together with
the registrant's common stock, were outstanding.
Documents Incorporated by Reference
-----------------------------------
Certain portions of the following documents (as more specifically identified
elsewhere in this Annual Report) are incorporated by reference herein:
Part of Form 10-K into
Name of Document which document is incorporated
- ---------------- ------------------------------
Portions of the Registrant's Annual
Report to Stockholders for fiscal year
ended December 3, 1993 Part I and Part II
Portions of the Registrant's Proxy
Statement for 1994 Annual Meeting
of Stockholders Part III
2
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PART I
------
Item 1. Business
- ------- --------
General
- -------
The Stride Rite Corporation is the leading marketer of high quality children's
footwear in the United States and a major marketer of athletic and casual
footwear for children and adults. The Company manufactures products in its own
facilities in the United States and Puerto Rico and also imports a significant
portion of its products from abroad. Footwear products are distributed through
independent retail stores, Company-owned stores and footwear departments in
department stores. Unless the context otherwise requires, the "Company" and
"The Stride Rite Corporation" refer to The Stride Rite Corporation and all of
its wholly-owned subsidiaries.
Products
- --------
Children's footwear, designed primarily for youngsters between the ages of six
months and 12 years, encompasses a complete line of products, including dress
and recreational shoes, boots and sneakers, in traditional and contemporary
styles. Those products are marketed under the Company's STRIDE RITE(R)
trademark in medium to high price ranges.
The Company also markets sneakers and casual footwear for adults and children
under the KEDS(R) and PRO-Keds(R) trademarks and casual footwear for women under
the GRASSHOPPERS(R) label.
Boating footwear and portions of the Company's outdoor recreational, dress and
casual footwear for adults and children are marketed under the Company's SPERRY
TOP-SIDER(R) trademark. Products sold under the SPERRY TOP-SIDER(R) label also
include sneakers and sandals for men and women.
Sales and Distribution
- ----------------------
During the 1993 fiscal year, the Company sold its products nationwide to
customers operating retail outlets, including department stores, sporting
goods stores and marinas, as well as Stride Rite Bootery stores and other shoe
stores operated by independent retailers. In addition, the Company sold
footwear products to consumers through Company-owned stores, including two
Company-owned manufacturers' outlet stores opened in fiscal year 1993, and
footwear departments in department stores. The Company's largest single
customer accounted for less than 6% of consolidated net sales for the fiscal
year ended December 3, 1993.
The Company provides assistance to a limited number of qualified specialty
retailers to enable them to operate independent Stride Rite children's footwear
stores. Such assistance sometimes includes the sublease of a desirable retail
site by the Company to a dealer. There are approximately 81 independent dealers
who currently sublease store locations from the Company.
A newly constructed automated distribution center located in Louisville,
Kentucky provides 520,000 square feet of space and is
3
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owned by the Company. Reference is hereby made to the section of the Company's
annual report to stockholders entitled "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital Resources"
for additional information concerning the distribution center in Louisville,
Kentucky. The Company also owns a central warehouse in Boston, Massachusetts,
which provides 565,000 square feet of space. The Company closed, during the
first quarter of fiscal year 1994, a warehouse located in New Bedford,
Massachusetts, consisting of approximately 742,000 square feet, which was
leased by the Company.
The Company maintains an in-stock inventory of its various branded footwear in
a wide range of sizes and widths for shipment to its wholesale customers. It is
the Company's policy to attempt to ship promptly every order (except for orders
placed in advance of seasonal requirements) received for footwear included in
its in-stock inventory. This policy enables retailers to minimize the amount of
their capital invested in inventory, while providing the availability of
footwear for which customer demand exists. In accordance with practices in the
footwear industry, the Company encourages early acceptance of merchandise by
shipping some products to customers in advance of their seasonal requirements
and permitting payment for such merchandise at specified later dates.
In fiscal 1993, in addition to the United States, the Company distributed its
SPERRY TOP-SIDER(R) brand products in Italy, Germany, Japan, Turkey and the
United Kingdom, as well as other countries in Europe, South America and Asia,
through local distributors. During fiscal year 1992, the Company formed a new
subsidiary to distribute SPERRY TOP-SIDER(R) products in certain Western
European countries. This subsidiary commenced operations in the first quarter
of fiscal 1993, with sales mainly in France.
In fiscal 1993, in addition to the United States, KEDS(R) brand products were
distributed by the Company in Argentina, Brazil, Chile, Denmark, England,
France, Germany, Greece, Hong Kong, Israel, Italy, Japan, Portugal, Singapore,
Sweden and the United Kingdom, as well as in several other countries in Latin
America and Asia, again using local distributors. KEDS(R) brand products are
also sold by a distributor in Israel under a license agreement and PRO-Keds(R)
brand products are sold by a distributor in Japan, also under a license
agreement. Further, KEDS(R) products are sold in Central America, Bolivia,
Ecuador, Peru, Venezuela and in the Caribbean countries and territories (except
the United States and French territories) under a license agreement.
The Company is also a party to foreign license agreements in which independent
companies operate Stride Rite retail stores outside the United States. An
aggregate of 13 stores are currently operating in Canada, Costa Rica,
Guatemala, Honduras, Hong Kong, Mexico and Singapore. In addition, the Company
also distributes STRIDE RITE(R) brand products to several retailers in the
Caribbean, Korea, Mexico and Panama.
The Company also distributes SPERRY TOP-SIDER(R), STRIDE RITE(R) and KEDS(R)
products in Canada through its Canadian subsidiary.
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International Sourcing
- ----------------------
The Company purchases a significant portion of its product line overseas. It
maintains a staff of approximately 60 professional and technical personnel in
Korea and Thailand where a substantial portion of its canvas and leather
sneakers are produced. The Company is a party to a joint venture agreement
with a foreign footwear manufacturer which operates a manufacturing facility
in Thailand. The Company has a 49.5% interest in the Thai corporation
operating this facility, which manufactures vulcanized canvas and leather
footwear. During fiscal 1993, approximately 21% of the Company's total
production requirements for canvas and leather sneakers were fulfilled by the
Thai facility. In addition, the Company uses the services of buying agents to
source merchandise, including one buying agent which the Company estimates
will source approximately 35% of its total production requirements in fiscal
year 1994.
Having closed several of its manufacturing facilities in the United States and
the Caribbean over the years, the Company has increased the volume of leather
footwear and leather footwear components for which it contracts from independent
offshore suppliers. It is anticipated that overseas resources will continue to
be utilized in the future. The Company purchases certain raw materials
(particularly leather) from overseas resources.
By virtue of its international activities, the Company is subject to the
usual risks of doing business abroad, such as the risks of expropriation, acts
of war, political disturbances and similar events, including loss of most
favored nation trading status. Management believes that over a period of time,
it could arrange adequate alternative sources of supply for the products
obtained from its present foreign suppliers. However, disruption of such
sources of supply could, particularly on a short-term basis, have a material
adverse impact on the Company's operations. The Company's contracts to procure
finished goods and other materials are denominated in United States dollars,
thereby eliminating short term risks attendant to foreign currency
fluctuations.
Retail Operations
- -----------------
As of December 3, 1993, the Company operated 135 Stride Rite Bootery stores,
52 leased children's shoe departments in leading department stores, one retail
store for KEDS(R) brand products and two manufacturers' outlet stores for STRIDE
RITE(R), KEDS(R) and SPERRY TOP-SIDER(R) brand products. The product and
merchandising formats of the Stride Rite Bootery stores are utilized in the 52
leased children's shoe departments which the Company operates in certain Macy's,
Jordan Marsh, Abraham & Straus and Rich's department stores. The Stride Rite
Bootery stores carry a complete line of the Company's STRIDE RITE(R) children's
footwear and a portion of the KEDS(R) children's product line. The Keds store,
in the Mall of America in Minneapolis, Minnesota, carries a complete line of
KEDS(R) products. The stores are located primarily in larger regional shopping
malls, clustered generally in the major marketing areas of the United States.
The manufacturers' outlet stores are located in malls consisting only of outlet
stores.
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During the 1993 fiscal year, the Company opened 10 Stride Rite Bootery stores,
12 leased departments, the Keds store and one manufacturers' outlet store.
During 1993, the Company closed six booteries and one leased department. In
addition during this period, one bootery was closed by the Company and
subsequently sold to an independent dealer. The Company currently plans to
open approximately 10 retail stores during fiscal 1994 and close or sell
approximately five Stride Rite retail stores during fiscal 1994.
Sales through the Company's retail operations accounted for approximately 12%
of consolidated net sales for the fiscal year ended December 3, 1993.
Apparel Licensing Activities
- ----------------------------
The Company has a license agreement under which hosiery for men, women and
children is marketed under the KEDS(R) and PRO-Keds(R) brands for distribution
in the United States and Canada. During the first quarter of fiscal 1993, the
Company entered into a license agreement under which apparel, using the KEDS(R)
trademark, is marketed in Japan. In addition, during fiscal year 1993, the
Company terminated a license agreement for the KEDS(R) trademark on women's
apparel, in the United States and Canada. License royalties accounted for less
than one percent of the Company's sales in fiscal year 1993. The Company
continually evaluates new licensees, for both footwear and non-footwear
products.
Raw Materials
- -------------
The Company purchases its raw materials from a number of domestic and foreign
sources. See "International Sourcing". The Company does not believe that any
particular raw materials supplier is dominant.
Backlog
- -------
At December 3, 1993 and November 27, 1992, the Company had a backlog of orders
amounting to approximately $201,000,000 and $184,000,000, respectively. To a
significant extent, the backlog at the end of each fiscal year represents orders
for the Company's spring footwear styles, and traditionally substantially all of
such orders are delivered during the first two quarters of the next fiscal year.
For a discussion of the impact on backlog of the opening of the Company's new
distribution center in Louisville, Kentucky, reference is hereby made to the
portion of the Company's annual report to stockholders entitled "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources".
Competition
- -----------
The Company competes with a number of suppliers of children's footwear, a few
of which are divisions of companies which have substantially greater net worth
and/or sales revenue than the Company. Management believes, however, that on
the basis of sales, the Company is the largest supplier of nationally branded
children's footwear.
In the highly fragmented sneaker, casual and recreational footwear industry,
numerous domestic and foreign competitors, some of which have substantially
greater net worth and/or sales revenue than the
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Company, produce and/or market goods which are comparable to, and compete with,
the Company's products in terms of price and general level of quality. In
addition, the domestic shoe industry has experienced substantial foreign
competition, which is expected to continue.
Management believes that creation of attractive styles, together with
specialized engineering for fit, durability and quality, and high service
standards are significant factors in competing successfully in the marketing of
all types of footwear. Management believes that the Company is competitive in
all such respects.
In operating its own retail outlets, the Company competes in the children's
retail shoe industry with numerous businesses, ranging from large retail chains
to single store operators.
Employees
- ---------
As of December 3, 1993, the Company employed approximately 3,300 full-time
and part-time employees, approximately 1,000 of whom were represented by
collective bargaining units. Management believes that its relations with its
employees are good. The Company entered into an amendment to a collective
bargaining agreement and a new collective bargaining agreement in 1993, in
connection with the closing of its distribution center in New Bedford,
Massachusetts and the proposed closing of its distribution center in Boston,
Massachusetts, respectively.
Environmental Matters
- ---------------------
Compliance with federal, state and local regulations with respect to the
environment have had, and are expected to have, no material effect on the
capital expenditures, earnings or competitive position of the Company.
Patents, Trademarks and Licenses; Research and Development
- ----------------------------------------------------------
The Company believes that its patents and trademarks are important to its
business and are generally sufficient to permit the Company to carry on its
business as presently conducted.
The Company depends principally upon its design, engineering, manufacturing
and marketing skills and the quality of its products for its ability to compete
successfully. The Company conducts research and development for footwear
products; however, the level of expenditures with respect to such activity is
not significant.
Executive Officers of the Registrant
- ------------------------------------
The information with respect to the executive officers of the Company listed
below is as of February 24, 1994.
7
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Executive Officers of the Registrant
- ------------------------------------
<TABLE>
<CAPTION>
Name Position with Company Age
- ---- --------------------- ---
<C> <S> <C>
Robert C. Siegel Chairman of the Board of Directors, 57
President and Chief Executive Officer
of the Company since December, 1993.
Previously, Mr. Siegel was President
of the Dockers division of Levi Strauss
& Co., an apparel manufacturer and
distributor from December, 1986 to
December, 1993.
J. Patrick Spainhour Executive Vice President, Finance and 43
Operations of the Company from February
1993. Prior to joining the Company,
Mr. Spainhour served as the Senior Vice
President, Sourcing, for The Gap
Incorporated from August 1988 to
January 1993.
Jonathan D. Caplan President of The Keds Corporation from 40
February 1994. Mr. Caplan served as
President of Stride Rite Children's
Group, Inc. from June 1992 to February
1994. Prior to joining the Company, Mr.
Caplan was President of the Laredo and
Code West division of Genesco, Inc.
beginning in November 1985, having been
employed at Genesco, Inc. from June 1982.
Robert B. Moore, Jr. President, Sperry Top-Sider, Inc. since 43
October 1992. From October 1987 until
he joined the Company, Mr. Moore was
President of Bostonian Shoe Co., a
division of C & J Clark, Inc.
Margaret C. Whitman President of Stride Rite Children's 37
Group, Inc., since February 1994.
From October 1993 to February 1994,
Ms. Whitman was Executive Vice
President of The Keds Corporation,
from January 1993 to October 1993
Ms. Whitman was Senior Vice President
of Marketing and Product Development
of The Keds Corporation and from
October 1992 to January 1993, Ms.
Whitman was Vice President, Strategic
Planning of the Company. Ms. Whitman was
Senior Vice President, Marketing,
Consumer Products of The Walt Disney
Company from 1991 to 1992 and Vice
President, Strategic Planning of The Walt
Disney Company from 1989 to 1991.
</TABLE>
8
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Executive Officers of the Registrant
- ------------------------------------
<TABLE>
<CAPTION>
Name Position with Company Age
- ---- --------------------- ---
<S> <C> <C>
John M. Kelliher Vice President, Finance, Treasurer and 42
Controller of the Company since
February 1993. Mr. Kelliher was
Corporate Controller of the Company
since March 1982.
John P. McMahon, Jr. Vice President, Human Resources since 41
February 1994. Mr. McMahon served the
Company as Corporate Director of
Human Resources from January 1993 to
February 1994. From 1988 to 1992, Mr.
McMahon served as Director of Human
Resources of the ITT Electron Technology
Division of ITT Corporation.
Karen K. Crider General Counsel of the Company from 48
October 1992 and Clerk of the Company
from November 1992. Ms. Crider was
U.S. Counsel to British Airways, Plc.,
from May 1988 to September 1992 and
Assistant U.S. Counsel to British Airways,
Plc. from April 1986 to May 1988.
</TABLE>
These executive officers are generally elected at the Board of Director's Annual
Meeting and serve at the pleasure of the Board.
Item 2. Properties
- ------- ----------
The Company manufactures footwear and footwear components at three factories
located in Missouri as well as at one facility located in Puerto Rico. The
Company also manufactures footwear components at a 30,000 square foot facility
in the Dominican Republic.
Present manufacturing space totals approximately 214,000 square feet.
Approximately 44,000 square feet is owned by the Company and the balance is
leased. Such leases include either renewal options or favorable purchase
options. Management believes that all leases are at commercially reasonable
rates.
A newly constructed automated distribution center located in Louisville,
Kentucky provides 520,000 square feet of space and is owned by the Company.
Reference is hereby made to the section of the Registrant's annual report to
stockholders entitled "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources" for
additional information concerning the distribution center in Louisville,
Kentucky. The Company also owns a central warehouse in Boston, Massachusetts,
which provides 565,000 square feet of space and closed during the first quarter
of 1994, a warehouse located in New Bedford, Massachusetts, consisting of
approximately 742,000 square feet, which was leased by the Company. The
Company's Canadian subsidiary leases approximately 28,000 square feet for
warehousing in Mississauga, Ontario.
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The Company leases approximately 119,000 square feet for its headquarters and
administrative offices in Cambridge, Massachusetts in an office building owned
by a partnership in which the Company is a limited partner. The Company is in
negotiations to lease an additional 9,700 square feet of administrative offices
in Cambridge. In addition, the Company leases approximately 1,700 square feet
of office space in Paris, France for its Sperry Top-Sider European distribution
subsidiary.
At December 3, 1993, the Company operated 138 retail stores throughout the
country on leased premises which, in the aggregate, covered approximately
171,700 square feet of space. The Company also operates 52 departments in four
major department store chains. In addition, the Company is the lessee of 81
retail locations totaling approximately 91,600 square feet which are subleased
to independent Stride Rite dealers and other tenants.
For further information concerning the Company's lease obligations, see Note 8
to the Company's consolidated financial statements, which are contained in the
annual report to stockholders and are incorporated by reference herein.
Management believes that, except as stated above, all properties and
facilities of the Company are suitable, adequate and fit for their intended
purposes.
Item 3. Legal Proceedings
- ------- -----------------
On September 27, 1993, the Company announced that The Keds Corporation, a
wholly owned subsidiary of the Company, entered into settlement agreements with
the Attorneys General of all 50 states, the Corporation Counsel of the District
of Columbia and the Federal Trade Commission, to resolve various investigations
into Keds' adoption and enforcement of its suggested retail pricing policy. In
entering into these settlements, Keds, without admitting any liability, fully
settled suits brought by the Attorneys General in the United States District
Court for the Southern District of New York, in their parens patriae capacity,
on behalf of all consumers who purchased certain KEDS(R) shoes during the
relevant period. The settlements required Keds to pay $5.7 million to several
charities nationwide, as well as $1.5 million to provide nationwide notice to
potential class members and other administrative expenses. Keds has agreed to
the imposition of certain injunctive relief. Following preliminary Court
approval on September 27, 1993, Keds paid the administrative costs and part of
the settlement amount. Keds will make the remaining payments after final
court approval of the settlements.
The Company is a party to various litigation arising in the normal course of
business. Having considered facts which have been ascertained and opinions of
counsel handling these matters, management does not believe the ultimate
resolution of such litigation will have a material adverse effect on the
Company's financial position or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
- ------- ---------------------------------------------------
None
10
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PART II
-------
Item 5. Market for the Registrant's Common Stock and Related Stockholder
- ------- ----------------------------------------------------------------
Matters
-------------------
The information required by this item is included in the Registrant's 1993
Annual Report to Stockholders on pages 15, 28 and 31, and is incorporated herein
by reference.
Item 6. Selected Financial Data
- ------- -----------------------
The information required by this item is included in the Registrant's 1993
Annual Report to Stockholders on pages 15, 23 and 28 and is incorporated herein
by reference.
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 1993
Annual Report to Stockholders on pages 16 through 18 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 1993
Annual Report to Stockholders on pages 19 through 28 and is incorporated herein
by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
- ------- ---------------------------------------------------------------
Financial Disclosure
--------------------
None.
11
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PART III
--------
Item 10. Directors and Executive Officers of the Registrant
- -------- --------------------------------------------------
Reference is made to the information set forth under the caption "Executive
Officers of the Registrant" in Item 1 of Part I of this report and to
information under the captions "Information as to Directors and Nominees for
Director", "Meetings of the Board of Directors and Committees" and "Compliance
with Section 16(a) of the Securities and Exchange Act of 1934" in the
Registrant's definitive proxy statement relating to its 1994 Annual Meeting of
Stockholders, which will be filed with the Commission within 120 days after the
close of the Registrant's fiscal year ended December 3, 1993, all of which
information is incorporated herein by reference.
Item 11. Executive Compensation
- ------- ----------------------
Reference is made to the information set forth in the Registrant's definitive
proxy statement relating to its 1994 Annual Meeting of Stockholders under the
caption "Compensation Committee Interlocks and Insider Interlocks" and
continuing through the caption "Certain Transactions with Management" (excluding
the information set forth under the caption "Compensation Committee Report")
which will be filed with the Commission within 120 days after the close of the
Registrant's fiscal year ended December 3, 1993, which information is
incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
- ------- --------------------------------------------------------------
Reference is made to the information set forth under the caption "Ownership of
Equity Securities" in the Registrant's definitive proxy statement relating to
its 1994 Annual Meeting of Stockholders, which will be filed with the Commission
within 120 days after the close of the Registrant's fiscal year ended December
3, 1993, which information is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
- ------- ----------------------------------------------
Reference is made to the information set forth under the caption "Certain
Transactions with Management" in the Registrant's definitive proxy statement
relating to its 1994 Annual Meeting of Stockholders, which will be filed with
the Commission within 120 days after the close of the Registrant's fiscal year
ended December 3, 1993, which information is incorporated herein by reference.
12
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PART IV
-------
Item 14. Exhibits, Financial Statements, Schedules and Reports on Form
- ------- -------------------------------------------------------------
8-K
---
(a) Financial Statements. The following financial statements and
--------------------
financial statement schedules are contained herein or are incorporated herein by
reference:
<TABLE>
<CAPTION>
Page in
Form 10-K
---------
<S> <C>
Consolidated Balance Sheets as of December 3, 1993
and November 27, 1992 *
Consolidated Statements of Income for the years ended
December 3, 1993, November 27, 1992 and
November 29, 1991 *
Consolidated Statements of Cash Flows for the years
ended December 3, 1993, November 27, 1992 and
November 29, 1991 *
Consolidated Statements of Changes in Stockholders'
Equity for the years ended December 3, 1993,
November 27, 1992 and November 29, 1991 *
Notes to Consolidated Financial Statements *
Report of Independent Accountants *
Report of Independent Accountants on Financial
Statement Schedules F-1
Financial Statement Schedules for the years ended
December 3, 1993, November 27, 1992 and
November 29, 1991:
Schedule I - Marketable Securities - Other
Investments F-2
Schedule II - Amounts Receivable From Related
Parties F-3
Schedule VIII - Valuation and Qualifying
Accounts F-4
Schedule X - Supplementary Income Statement
Information F-5
</TABLE>
Schedules other than those listed above are omitted because they are either not
required or the information is otherwise included.
* Incorporated herein by reference. See Part II, Item 8 on page 11 of this
Annual Report on Form 10-K.
13
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Exhibits. The following exhibits are contained herein or are incorporated
- --------
herein by reference:
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
- ----------- ----------------------
<S> <C>
3 (i) Restated Articles of Organization of the Registrant with amendments
thereto through November 28, 1986 -- Such document was filed as
Exhibit 3(i) to the Registrant's Form 10-K for the fiscal year ended
November 28, 1986 and is incorporated herein by reference.
(ii) Articles of Amendment dated April 7, 1987 to Restated Articles of
Organization -- Such document was filed as Exhibit 3 to Registrant's
Form 10-Q for the fiscal period ended February 27, 1987 and is
incorporated herein by reference.
(iii) Articles of Amendment dated December 16, 1987 to Restated Articles
of Organization of the Registrant -- Such document was filed as
Exhibit 3(iii) to Registrant's Form 10-K for the fiscal year ended
November 27, 1987 and is incorporated herein by reference.
(iv) Articles of Amendment dated December 3, 1991 to the Restated
Articles of Organization of the Registrant --Such document was filed
as Exhibit 3(iv) to Registrant's Form 10-K for the fiscal year ended
November 29, 1991 and is incorporated herein by reference.
(v) Certificate of Vote of Directors establishing a series of a Class of
Stock dated July 2, 1987 -- Such document was filed as Exhibit A to
Exhibit 1 to Registrant's Form 8-K dated July 20, 1987 and is
incorporated herein by reference.
(vi) By-laws of the Registrant, as amended -- Such document was filed as
Exhibit 3 of the Registrant's Form 10-Q for the fiscal period ended
June 1, 1990 and is incorporated herein by reference.
4 (i) Reference is made to Exhibit 3(i), (ii), (iii) and (iv) referred to
above, which are expressly incorporated herein by reference.
(ii) Rights Agreement dated July 2, 1987, as amended on May 1, 1989,
between the Registrant and The First National Bank of Boston -- Such
document was filed as an exhibit to Registrant's Form 8 dated May 4,
1989 and its Form 8-K dated June 27, 1989 and is incorporated herein
by reference.
(iii) Note Purchase Agreement dated September 23, 1977 -- Such document
was filed as Exhibit 4(ii) to the Registrant's Form 10-K for the
fiscal year ended November 28, 1986 and is incorporated herein by
reference.
</TABLE>
14
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<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
- ----------- ----------------------
<S> <C>
10 (i)* Supplemental Retirement Income Agreement dated as of January 29,
1988 between the Registrant and Arnold Hiatt -- Such document was
filed as Exhibit 10 (i) to Registrant's Form 10-K for the fiscal
year ended November 27, 1987 and is incorporated herein by
reference.
(ii)* 1975 Executive Incentive Stock Purchase Plan of the Registrant --
Such document was filed as Appendix A to the Registrant's Prospectus
relating to such Plan, dated April 18, 1986, which was filed with
the Commission pursuant to Rule 424(b) promulgated under the
Securities Act of 1933, as amended, and is incorporated herein by
reference.
(iii)* Employee Stock Purchase Plan of the Registrant -- Such document was
filed as Appendix A to the Registrant's Prospectus relating to such
plan, dated October 15, 1991, which was filed with the Commission
pursuant to Rule 424(b) promulgated under the Securities Act of
1933, as amended, and is incorporated herein by reference.
(iv)* Annual Executive Incentive Compensation Plan -- Such document was
filed as Exhibit 10 to the Registrant's Form 10-Q for the quarter
ended May 30, 1986 and is incorporated herein by reference.
(v)* Key Executive Long-Term Incentive Plan, as amended and restated on
November 25, 1987 and February 4, 1992 --Such documents were filed
as Exhibits 28.1 and 28.2 to the Registrant's Registration Statement
on Form S-8 (#33-19562) and as an amended prospectus thereto,
respectively, and are incorporated herein by reference.
(vi)* Form of executive termination agreement, as amended and restated on
January 29, 1990. Such document was filed as Exhibit 10(x) to the
Registrant's Form 10-K for the fiscal year ended November 30, 1990
and is incorporated herein by reference. All officers with whom the
Registrant entered into such agreement and which are currently in
effect and have not been terminated and the date of each such
agreement are listed on Addendum 10(vi) attached hereto.
(vii)* Form of executive termination agreement, as amended and restated on
January 29, 1990. Such document was filed as Exhibit 10(xi) to the
Registrant's Form 10-K for the fiscal year ended November 30, 1990
and is incorporated herein by reference. All executive officers
with whom the Registrant entered into such agreement and which are
currently in effect and have not been terminated and the date of
each such agreement are listed on Addendum 10(vii) attached hereto.
</TABLE>
*Denotes a management contract or compensatory plan or arrangement.
15
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
- ----------- ----------------------
<S> <C>
(viii)* Severance and Supplemental Retirement Income Agreement dated as of
September 16, 1992 between John J. Phelan and the Company -- Such
document was filed as Exhibit No. 10 to the Registrant's Quarterly
Report on Form 10-Q for the fiscal period ended August 28, 1992 and
is incorporated herein by reference.
(ix)* Consulting Agreement between the Registrant and John J. Phelan dated
June 28, 1993.
(x)* Employment Agreement between the Registrant and Robert C. Siegel
dated as of October 21, 1993.
11 Calculation of Net Income Per Share
13 Registrant's 1993 Annual Report to Stockholders
21 Subsidiaries of the Registrant
23 Consent of Independent Accountants
(b) Reports on Form 8-K
-------------------
</TABLE>
On October 28, 1993, the Registrant filed a Current Report on Form
8-K to announce the hiring of Robert C. Siegel as Chairman of the Board of
Directors, President and Chief Executive Officer, effective December 13, 1993.
*Denotes a management contract or compensatory plan or arrangement.
16
<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.
THE STRIDE RITE CORPORATION THE STRIDE RITE CORPORATION
- --------------------------- ---------------------------
By:/s/ John M. Kelliher By:/s/ Robert C. Siegel
------------------------------ ------------------------------
John M. Kelliher, Vice Robert C. Siegel, Chairman of
President, Finance the Board, President and Chief
Treasurer and Controller Executive Officer
(Principal Accounting Officer)
Date: March 1, 1994 Date: March 1, 1994
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ Robert C. Siegel /s/ Donald R. Gant
- --------------------------------- ---------------------------------
Robert C. Siegel, Chairman of the Donald R. Gant, Director
Board of Directors, President and
Chief Executive Officer
Date: March 1, 1994 Date: March 1, 1994
/s/ Arnold Hiatt /s/ Theodore Levitt
- --------------------------------- ---------------------------------
Arnold Hiatt, Director Theodore Levitt, Director
Date: March 1, 1994 Date: March 1, 1994
/s/ Margaret A. McKenna /s/ Myles J. Slosberg
- --------------------------------- ---------------------------------
Margaret A. McKenna, Director Myles J. Slosberg, Director
Date: March 1, 1994 Date: March 1, 1994
/s/ W. Paul Tippett /s/ Robert Seelert
- --------------------------------- ----------------------------------
W. Paul Tippett, Director Robert Seelert, Director
Date: March 1, 1994 Date: March 1, 1994
17
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Directors
of The Stride Rite Corporation:
Our report on the consolidated financial statements of The Stride Rite
Corporation has been incorporated by reference in this Annual Report on Form
10-K from the 1993 Annual Report to Stockholders of The Stride Rite
Corporation and appears on page 29 therein. In connection with our audits of
such financial statements, we have also audited the related financial
statement schedules listed in the index on page 13 of this Annual Report on
Form 10-K.
In our opinion, the financial statement schedules referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information required to be
included therein.
COOPERS & LYBRAND
Boston, Massachusetts
January 20, 1994
F-1
<PAGE>
THE STRIDE RITE CORPORATION
SCHEDULE I - MARKETABLE SECURITIES - OTHER INVESTMENTS
(in thousands)
<TABLE>
<CAPTION>
Principal
Name of Issuer Amount of Cost Market Value Amount
and Title of Each Bonds and of Each at Balance Carried in
Issue (a) Notes Issue Sheet Date Balance Sheet
- ----------------- --------- ------- ------------ -------------
<S> <C> <C> <C> <C>
December 3, 1993:
State Bonds $26,505 $26,631 $26,631 $26,631
County and Municipal
Bonds 8,750 8,836 8,836 8,836
Municipal Bond
Mutual Funds 3,993 3,993 3,993 3,993
Bank Certificates
of Deposit 3,185 3,185 3,185 3,185
Corporate Bonds 23,000 23,000 23,000 23,000
------- ------- ------- -------
$65,433 $65,645 $65,645 $65,645
======= ======= ======= =======
November 27, 1992:
State Bonds $18,000 $18,069 $18,069 $18,069
County and Municipal
Bonds 10,355 10,421 10,421 10,421
Municipal Bond
Mutual Funds 3,000 2,993 2,993 2,993
Bank Certificates
of Deposit 3,695 3,695 3,695 3,695
Corporate Bonds 8,000 8,000 8,000 8,000
------- ------- ------- -------
$43,050 $43,178 $43,178 $43,178
======= ======= ======= =======
</TABLE>
(a) No individual security issue exceeds 2% of total assets.
F-2
<PAGE>
THE STRIDE RITE CORPORATION
SCHEDULE II - AMOUNTS RECEIVABLE FROM RELATED PARTIES
(in thousands)
<TABLE>
<CAPTION>
Fiscal Year Beginning Amounts Ending
Ended Name Balance Additions Collected Balance
- ----------- ---- --------- --------- --------- -------
<S> <C> <C> <C> <C> <C>
November 29, 1991 (a)
November 27, 1992 Robert B. Moore, Jr.(b) -- $224 -- $224
December 3, 1993 J. Patrick Spainhour(b) -- $204 $ 39 $165
Robert B. Moore, Jr.(b) $224 -- $125 $ 99
John P. McMahon, Jr. -- $104 $ 84 $ 20
</TABLE>
(a) No individuals have loans in excess of $100,000 in the year 1991.
(b) Amount represents an interest-free loan in connection with relocation to,
and purchase of, a home in the Boston, Massachusetts area. Repayment terms
are generally over a three-year period.
F-3
<PAGE>
THE STRIDE RITE CORPORATION
Schedule VIII - VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
__________
<TABLE>
<CAPTION>
Balance at Additions Deductions Balance at
Beginning Charged to End of
Period Costs and Period
Description Expenses
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Fiscal year ended
November 29, 1991:
Deducted from assets:
Allowance for doubt-
ful accounts $3,251 $2,152 $1,977(a) $3,426
Allowance for sales
discounts 1,228 2,760 2,496(b) 1,492
----- ----- ----- -----
$4,479 $4,912 $4,473 $4,918
===== ===== ===== =====
Fiscal year ended
November 27, 1992:
Deducted from assets:
Allowance for doubt-
ful accounts 3,426 3,288 2,221(a) 4,493
Allowance for sales
discounts 1,492 2,230 2,280(b) 1,442
----- ----- ----- -----
$4,918 $5,518 $4,501 $5,935
====== ====== ====== ======
Fiscal year ended
December 3, 1993:
Deducted from assets:
Allowance for doubt-
ful accounts 4,493 2,256 2,904(a) 3,845
Allowance for sales
discounts 1,442 2,625 2,310(b) 1,757
----- ----- ----- -----
$5,935 $4,881 $5,214 $5,602
====== ====== ====== ======
</TABLE>
(a) Amounts written off as uncollectible.
(b) Amounts charged against the reserve.
F-4
<PAGE>
THE STRIDE RITE CORPORATION
SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION
(in thousands)
__________
<TABLE>
<CAPTION>
Charged to costs and expenses
-----------------------------
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Advertising and sales
promotion $32,914 $30,463 $29,841
====== ====== ======
Depreciation and amortization $ 6,264 $ 5,362 $ 4,204
====== ====== ======
</TABLE>
F-5
<PAGE>
THE STRIDE RITE CORPORATION
ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 3, 1993
Index to Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit Page No.
- ----------- ---------------------- --------
<C> <S> <C>
10 (vi)* Form of executive termination agreement, as 24
amended and restated on January 29, 1990.
Such document was filed as Exhibit 10(x) to the
Registrant's Form 10-K for the fiscal year
ended November 30, 1990 and is incorporated
herein by reference. All officers with whom
the Registrant entered into such agreement
and which are currently in effect and
have not been terminated and the date of each
such agreement are listed on Addendum 10(vi)
attached hereto.
(vii)* Form of executive termination agreement, as 25
amended and restated on January 29, 1990. Such
document was filed as Exhibit 10(xi) to the
Registrant's Form 10-K for the fiscal year ended
November 30, 1990 and is incorporated herein
by reference. All officers with whom the
Registrant entered into such agreement and
which are currently in effect and have not
been terminated and the date of each such
agreement are listed on Addendum 10(vii)
attached hereto.
(ix)* Consulting Agreement between the Registrant and 26
John J. Phelan dated June 28, 1993.
(x)* Employment Agreement between the Registrant and 29
Robert C. Siegel dated as of October 21, 1993.
11 Calculation of Net Income Per Share 39
13 Registrant's 1993 Annual Report to Stockholders 40
21 Subsidiaries of the Registrant 74
23 Consent of Independent Accountants 75
</TABLE>
*Denotes a management contract or compensatory plan or arrangement.
<PAGE>
THE STRIDE RITE CORPORATION
FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 3, 1993
Addendum 10 (vi)
<TABLE>
<S> <C>
Robert C. Siegel October 21, 1993
John M. Kelliher January 29, 1990
Jonathan D. Caplan June 1, 1992
Karen K. Crider October 1, 1992
Robert B. Moore October 5, 1992
Margaret C. Whitman October 5, 1992
J. Patrick Spainhour February 5, 1993
</TABLE>
<PAGE>
THE STRIDE RITE CORPORATION
FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 3, 1993
Addendum 10 (vii)
<TABLE>
<S> <C>
James F. Montiegel August 2, 1989*
Dominic A. Ferlauto January 29, 1990
</TABLE>
* As amended on January 29, 1990
<PAGE>
THE STRIDE RITE CORPORATION
EXHIBIT 10 (ix)
CONSULTING CONTRACT
-------------------
AGREEMENT dated as of the 28th day of June, 1993 by and between The Stride
Rite Corporation ("Stride Rite"), a Massachusetts corporation with principal
offices at Five Cambridge Center, Cambridge, Massachusetts 02142, and John J.
Phelan ("Phelan"), an individual residing at 29 Royalcrest Drive, North Andover,
Massachusetts 01845.
WHEREAS, Stride Rite is desirous of securing the services of a consultant
who is experienced in and knowledgeable of the management, operation and
administration of a footwear company; and
WHEREAS, Phelan is a consultant with the knowledge and experience sought by
Stride Rite, and is desirous of providing to Stride Rite the knowledge and
experience it is seeking on a consulting basis;
NOW, THEREFORE, the parties hereto agree as follows:
1. Services.
--------
Stride Rite hereby retains Phelan to perform consulting services as
described hereinbelow, and Phelan hereby accepts appointment as Stride Rite's
consultant to perform the following services during the Term of this Agreement:
a. To function as the Chief Executive Officer and President of
Stride Rite;
b. To assist and oversee the supervision of the activities of
all personnel employed by Stride Rite; and
c. To oversee the day-to-day operations of Stride Rite.
2. Compensation and Expenses.
-------------------------
a. In consideration of his performance of the services set forth
in Subsections (a) through (c) of Paragraph 1 hereof, Stride
Rite shall pay Phelan a weekly fee of Seven Thousand Five
Hundred ($7,500.00) Dollars, which payment shall be made to
Phelan on or about the thirtieth (30th) day of each month
during the Term hereof. Stride Rite and Phelan anticipate
that Phelan will render services regularly during the Term.
b. Stride Rite shall also reimburse Phelan for such reasonable
and necessary business expenses as he may incur in
fulfillment of this Agreement at his cost, dollar for
dollar, in accordance with Stride Rite's corporate expense
policy. Phelan shall be
1
<PAGE>
entitled to reimbursement for travel to and from Stride
Rite's offices and Phelan's office, including mileage and
hotel or a furnished rental apartment in the Cambridge area.
3. Term.
----
a. The parties hereto agree that the term of this Agreement
shall commence upon June 28, 1993 and shall continue for a
guaranteed minimum period of Ten (10) weeks (the "Term"), or
longer if the parties so agree.
b. In the event of a material breach of this Agreement, the non-
defaulting party shall provide written notice specifying the
material breach and intent to terminate the contract to the
other. If the material breach is not cured within ten (10)
days of receipt of notice, then the non-defaulting party
may terminate this Agreement upon issuance of written
notice to the other party. All notices shall be sent by
U.S. certified mail, return receipt requested and shall be
effective upon receipt or, if refused or undeliverable,
upon five (5) business days from the date of deposit with
the U.S. Postal Service. Notice to Phelan shall be
addressed to him at 29 Royalcrest Drive, Andover,
Massachusetts 01845; any notice to Stride Rite shall be
addressed to The Stride Rite Corporation, Five Cambridge
Center, Cambridge, Massachusetts 02142, Attention: General
Counsel, Legal Department. Either party may change the
notice address on 30 days prior written notice to the other
party.
4. Assignment.
----------
Phelan acknowledges that his services are unique and personal and that,
accordingly, this Agreement, and his duties and responsibilities hereunder, are
not assignable.
5. Relationship of the Parties.
---------------------------
Nothing in this Agreement shall be construed to place the parties in the
relationship of employer/employee, partners or joint venturers, and neither
party shall have the power to obligate or bind the other in any manner
whatsoever, except as otherwise provided for in this Agreement. The parties
hereto hereby acknowledge that Phelan is acting as an independent contractor in
connection herewith.
6. Supplemental Retirement Income Agreement.
----------------------------------------
This Agreement shall in no way be construed to affect the terms and
conditions of The Supplemental Retirement Income Agreement between The Stride
Rite Corporation and John J. Phelan dated as of September 16, 1992 and Phelan's
rights to benefits under that Agreement.
2
<PAGE>
7. Confidentiality.
---------------
Phelan understands and acknowledges that, in rendering services hereunder,
Stride Rite may deliver confidential information to Phelan and Phelan agrees to
hold in confidence and not use or disclose any such confidential information
except upon the prior written consent of the Chairman of the Board of Directors
of Stride Rite, which consent shall be granted or denied in Stride Rite's sole
discretion, and Phelan shall not disclose, utilize or commercialize the same,
directly or indirectly, for his own or any third party's benefit, now or in the
future provided, however, that the parties agree that Phelan shall not be so
restricted with respect to any information which he can establish is in the
public domain, was known to him prior to disclosure by Stride Rite or was
disclosed to him by a third party and such disclosure was not in breach of any
agreement by such third party with Stride Rite.
8. Governing Law.
-------------
This Agreement shall be construed to be a Massachusetts contract governed
by the laws of the Commonwealth of Massachusetts. The parties agree that this
Agreement represents the entire agreement of the parties with respect to the
consulting services to be performed hereunder and supersedes all prior
communications regarding the same.
9. Modifications.
-------------
This Agreement may not be modified, amended or altered without a written
agreement signed by both parties.
The parties hereby set their hands and seals to this Agreement as of the
28th day of June, 1993.
THE STRIDE RITE CORPORATION
By: /s/ Margaret A. McKenna
---------------------------
/s/ John Phelan
------------------------------
John Phelan
3
<PAGE>
THE STRIDE RITE CORPORATION
EXHIBIT 10 (x)
EMPLOYMENT AGREEMENT
--------------------
This Contract of Employment (the "Agreement") is entered into as of this
21st day of October, 1993 by and between The Stride Rite Corporation (the
"Company") and Robert Siegel (the "Executive").
WHEREAS, the Company desires to employ an experienced, qualified individual
to serve in its capacities of Chairman, Chief Executive Officer and President of
the Company, and
WHEREAS, the Executive desires to be employed by the Company in its
capacities of Chairman, Chief Executive Officer and President,
NOW, THEREFORE, the Company and Executive, each in consideration of the
promises of the other hereinafter contained, agree as follows:
1. Employment. The Company hereby agrees to and does hereby employ the
----------
Executive, and the Executive hereby agrees to and does hereby enter the employ
of the Company for the period set forth in Section 2 below (the "Employment
Period") in the positions and with the duties and responsibilities set forth in
Section 3 below, and upon the terms and conditions set forth in this Agreement.
2. Employment Period. The Employment Period shall commence on December
-----------------
13, 1993 and except as otherwise expressly provided hereinbelow, shall continue
until the close of business on December 31, 1996 (the "Term").
3. Positions. It is contemplated that during the Employment Period, the
---------
Executive shall serve as a principal officer of the Company with the offices and
titles of Chairman, Chief Executive Officer and President, reporting directly to
the Board of Directors. With respect to those offices, the Executive shall have
powers and duties as provided in the Company's Bylaws in effect as of the date
and as those may be amended from time to time during the Employment Period.
It is further contemplated that at the meeting of the Board of Directors
approving the Agreement, the Executive shall be elected to serve as a director
of the Company and as a director of each of the Company's subsidiaries by their
respective Boards of Directors and/or stockholders.
In the event that the Executive is not elected by the Board of Directors to
serve as Chairman, Chief Executive Officer and President or by the Board of
Directors or the stockholders to serve as a director of the Company, his
employment with the Company shall be terminated by the Company subject to the
terms of Section 10 of this Agreement.
1
<PAGE>
4. Performance. Throughout the Employment Period, the Executive agrees to
-----------
devote his full time and undivided attention to the business and affairs of the
Company, and in particular to the performance of all of the duties and
responsibilities of the Chairman, Chief Executive Officer and President of the
Company, and as a director of each of its subsidiaries, except for reasonable
vacation and except for temporary illness or incapacity. The Executive shall be
entitled to up to four (4) weeks of vacation per year.
The Executive shall serve the Company and each of its subsidiaries loyally,
diligently and effectively and at all times exert his best efforts to promote
the success of their respective activities. The Executive shall discharge his
duties and responsibilities in an efficient, trustworthy and businesslike manner
and shall do nothing which will in any way impair or prejudice the name or
reputation of the Company or any of its subsidiaries.
Nothing in this Agreement shall preclude the Executive from devoting
reasonable periods required for:
a. serving as director, trustee or member of a committee of any
organization involving no conflict of interest with the interests of the
Company;
b. engaging in charitable and community activities; and
c. managing his personal investments;
provided that such activities do not, individually or collectively, interfere
with the regular performance of the Executive's duties and responsibilities
under this Agreement.
5. Salary and Incentive Compensation. During the Employment Period, as
---------------------------------
long as the Executive is employed by the Company, the Executive shall be
entitled to compensation from the Company as follows:
a. For all services to be rendered by the Executive to the Company during
the Employment Period, including, without limitation, services as an executive,
officer, director, employee or member of any committee of the Company or its
subsidiaries, divisions, business units or affiliates, the Executive shall be
paid compensation in the form of a base or fixed salary, payable not less often
than once each month, at the annual rate of Four Hundred Eighty Thousand Dollars
($480,000), with the opportunity for periodic annual reviews and increases in
such rate as shall be determined in the sole discretion of the Board of
Directors.
b. The Executive shall be paid additional compensation in the form of
incentive compensation as follows:
i. The Executive shall be an "Eligible Employee" as that term is
defined in the Company's Annual Executive Incentive Compensation Plan (the
"Annual Incentive Plan") and may receive incentive compensation as provided by
the terms of such Plan.
2
<PAGE>
Pursuant to the Annual Incentive Plan, the Executive's "Bonus Percentage" (as
defined therein) will be 50%. The Executive's participation in the Annual
Incentive Plan is subject to the terms and conditions of the Annual Incentive
Plan, or any amended version of the Annual Incentive Plan or any successor or
other annual incentive compensation plan which may be adopted and become legally
effective during the Employment Period.
ii. Notwithstanding the foregoing, for the Company's 1994 fiscal year, the
Executive shall be guaranteed a minimum cash bonus of Two Hundred Twenty Five
Thousand Dollars ($225,000) under the Annual Incentive Plan.
iii. The Executive shall be an "Eligible Employee" as that term is defined
in the Company's Key Executive Long-Term Incentive Compensation Plan (the "Long-
Term Plan"), and may receive incentive compensation as provided by the terms of
such Plan. The portion of the Executive's base salary upon which incentive
compensation under the Long-Term Plan may be earned will be 55% of base pay for
each of the three ongoing cycles, and the Executive's participation in Cycle
VIII which ends in 1994 will be 33 1/3%, in Cycle IX which ends in 1995 and
cycles thereafter will be 100%. Except as so modified the Executive's
participation in the Long-Term Plan is subject to the terms and conditions of
the Long-Term Plan, or any amended version of the Long-Term Plan or any
successor or other long-term incentive compensation plan which may be adopted
and become legally effective during the Employment Period.
iv. On December 13, 1993, the Company shall grant to the Executive rights
to purchase 60,000 shares of the Company's common stock at a purchase price of
$.25 per share and otherwise subject to all the terms and conditions of the
Company's 1975 Executive Incentive Purchase Plan, as amended ("Incentive Stock
Plan") except that (1) the Executive's rights to purchase such 60,000 shares
------
shall vest according to the following schedule: 20,000 shares on December 13,
1994, 20,000 shares on December 13, 1995 and 20,000 shares on December 13, 1996,
and (2) all shares purchased by the Executive upon exercise of such rights shall
at all times be "free shares" as defined in the Incentive Stock Plan and, as
such, shall not be subject to any restrictions as to sale or disposition or any
obligation to offer to resell such shares to the Company as set forth in Section
8 of the Incentive Stock Plan. In the event that the Executive's employment
with the Company is terminated at any time for any reason other than (i) by the
Company for cause or (ii) by the Executive for other than a "Good Reason" as
defined in the Severance Agreement referred to in Section 15 c. of this
Agreement, the Company shall immediately pay to the Executive (or in the case of
death, to the Executive's legal representative) a cash amount equal to the
excess, if any, of (A) $951,000 over (B) the aggregate fair market value of all
shares acquired by the Executive upon exercise of purchase rights granted under
this paragraph iv (such fair market values to be determined as of the dates of
such exercise) less the aggregate purchase price paid for such shares. "Fair
market value" shall mean the closing price for the Company's common stock on the
New York Stock Exchange - Composite on the exercise dates.
3
<PAGE>
v. On December 13, 1993, the Company shall grant to the Executive rights
to purchase 30,000 shares of the Company's common stock at a purchase price of
$.25 per share and otherwise subject to all of the terms and conditions of the
Incentive Stock Plan except that all shares purchased by the Executive upon
------
exercise of such rights shall at all times be "free shares" as defined in the
Incentive Stock Plan and, as such, shall not be subject to any restrictions as
to sale or disposition or any obligation to offer to resell such shares to the
Company as set forth in Section 8 of the Incentive Stock Plan.
vi. On December 13, 1993, the Company shall grant to the Executive rights
to purchase 200,000 shares of the Company's common stock at a per share purchase
price equal to the closing price of such stock on the New York Stock Exchange -
Composite on the date of this Agreement and otherwise subject to all of the
terms and conditions of the Incentive Stock Plan except that (1) the Executive's
------
rights to purchase such 200,000 shares shall vest according to the following
schedule: 40,000 shares on each of the first, second, third, fourth and fifth
anniversaries of October 21, 1993, and (2) all shares purchased by the Executive
upon exercise of such rights shall at all times be "free shares" as defined in
the Incentive Stock Plan and, as such, shall not be subject to any restrictions
as to sale or disposition or any obligation to offer to resell such shares to
the Company as set forth in Section 8 of the Incentive Stock Plan.
vii. The Company agrees to take any action necessary to carry out the
terms of the stock purchase rights granted to the Executive under paragraphs
iv., v. and vi. above, including but not limited to causing the Incentive Stock
Plan to be amended, if necessary, and waiving any rights that the Company may
otherwise have with respect to enforcing restrictions on disposition of shares
purchased by the Executive or requiring the Executive to offer to resell those
shares to the Company. The Executive is relying on the Company's description of
the income tax consequences relating to the purchase rights granted, and shares
purchased, under the Incentive Stock Plan contained in the Prospectus dated
March 5, 1992 for the Incentive Stock Plan and on the Company's assurance that
these consequences will apply to the Executive's purchase rights under Sections
5b iv., v. and vi.
c. In the event of the death of the Executive during the Employment
Period, the legal representative of the Executive shall be entitled to the base
or fixed salary provided for in Section 5a above for the month in which the
death shall have occurred, at the rate being paid at the time of death, and the
Employment Period shall be deemed to have ended as of the close of business on
the last day of the month in which the death shall have occurred, but without
prejudice to any payments otherwise due in respect of the Executive's death,
including any payment under Section 5b iv., or to any rights that the
Executive's legal representative may have to exercise the purchase rights
granted under Section 5b iv., v. and vi.
6. Perquisites. During the Employment Period, the Executive shall be
-----------
entitled to the perquisites as follows:
4
<PAGE>
a. The Executive shall be provided with an appropriate office and
secretarial and clerical staff.
b. The Company's lease of an automobile, (the "Vehicle"), shall be
provided by the Company for the Executive's use, pursuant to the Company's
leased car policy as currently in effect. Under the Company's leased car
policy, an amount of up to 4% of the Executive's base salary (as provided in
Section 5a of this Agreement) will be paid by the Company toward the lease
payments, insurance and maintenance costs of the Vehicle. Should such costs for
the Vehicle exceed that allowance, the Executive will be responsible for payment
of any differential. The Executive shall be responsible for the cost of fuel
consumed in the use of the Vehicle. Pursuant to the Company's current
automobile policy, the Company will pay the Executive a mileage allowance as
reimbursement for the use of the Vehicle in conducting the Company's business.
c. Pursuant to the Company's reserved parking policies, the Company shall
pay all but $50.00 per month of the cost of a reserved parking space for the
Executive at the Company's offices at Five Cambridge Center, Cambridge,
Massachusetts.
d. The Company shall reimburse the Executive for up to $5,000.00 per
year for the Executive's use of personal financial planning services.
7. Employment Benefits; Life Insurance. At the normal employee
-----------------------------------
contribution rate to the Executive, the Company will provide the Executive with
Master Medical coverage for the Executive and eligible members of the
Executive's family (effective as of the beginning of the Employment Period),
insurance on his life equal to One Million Dollars ($1,000,000) payable to a
beneficiary designated by the Executive (in lieu of lesser coverage available
under the usual terms of the life insurance policy which the Company offers) and
long-term disability coverage.
The Executive shall also be entitled to participate in all of the various
employee benefit plans which the Company maintains and/or adopts during the
Employment Period, including a defined benefit Retirement Plan and various
elective programs, including, without limitation, a dental insurance plan
(effective as of the beginning of the Employment Period), Employee Stock
Purchase Plan and Employee Savings and Investment Plan (pursuant to Section 401K
of the Internal Revenue Code of 1986, as amended), subject to their respective
terms and requirements, including, without limitation, their eligibility and
vesting requirements. The Executive shall be enrolled in all of these plans as
of December 13, 1993.
Nothing in this Agreement shall preclude the Company from amending or
terminating any employee benefit plan or practice, but it is the intent of the
parties that the Executive shall continue to be entitled during the Employment
Period to benefits at least equal in the aggregate to those attached to his
position as of the date of this Agreement.
5
<PAGE>
8. Residence Requirement. The Executive agrees that by May 1, 1994 the
---------------------
Executive will establish residence for himself and his family in the greater
Boston (Massachusetts) area and that the Executive shall maintain such residence
throughout his continued employment by the Company.
9. Relocation Expenses. The Company agrees to pay for (i) the broker's
-------------------
commission and closing costs incurred by the Executive with respect to the sale
of his principal residence in San Rafael to the extent the amount of such fees
and costs are customary in such community and are customarily borne by the
Seller. The Executive shall obtain two appraisals of the value of his current
California residence during the month of December, 1993. If the Executive sells
such residence before March 10, 1994 for a price less than the average of such
two appraised values, the Company shall immediately pay to the Executive in cash
the amount of such shortfall. If the Executive does not sell his residence
before March 10, 1994, and the Executive notifies the Company that he is unable
to sell his residence, the Company shall purchase the residence itself at a
price equal to the average of the values determined by two independent real
estate appraisers. In addition, the Company shall pay the Executive's
reasonable expenses incurred to move the Executive's personal property and
family from San Rafael to the permanent residence to be purchased by the
Executive in the Boston area. The Company will also reimburse the Executive for
expenses for deposits or "switch on" fees for utilities at the new residence and
fees to install any major appliances which are incurred as part of the move to
the Boston area.
From the date of this Agreement until the earlier of (i) the time the
Executive establishes a permanent residence in the Boston area, or (ii) May 1,
1994, the Company agrees to reimburse the Executive up to $6,000 per month for
reasonable living expenses incurred in connection with the rental of a furnished
apartment for the Executive's use in the Boston area, in addition to
reimbursement of reasonable expenses incurred by the Executive for parking,
telephones, cable television and utilities. In addition, during such period,
the Company will reimburse the Executive for the reasonable cost of a cleaning
service for the Executive's apartment and for the Executive's laundry and dry
cleaning expenses. The Company, furthermore, agrees to reimburse the Executive
for the cost of a round-trip airfare (business, if business is not available
then first class) for travel between Boston and the Executive's present
residence in San Rafael up to four (4) times per month by the Executive and his
wife and children until the earlier of (i) the establishment of the Executive's
permanent residence in the Boston area or (ii) May 1, 1994.
10. Termination of Employment during Employment Period. The Executive
--------------------------------------------------
hereby acknowledges and agrees that the Company by entering into this Agreement
shall not be deemed to have waived any of its rights during the Employment
Period or thereafter, including, without limitation, the right to terminate the
Executive's employment for any reason.
In the event that the Company terminates the Executive's employment during
the Employment Period for any reason other than for
6
<PAGE>
Cause (as defined below), the Company shall pay the Executive a severance
allowance consisting of either (i) a lump sum payment equal to the present value
(using as a discount rate the prime rate charged by the Bank of Boston on the
date of the Executive's termination) of the base or fixed salary payable
pursuant to Section 5a of the Agreement for the remainder of the Employment
Period, or (ii) if the termination occurs during the last year of this Agreement
a monthly severance allowance payable at the end of each month following
termination of the Executive's employment until the earliest of (a) twelve
months following the Company's termination of the Executive's employment, or (b)
the date of the Executive's death. Such monthly severance allowance shall be an
amount equal to the monthly fixed or base salary paid to the Executive pursuant
to Section 5a of the Agreement at the time of the termination of his employment.
In addition to the monthly severance allowance, until the earlier of (i) the
Executive's reemployment (other than self-employment or employment by an entity
which does not provide comparable medical benefits to employees), or (ii) the
end of the Employment Period, the Executive shall continue to be entitled to
participate (without cost to the Executive) in the Company's medical and dental
insurance programs and the Executive's life insurance benefit as provided by
this Agreement shall be continued. In addition, the Executive shall be entitled
to any cash payments provided by Section 5b iv., any payments earned pursuant to
the terms of the Annual Incentive Plan and the Long-Term Plan, and any rights to
exercise the vested portion of the stock purchase rights under Section 5b iv.,
v. and vi.
If the Executive's employment with the Company is terminated on account of
the Executive's death or permanent disability, then except for (i) the cash
payments provided by Section 5b iv. and 5c of this Agreement, (ii) any payments
earned pursuant to the terms of the Annual Incentive Plan and the Long-Term Plan
and (iii) the rights of the Executive or his legal representative to exercise
the vested portion of the stock purchase rights granted to the Executive under
Sections 5b iv., v. and vi., payment to the Executive or the Executive's estate
will be made exclusively under the Company's applicable death or disability
plans or policies.
In the event that the Executive's employment is terminated during the
Employment Period for Cause, then the Executive shall not be entitled to receive
any severance allowance or compensation of any kind (except (i) incentive
compensation which may have been fully earned pursuant to the terms and
conditions of the Annual Incentive Plan and/or the Long-Term Plan and (ii) the
cash payment due under Section 5b iv. and (iii) the rights of the Executive or
his legal representative to exercise the vested portion of the stock purchase
rights granted to the Executive under Sections 5b iv., v. and vi.) nor continue
to be entitled to any of the Company's employee benefits, including any benefits
provided in this Agreement or under the Company's medical, dental, health and
life insurance plans (except to the extent the same may be required by law), or
to perquisites of any kind, from and after the date upon which the Executive's
employment is terminated. For the purposes of this section and any other
provision of this Agreement, termination of the Executive's employment shall be
deemed to have been for Cause only if:
7
<PAGE>
a. termination of his employment shall have been so deemed by the Board of
Directors of the Company by virtue of (i) an act or acts of dishonesty, (ii)
commission of a felony or act of moral turpitude, (iii) a wrongful act or acts
resulting or intended to result directly or indirectly in gain or personal
enrichment at the expense of the Company, (iv) a willful act or acts which
constitute a material violation or violations of the federal securities laws, or
(v) a willful act or acts which constitute material insubordination or a
material violation of the Company's Conflict of Interest policy or any of its
other policies communicated to the Executive in writing; or
b. there has been a breach by the Executive during the Employment Period
of any of the material provisions of this Agreement, and, with respect to any
alleged breach, that the Executive shall have failed to remedy such alleged
breach within thirty (30) days from his receipt of written notice from the Clerk
of the Company pursuant to the resolution duly adopted by the Board of Directors
of the Company after notice to the Executive and an opportunity to be heard
demanding that the Executive remedy such alleged breach.
In the event that the Executive's employment is terminated by his voluntary
resignation, the Executive shall not be entitled to payment of any severance
allowance, or compensation of any kind (except (i) incentive compensation which
may have been fully earned pursuant to the terms and conditions of the Annual
Incentive Plan and/or the Long-Term Plan, (ii) the cash payment due under
Section 5b iv. and (iii) the rights of the Executive to exercise the vested
portion of the stock rights granted to the Executive under Sections 5b iv., v.
and vi.) or to the continuance of any of the Company's employee benefits or
perquisites of any kind.
In the event that the severance arrangements provided for in this Section
10 are triggered, the Executive will be required, as a condition to payment, to
execute a release acknowledging full and final settlement of all claims arising
from his employment and agreeing to provide reasonable cooperation to the
Company.
11. Agreement Not to Compete. The Executive hereby covenants and agrees
------------------------
that for a period of one (1) year following termination of the Executive's
employment with the Company for any reason, the Executive will not, directly or
indirectly, within the United States (the same being the area in which the
Company's business is conducted), in any capacity, enter into or engage in the
same or a substantially similar business as that conducted and carried on by the
Company and being directly competitive with the Company or any of its business
units or subsidiaries, including, but not limited to, specialty retailing of
infant's, toddler's and children's footwear, the design, manufacture of footwear
of any type on the wholesale level, and any and all components of the foregoing,
whether as an individual for his own account, or as a partner, joint venturer,
employee, agent, consultant, officer or director for or with any person or
entity, or as a shareholder (greater than one percent (1%) of any corporation),
or otherwise.
8
<PAGE>
12. Agreement of Confidentiality. With respect to any secret, proprietary
----------------------------
or confidential information obtained by the Executive during his employment at
the Company, except with the prior written agreement of the Company, which
consent shall be granted or withheld in the sole discretion of the Company, the
Executive will not, at any time, disclose or use for competitive purposes (other
than the Company's competitive purposes) any such information. For purposes
hereof, secret, proprietary or confidential information shall include, by way of
example but not by way of limitation, any information of a technical, financial,
commercial or other nature pertaining to the business of the Company or to that
of any of its clients, customers, consultants, licensees, business units,
subsidiaries or affiliates, including but not limited to, its and their
operations, plans, financial condition, product development, customers,
sources of supply, manufacturing techniques or procedures, marketing, sales,
production or other competitive information acquired by the Executive during
the course of his employment by the Company and all other information that the
Company itself does not disclose to the public.
13. Notice. For the purposes of this Agreement, notices and all other
------
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered personally or mailed by United
States registered or certified mail, return receipt requested, postage prepaid,
addressed to the Executive at 534 Biscayne Drive, San Rafael, California 94901,
until such time as the Executive establishes permanent residence in Boston and
thereafter at such address; and to the Company at Five Cambridge Center,
Cambridge, Massachusetts 02142 (or at such other address to which it may
relocate its headquarters during the term of this Agreement), directed to the
Board of Directors with a copy of the Clerk of the Company.
14. Heirs and Successors Bound. This Agreement shall be binding upon the
--------------------------
heirs, administrators and executors of the Executive and upon the successors or
assigns of the Company.
15. Miscellaneous.
-------------
a. No provision 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
of Directors. No waiver by either party hereto at any time of any breach by the
other party hereto of, or in compliance with any condition or provision of this
Agreement to be performed by the other party shall be deemed a waiver of similar
or dissimilar provisions or conditions at the time or at any prior or subsequent
time.
b. The Executive agrees that the remedy at law for any breach by the
Executive of the provisions of Sections 11 or 12 of this Agreement will be
inadequate and that the Company will also be entitled to injunctive relief
without bond against any such breach. Such injunctive relief will not be
exclusive but will be in addition to any other relief that the Company may have.
9
<PAGE>
c. There are no agreements or understandings, oral or written, between the
parties hereto other than those set forth in this Agreement, and there are no
agreements or understandings which in any way alter, modify, amend or otherwise
change this Agreement, with the exception of a certain Severance Agreement
between the Executive and the Company, dated as of October 21, 1993, as such may
be further modified, amended or replaced (the "Severance Agreement"). In the
event that any "change in control" as defined in the Severance Agreement occurs
during the Employment Period, which event triggers the terms of the Severance
Agreement, then the parties hereto hereby agree that the Severance Agreement
shall thenceforth be deemed to supersede this Agreement in all respects, except
that Executive shall retain all his rights under Section 5b iv., v. and vi.
d. The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the Commonwealth of Massachusetts
applicable to instruments under seal.
e. The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement, which shall remain in full force and effect.
f. This Agreement may be executed in two counterparts, each of which shall
be deemed an original but all of which together will constitute one and the same
instrument.
g. The section headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
NOW THEREFORE, the parties set their hands and seals on this 21st day of
October, 1993.
Signed: /s/ Robert C. Siegel
--------------------------------
THE STRIDE RITE CORPORATION
Signed: /s/ Margaret McKenna
--------------------------------
Margaret McKenna, Chairman of
the Compensation Committee of
the Board of Directors
10
<PAGE>
EXHIBIT 11
THE STRIDE RITE CORPORATION
CALCULATION OF NET INCOME PER SHARE
FOR THE FIVE FISCAL YEARS ENDED DECEMBER 3, 1993
<TABLE>
<CAPTION>
Dec. 1, Nov. 30, Nov. 29, Nov. 27, Dec. 3,
1989 1990 1991 1992 1993
----------- ----------- ----------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Calculation of shares:
Weighted average number of common
shares outstanding 53,207,832 52,172,580 51,086,310 51,259,960 50,619,238
Common shares attributable to
assumed exercise of dilutive
stock options and stock purchase
rights using the treasury stock
method 725,194 491,326 570,562 295,717 192,251
---------- ---------- ---------- ---------- ----------
Average common shares and
common equivalent shares
outstanding 53,933,026 52,663,906 51,656,872 51,555,677 50,811,489
=========== =========== =========== =========== ===========
Net income available for
common stock $45,672,000 $55,541,000 $65,960,000 $61,506,000(a) $58,291,000(b)
=========== =========== =========== =========== ===========
Primary and fully diluted net
income per share $.85 $1.05 $1.28 $1.19(a) $1.15(b)
=========== =========== =========== =========== ===========
</TABLE>
(a) Net income and net income per common share in 1992 included nonrecurring
charges of $18,319,000 (an after-tax charge of $11,087,000 or $.22 per share).
(b) Net income and net income per common share in 1993 includes nonrecurring
charges of $7,200,000 (an after-tax charge of $4,274,000 or $.08 per share).
Net income and net income per common share in 1993 were also reduced by the
cumulative effect of change in accounting principle related to income taxes,
which amounted to $2,034,000 or $.04 per share, respectively.
<PAGE>
EXHIBIT 13
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
1993 1992
- ----------------------------------------------------------------
<S> <C> <C>
Net sales $582,868 $585,926
Net income** 58,291 61,506
Net income per common share** 1.15 1.19
Dividends per common share .35 .31
Working capital 243,249 241,310
Total assets 412,449 383,524
Long-term debt 2,500 3,333
Stockholders' equity 302,473 271,535
Book value per common share outstanding 6.02 5.33
Return on average equity 20.2% 23.6%
Common shares outstanding at end of year 50,280 50,908
</TABLE>
* Amounts are in thousands, except for per share information
** Amount in 1993 includes a charge of $2,034,000 ($.04 per share)
representing the cumulative effect of an accounting change.
<PAGE>
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
1989 1990 1991 1992 1993
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $454,373 $515,842 $574,379 $585,926 $582,868
Net income/2/,/4/ 45,672 55,541 65,960 61,506 58,291
Common stock
dividends 9,302 10,382 13,050 15,872 17,686
Working capital 149,528 162,949 217,665 241,310 243,249
Total assets 251,676 266,023 332,090 383,524 412,449
Long-term debt 5,833 5,000 4,167 3,333 2,500
Stockholders'
equity 166,662 181,359 240,427 271,535 302,473
Return on average
equity 30.5% 31.6% 31.3% 23.6% 20.2%
Common shares
outstanding at
end of year 53,408 50,857 51,481 50,908 50,280
Per common share:
Net income/2/,/4/ .85 1.05 1.28 1.19 1.15
Cash dividends .175 .20 .255 .31 .35
Book value 3.12 3.57 4.67 5.33 6.02
Number of employees 3,900 3,700 3,600 3,100 3,300
Number of shareholders 3,000 3,000 2,900 4,100 4,800
</TABLE>
1. Financial data is in thousands, except for per share information.
2. Net income in 1989 is after a loss from discontinued operations of $494,000
or $.01 per share.
3. Net income includes nonrecurring charges of $7,200,000 ($4,274,000, net of
income taxes or $.08 per share) in 1993 and $18,319,000 ($11,087,000, net of
income taxes, or $.22 per share) in 1992 as described in Note 2 to the
consolidated financial statements.
4. Net income is reduced by $2,034,000 ($.04 per share) in 1993 representing the
cumulative effect of an accounting change related to income taxes.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
OVERVIEW - 1989 TO 1993
The information provided in the preceding table, entitled "Selected Financial
Data", highlights Stride Rite's progress in the last five years. During this
five-year period, the Company's net sales and net income have increased at an
average annual rate of 6%. Excluding nonrecurring items and accounting changes,
the five-year income growth rate would be slightly higher at 8.5% per year.
Over the five-year period, the Company's gross profit percent has contracted
somewhat due to the reduced significance of retail operations to the
consolidated total and changes in product mix at Keds. Selling and
administrative expenses in the last five years, excluding nonrecurring charges,
have increased at an average annual rate of 3% compared to the net sales growth
of 6%. While the lower rate of increase in expenses was due, in part, to retail
store closings, selling expenses in these years also included higher advertising
spending with costs increasing an average of 12% per year since 1989. This
relatively low expense growth over the years has offset the impact of gross
profit percent contraction so that, before one-time costs, operating income as a
percent of net sales finished at 17.3% in fiscal 1993, the same return rate
experienced in fiscal 1989. The Company's favorable cash flow also helped
overall profitability in the period as net interest income has increased from an
expense of $1.4 million in 1989 to income of $2.7 million in 1993.
When compared to 1989's performance, the Company's after-tax return on net
sales has remained essentially the same at 10% of sales. With income adjusted
to exclude losses related to discontinued operations in 1989 and an accounting
change and nonrecurring charge in 1993 (see Note 2 to the consolidated financial
statements), the comparison of the 1989 and 1993 profitability measure produces
a 9% improvement. Excluding nonrecurring items, the 1993 return on sales was
11.1%, compared to the return of 10.2% achieved in 1989. The 1993 return on
equity of 20.2% fell short of the 30.5% return of fiscal 1989. The 1993 rate
was negatively impacted by one-time items and by increased levels of short-term
investments, which have yields that are low in relation to the Company's
operating businesses. Adjusted for the accounting change and the nonrecurring
charge, fiscal 1993's
<PAGE>
operating results produced a return on equity of 21.9%.
OPERATING RESULTS
1991 TO 1993
The table below and the paragraphs which follow summarize the Company's
performance in the last three fiscal years:
<TABLE>
<CAPTION>
Percent Change
--------------------------------
1993 vs. 1992 1992 vs. 1991
Increase (decrease)
- -----------------------------------------------------------------------
<S> <C> <C>
Net sales (0.5%) 2.0%
Gross profit (4.5%) 3.8%
Selling and administrative expenses 3.0% (1.2%)
Operating income (4.6%) (6.9%)
Income before income taxes and
change in accounting principle (2.3%) (6.9%)
Income before change in
accounting principle (1.9%) (6.8%)
Net income (5.2%) (6.8%)
Before nonrecurring charges:
Operating income (13.5%) 10.5%
Income before change in
accounting principle (11.0%) 10.1%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Percent to Net Sales
-----------------------
1993 1992 1991
- --------------------------------------------------------------
<S> <C> <C> <C>
Gross profit 41.7% 43.5% 42.8%
Selling and administrative expenses 24.5% 23.7% 24.4%
Operating income 16.0% 16.7% 18.3%
Income before income taxes and
change in accounting principle 16.8% 17.1% 18.7%
Income before change in
accounting principle 10.3% 10.5% 11.5%
Net income 10.0% 10.5% 11.5%
Before nonrecurring charges:
Operating income 17.3% 19.8% 18.3%
Income before change
in accounting principle 11.1% 12.4% 11.5%
</TABLE>
NET SALES
Net sales decreased $3 million in fiscal 1993 from the sales level achieved in
fiscal 1992. Unit shipments of current line merchandise increased 1.2% in 1993
and the sales level also benefited from increased retail sales. The sales
increases were offset by lower average selling prices, primarily due to product
mix changes in the Keds division. Excluding the impact of product mix changes,
consolidated net sales in 1993 were also reduced by approximately $4 million due
to selling price deflation.
Sales of the Keds division, the Company's largest business, in fiscal 1993
were 3% below last year's revenue total. Sales of Keds children's products
decreased 6% from 1992, while sales of Keds women's product line in 1993 were
off 4% from last year. The performance of the women's category was negatively
impacted by lower average selling prices due to product mix changes and reduced
sales of leather styles. Sales of Keds basic Champion style declined 9% in
1993. The decline was partially offset by the division's efforts to broaden the
women's product offering which resulted in a 6% sales gain for other Keds
women's products.
<PAGE>
Net sales of the Stride Rite Children's Group increased 6% in fiscal 1993 with
additional retail sales accounting for just over half of the Group's sales
increase. Sales of the retail booteries and leased departments operated by the
Children's Group were up 8% in 1993, while sales to independently owned
specialty stores, department stores and family shoe stores increased 4%. The
Children's Group operated an average of 176 stores in each year, but finished
the 1993 year with 189 stores, up from 173 locations in November 1992. The
Children's Group had closed or sold 19 stores in fiscal 1992 and 37 stores in
fiscal 1991. Approximately 40% of the retail sales gains in 1993 were related
to comparable stores' results with the balance of the sales increase related to
new stores and the fact that the 1993 fiscal year included 53 weeks.
The Sperry Top-Sider division's sales in fiscal 1993 were down 11% from 1992
with sales of current line merchandise off 10% and revenues from the liquidation
of discontinued styles down $1.1 million or 15%. Sales of leather boat shoes
and other styles in 1993 were even with last year, while sales of canvas
footwear and sandals were down 40% from 1992.
The Company's International division continued to make steady progress in
fiscal 1993 as sales were up $3.8 million or 17% from 1992. Higher sales of
Keds products in international markets along with the initial deliveries of
Stride Rite products to independently owned bootery stores in Latin America
offset lower Sperry Top-Sider sales. The Company's Canadian subsidiary posted a
10% sales increase in 1993, but lower exchange rates reduced the sales gain in
US dollars to 3%.
Net sales in fiscal 1992 increased $11.5 million or 2% from fiscal 1991's
results. In 1992, increased unit shipments and a change in mix toward higher
priced leather styles offset $9 million of selling price deflation. Keds
division sales were up 5% in 1992 as a 14% increase in sales of leather products
helped both the children's and women's categories to post increases above 1991's
sales. Sales of the Stride Rite Children's Group declined 7% in 1992 with
retail sales down $5.1 million due to weak sales in the Group's leased
departments and an average store count which was 11% lower than in 1991 due to
the closing of underperforming retail locations. Children's Group sales to
independent accounts were also lower in 1992, a decrease of 6% from the 1991
level. In 1992, sales of the Sperry Top-Sider division fell 10% from 1991 with
lower shipments of canvas styles causing most of the decrease. International
division sales were above 1991 by $8.6
<PAGE>
million or 61% as increased sales of Keds products to distributors in Europe,
South America and Japan offset a 10% sales decline in Canada.
GROSS PROFIT
In fiscal 1993, the Company's consolidated gross profit rate of 41.7% was
below the 43.5% rate achieved in fiscal 1992. LIFO adjustments had little
impact on 1993's gross profit performance, increasing margins by $0.2 million.
In 1992, the impact of LIFO increased gross profit by $4.6 million or 0.8% of
net sales. Stable leather prices and the continuing shift of product sourcing
to lower cost countries produced deflation in overall product costs in 1992.
The changing sales mix in the Keds division negatively impacted gross profit in
1993, as margins on new women's styles were generally lower than those of the
basic Champion canvas styles. Increased product sourcing and warehousing costs
also reduced gross profit in 1993 as staffing was expanded to cover new
resources in the Far East. Gross profit percent performance was helped by the
increased significance of the Stride Rite Children's Group's retail sales, the
division of the Company with the highest gross profit percentage, as retail
sales accounted for 11.6% of consolidated sales in 1993 compared to 10.7% in
1992. In addition, increased production levels at the domestic facilities
operated by the Stride Rite Children's Group resulted in improved capacity
utilization in 1993.
In fiscal 1992, the Company's gross profit rate improved by 0.7 percentage
points from the 42.8% rate achieved in fiscal 1991. The LIFO benefits (0.8% of
net sales) included in the 1992 results accounted for all of the improvement as
LIFO reduced gross profit in 1991 by $0.5 million or 0.1% of net sales. In
1992, gross profit also benefited from lower air freight costs ($2.4 million or
0.4% of net sales). The increased shipments of Keds leather styles in 1992
reduced the gross profit percent from that achieved in 1991 as the leather
product line carries a lower margin rate than Keds' traditional canvas styles.
Lower sales at the retail level and $1.7 million of costs associated with the
closing of a manufacturing facility also hurt gross profit performance in 1992.
OPERATING COSTS
Selling and administrative expenses in fiscal 1993 increased $4.1 million or
3%. Selling and administrative costs as a percent to net sales increased by 0.8
percentage points, 24.5% in 1993 compared to 23.7% in 1992. Higher advertising
and sales promotion expenses contributed to the cost increase in 1993 as
spending was above 1992 by $2.5
<PAGE>
million or 8%. Advertising expense represented 5.6% of net sales in 1993
compared to 5.2% in 1992. The increased significance of retail sales, where
selling expenses are high relative to the Company's other divisions, to the
consolidated total resulted in a 0.4% increase in the selling expense to sales
ratio. In 1993, selling and administrative expenses also include additional
costs totaling $1.9 million related to international trademark rights acquired
during 1992 and start-up expenses of a European sales subsidiary. The Company's
contributions to its charitable foundation were reduced by $4.3 million in 1993
in response to current profitability trends. Sufficient funds exist in the
Stride Rite Charitable Foundation so that donations to scholarship and other
charitable causes will not be impacted. In fiscal 1992, selling and
administrative expenses decreased $1.7 million (1.2%) from 1991 despite the 2%
increase in net sales. Advertising costs were up $0.6 million or 2.1% in 1992.
The closing of retail stores during 1992 resulted in reduced costs of
approximately $3.1 million.
Nonrecurring charges, as described in Note 2 to the consolidated financial
statements, impacted operating results during the last two years. In fiscal
1993, the Company incurred costs amounting to $7.2 million pre-tax related to
the settlement of an investigation of Keds' suggested retail pricing policy.
The nonrecurring charges in fiscal 1992, totaling $18.3 million, were primarily
related to the Company's decision to consolidate and relocate its distribution
function to a new facility in Kentucky.
OTHER INCOME AND TAXES
Non-operating income (expense) increased pre-tax earnings by $4.6 million in
fiscal 1993 compared to increases of $2.3 million in the 1992 and 1991 fiscal
years. Interest income increased $0.2 million in 1993 as a 36% increase in the
funds available for investment during the year offset lower yields on short-term
investments. In 1992, interest income decreased $0.5 million from 1991 as lower
investment yields and the increased use of tax-exempt fixed income securities
offset a 15% increase in funds available for investment. In 1993, interest
expense was down slightly from last year after decreasing $0.2 million from
1991. Lower average borrowings under the Company's bank lines of credit and
lower interest rates contributed to the reduced cost in 1992. In 1993, other
income includes a gain of $3 million related to cash distributions from an
investment in a limited partnership. This gain was partially offset by expenses
related to a new company-owned life insurance program.
<PAGE>
The provisions for income taxes in fiscal 1993 and 1992 were below the prior
year amount by $1.1 million and $2.9 million, respectively, because of lower
pre-tax earnings. Despite the higher federal income tax rates, which took
effect January 1, 1993, the Company's effective tax rate of 38.4% in 1993
decreased slightly from the effective rates in 1992 (38.6%) and 1991 (38.7%).
Increased tax exempt investment income and tax savings related to a Company
owned life insurance program offset the impact of the higher statutory rates
(0.9%).
NET INCOME
Income before the cumulative effect of a change in accounting principle in
fiscal 1993 decreased $1.2 million or 1.9% from the income level achieved in
1992. When adjusted for the nonrecurring charges in both years, the 1993 income
amount was below 1992's results by $8 million ($64.6 million in 1993 compared to
$72.6 million in 1992) or 11%. The income reduction in 1993 was caused by lower
sales levels, the reduced gross profit rate and increased selling expenses.
During the third quarter of fiscal 1993, the Company adopted, retroactive to
November 28, 1992, Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes". The cumulative effect of the change in
accounting principle reduced net income in 1993 by $2 million. Including the
impact of the change in accounting principle, net income for 1993 decreased $3.2
million or 5.2% from the 1992 total. In fiscal 1992, net income was below the
1991 level by $4.4 million or 6.8% as the impact of the nonrecurring charges
($11.1 million after tax) offset the increased operating earnings. Before the
nonrecurring charge, 1992 net income was above the 1991 results by $6.6 million
or 10.1%.
LIQUIDITY AND CAPITAL RESOURCES
As of the end of fiscal 1993, the Company's balance sheet reflected the
results of the Company's continued positive cash flow. A current ratio of 3.4
to 1 and a debt to equity relationship of 0.8% demonstrate the Company's ability
to provide internal financing for the future growth of its existing businesses.
Over the last three fiscal years, the Company's operations have generated $189.3
million of positive cash flow. Fiscal 1993's operating results produced $67.3
million or 36% of this three-year total. The Company has used $33.9 million or
18% of this operating cash flow in the last three years to repurchase 1,895,100
common shares and $71.5 million or 38% of this amount has been added to the
balance sheet in higher levels of cash and short-term investments.
<PAGE>
During 1993, the Company's cash and short-term investments increased by $6.2
million despite increased capital expenditures and the use of $15.2 million to
fund higher dividend payments and to repurchase common shares. In fiscal 1993,
the Company used $29.4 million of operating cash flow to fund the construction
and equipping of a 520,000 square foot distribution center in Louisville,
Kentucky. The elements of working capital, other than cash and short-term
investments, decreased $4.3 million in 1993, with the investment in receivables
and inventory declining by $6.5 million or 3% from the 1992 total.
In addition to internal sources of capital, the Company maintains bank lines
of credit to satisfy any seasonal borrowing requirements that may be imposed by
the sales pattern characteristics of the footwear industry. In fiscal 1993, no
significant amounts were borrowed under these arrangements and the Company's
borrowings averaged only $0.7 million and $2.1 million during fiscal 1992 and
1991, respectively. No short-term borrowings were outstanding at the end of
1993 or 1992.
In the last three years, additions to property and equipment aggregated $41.2
million with $33.9 million of the expenditures occurring in 1993. The largest
project undertaken in fiscal 1993 was the Company's new distribution center in
Louisville, Kentucky. Construction of the facility was completed in the fourth
quarter and shipments of Keds products to customers commenced in January 1994
following the closing of the Keds distribution facility in New Bedford,
Massachusetts in December 1993. The Company's sales performance in the first
half of fiscal 1994 will be impacted by start-up difficulties at the new
distribution center. In the first two months of fiscal 1994, the Keds division
has experienced service interruptions on reorders, and deliveries of future
orders to customers are behind schedule by approximately five weeks. As a
result, Keds sales in the first quarter, which ends March 4, 1994, are expected
to be 10% to 15% below the 1993 level. Consolidated net income for the first
quarter of fiscal 1994 is expected to be off from the comparable period in
fiscal 1993 at a more significant rate than the sales decline because of
expenses related to the shipping delays as well as increased marketing costs.
The Company anticipates the problems to continue into the second quarter of
fiscal 1994 as deliveries are expected to run behind schedule until late April.
The later deliveries on new Spring styles will probably result in lower reorders
for the Spring season. The new distribution center should be fully operational
for the Fall 1994 season. The Company expects to close its Boston,
Massachusetts facility, which distributes Stride
<PAGE>
Rite and Sperry Top-Sider products to customers, and to transfer activity to the
Kentucky facility in the second half of fiscal 1994.
The Company opened 24 retail locations during fiscal 1993 with eight booteries
purchased from independent dealers and 12 of the new locations representing
additional leased department operations. The Company also closed 7 retail
locations in 1993. In the 1990 to 1992 period, the Company emphasized the
expansion of its dealer network of independently operated children's booteries
rather than opening its own retail stores. Capital expenditures related to
retail stores were lower in this period as only 10 Company-owned stores were
opened over the three years. This pace of store openings was down significantly
from the 47 stores opened in the 1987 to 1989 period. While the Company expects
to accelerate the amount of retail store openings in fiscal 1994, capital
expenditures will return to more normal levels due to the completion of the
Kentucky facility. Funding for capital expenditures generally will be provided
from internal sources.
Over the last three years, the Company's Board of Directors has increased the
dividend rate so that it is now almost double the rate of the fourth quarter of
fiscal 1990. In addition, the Board has authorized a stock repurchase program
for 16,000,000 shares of common stock. In fiscal 1993, the Company expended
$13.4 million to repurchase 915,200 common shares. Adjusted for the stock
splits in 1989 and 1991, the 1993 transactions brought the shares repurchased
under the Board authorization to 12,948,100 shares, or 81% of the authorized
total, for an aggregate expenditure of $106.6 million since the current
repurchase program was initiated in the fourth quarter of 1987. The aggregate
shares repurchased represent 21% of the total shares outstanding prior to the
Board's authorization. Funds for these repurchases were provided from internal
sources.
<PAGE>
Consolidated Balance Sheets
<TABLE>
<CAPTION>
(in thousands
except for share data) Dec. 3, 1993 Nov. 27, 1992
- --------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 38,763 $ 55,026
Short-term investments 65,645 43,178
Accounts and notes receivable,
less allowances of
$5,602 in 1993
and $5,935 in 1992 75,184 83,585
Inventories 132,725 130,818
Deferred income taxes 27,294 28,560
Prepaid expenses 4,109 3,698
-------- --------
Total current assets 343,720 344,865
Property and equipment, net 47,737 17,898
Other assets, net 19,677 19,374
Goodwill, net 1,315 1,387
-------- --------
Total assets $412,449 $383,524
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt 833 833
Accounts payable 30,495 20,340
Income taxes payable 31,701 35,876
Accrued expenses and other liabilities 37,442 46,506
-------- --------
Total current liabilities 100,471 103,555
Deferred income taxes 7,005 5,101
Long-term debt 2,500 3,333
Stockholders' Equity:
Preferred stock, $1 par value-
1,000,000 shares authorized;
Issued - none - -
Common stock, $.25 par value-
135,000,000 shares authorized;
Issued - 56,946,544 14,237 14,237
Capital in excess of par value 23,710 23,519
Retained earnings 347,677 307,072
-------- --------
385,624 344,828
Less cost of 6,666,690 shares of common
stock held in treasury (6,038,642 in 1992) (83,151) (73,293)
-------- --------
Total stockholders' equity 302,473 271,535
-------- --------
Total liabilities and stockholders'
equity $412,449 $383,524
======== ========
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years Ended
(in thousands, ---------------------------------------------
except for per share data) Dec. 3, 1993 Nov. 27, 1992 Nov. 29, 1991
- -------------------------- ------------- -------------- --------------
<S> <C> <C> <C>
Net sales $582,868 $585,926 $574,379
Cost of sales 339,523 331,054 328,785
Selling and administrative
expenses 142,739 138,606 140,332
Nonrecurring charges 7,200 18,319 -
-------- -------- --------
Operating income 93,406 97,947 105,262
Investment income 3,126 2,896 3,361
Interest expense (445) (482) (661)
Other income (expense), net 1,878 (136) (357)
-------- -------- --------
Income before income taxes and
cumulative effect of change in
accounting principle 97,965 100,225 107,605
Provision for income taxes 37,640 38,719 41,645
-------- -------- --------
Income before cumulative effect
of change in accounting principle 60,325 61,506 65,960
Cumulative effect of change in
accounting principle (2,034) - -
-------- -------- --------
Net income $ 58,291 $ 61,506 $ 65,960
======== ======== ========
Per share of common stock:
Income before cumulative effect
of change in accounting principle $ 1.19 $1.19 $1.28
Cumulative effect of change in
accounting principle (.04) - -
-------- -------- --------
Net income $ 1.15 $1.19 $1.28
======== ======== ========
Average common shares and common
equivalents outstanding 50,811 51,556 51,657
======== ======== ========
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended
---------------------------------------------
(in thousands) Dec. 3, 1993 Nov. 27, 1992 Nov. 29, 1991
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH WAS PROVIDED FROM (USED
FOR) OPERATIONS:
Net income $ 58,291 $ 61,506 $ 65,960
Adjustments to reconcile to
net cash provided from
operations:
Depreciation and amortization 6,264 5,362 4,204
Deferred income taxes 1,136 (10,904) (4,488)
Equity in earnings of
affiliate (1,043) (1,809) (2,298)
Loss(gain) related to
long-term investments (3,004) 140 411
Loss on disposal of property
and equipment 149 676 317
Cumulative effect of change
in accounting principle 2,034 - -
Changes in:
Accounts and notes
receivable 8,401 (7,408) (3,146)
Inventories (1,907) (13,965) (5,869)
Prepaid expenses (411) (805) 403
Long-term notes receivable (16) 585 (275)
Accounts payable, income
taxes, accrued expenses
and other current liabilities (2,561) 22,793 10,573
-------- -------- --------
Net cash provided from
operations 67,333 56,171 65,792
-------- -------- --------
INVESTMENTS:
Short-term investments (22,467) (30,798) (12,380)
Additions to property and
equipment (33,938) (3,742) (3,531)
Proceeds from sales of
property and equipment 154 195 70
Long-term investments 3,255 1,176 586
Acquisitions of trademarks (276) (1,021) -
Increase in other assets (1,615) (9,126) -
-------- -------- --------
Net cash used for
investments (54,887) (43,316) (15,255)
-------- -------- --------
FINANCING:
Long-term debt payments (833) (833) (833)
Proceeds from sale of stock
under stock plans 2,492 88 2,460
Tax benefit in connection
with stock plans 284 2,874 2,641
Repurchase of common stock (13,415) (20,524) -
Cash dividends paid (17,237) (15,405) (11,731)
-------- -------- --------
Net cash used for financing (28,709) (33,800) (7,463)
-------- -------- --------
NET INCREASE(DECREASE) IN CASH
AND CASH EQUIVALENTS (16,263) (20,945) 43,074
Cash and cash equivalents at
beginning of year 55,026 75,971 32,897
-------- -------- --------
Cash and cash equivalents at
end of year $ 38,763 $ 55,026 $ 75,971
======== ======== ========
</TABLE>
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Capital
(in thousands, Common In Excess of Retained Treasury
except for share data) Stock Par Value Earnings Stock
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, November 30, 1990 $14,237 $22,513 $208,528 $(63,919)
Net income 65,960
Issuance of 400,264 common shares
under executive stock plans (3,046) 4,201
Issuance of 223,098 common shares
under employee stock plan 21 2,341
Tax benefit in connection with
stock plans 2,641
Cash dividends on common stock,
$.255 per share (13,050)
------- ------- -------- --------
Balance, November 29, 1991 14,237 22,129 261,438 (57,377)
Net income 61,506
Issuance of 407,172 common shares
under executive stock plans (1,484) 4,608
Tax benefit in connection with
stock plans 2,874
Repurchase of 979,900 shares
of common stock (20,524)
Cash dividends on common stock,
$.31 per share (15,872)
------- ------- -------- --------
Balance, November 27, 1992 14,237 23,519 307,072 (73,293)
Net income 58,291
Issuance of 104,007 common shares
under executive stock plans (280) 1,273
Issuance of 183,145 common shares
under employee stock plan 187 2,284
Tax benefit in connection with
stock plans 284
Repurchase of 915,200 shares of
common stock (13,415)
Cash dividends on common stock,
$.35 per share (17,686)
------- ------- -------- --------
Balance, December 3, 1993 $14,237 $23,710 $347,677 $(83,151)
======= ======= ======== ========
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation-The consolidated financial statements of The Stride
Rite Corporation include the accounts of the Company and all its wholly-owned
subsidiaries. Intercompany transactions between the Company and its
consolidated subsidiaries have been eliminated. The Company's investment in an
unconsolidated, 49.5% owned affiliate is accounted for in the consolidated
financial statements using the equity method of accounting. Under this method,
the Company's share of the affiliate's income or loss is included in the
consolidated statement of income. Earnings related to transactions between the
affiliate and the Company's consolidated subsidiaries are deferred until
merchandise is resold by those subsidiaries.
Certain reclassifications have been made to prior years' consolidated financial
statements to conform to the fiscal 1993 presentation.
Cash Equivalents and Short-term Investments-Cash equivalents represent highly
liquid investments, including repurchase agreements, with a maturity of three
months or less. Due to the short-term nature of repurchase agreements, the
Company does not take possession of the securities, which are instead held in
the Company's safekeeping account by the bank. For these investments, the value
of the collateral is at least equal to the amount of the repurchase agreements.
Short-term investments, representing bank certificates of deposit and tax-exempt
debt instruments with a maturity of between three months and one year, are
stated at cost, which approximates market value.
Financial Instruments-Financial instruments consist principally of cash, short-
term investments, trade receivables and payables and long-term debt. The
Company places its investments in highly rated financial institutions and
investment grade short-term financial instruments, which limits the amount of
credit exposure. The Company sells footwear to numerous retailers.
Historically, the Company has not experienced significant losses related to
investments or trade receivables.
The Company calculates the fair value of all financial instruments and includes
this additional information in the consolidated financial statements when the
fair value is different than book value. The Company uses quoted market prices
when available to calculate these fair values.
Inventory Valuation-Inventories are stated at the lower of cost or market. The
cost of substantially all inventories is determined on the last-in, first-out
(LIFO) basis.
Property and Equipment-Property and equipment are stated at cost. Depreciation,
which is calculated primarily on the straight-line method, is provided by
periodic charges to expense over the estimated useful lives of the assets.
Leaseholds and leasehold improvements are amortized over the terms of the
related leases or their estimated useful lives, whichever is shorter, using the
straight-line method.
Goodwill and Trademarks-Goodwill represents the excess of the amount paid over
the fair value of net assets acquired. Trademark rights are stated at
acquisition cost. These assets are being amortized on a straight-line basis
primarily over a 25-year period.
<PAGE>
Income Taxes-Deferred income taxes are provided for timing differences between
financial and taxable income. Deferred taxes are also provided on undistributed
earnings of subsidiaries and affiliates located outside the United States at
rates expected to be applicable at the time of repatriation.
Accounting Change - During fiscal 1993, the Company adopted, effective November
28, 1992, Statement of Financial Accounting Standards ("SFAS") No. 109,
"Accounting for Income Taxes". The cumulative effect of adopting this Statement
was to decrease 1993's net income by $2,034,000 or $.04 per share. Prior years'
financial statements have not been restated to apply the provisions of SFAS No.
109.
Accounting Pronouncements - In December 1990, the Financial Accounting Standard
Board issued SFAS No. 106, "Employers' Accounting for Post-retirement Benefits
Other Than Pensions." Since the Company does not currently provide retirees
with health and other benefits, the Statement has no impact on the Company's
financial statements.
Net Income Per Common Share-Net income per common share is computed by dividing
net income by the average number of common shares and common equivalents
outstanding during the year.
Industry Segment Information-The Company operates primarily within the footwear
industry; therefore, no segment information is required.
2. NONRECURRING CHARGES
On September 27, 1993, the Company announced that its wholly-owned subsidiary,
The Keds Corporation, reached settlement agreements with the Attorneys General
of all fifty states, the Corporation Counsel of The District of Columbia and The
Federal Trade Commission concerning their investigations of Keds' suggested
retail pricing policy. Under the settlement, which is subject to court
approval, Keds agreed to contribute $5,700,000 to five charitable organizations
nationwide and to pay $1,500,000 in notice and other administration expenses.
Keds' suggested retail pricing policy, which was instituted on September 1, 1992
and withdrawn on June 25, 1993, covered six of its women's shoes, including the
leather and canvas Champion Oxford styles.
The Company believes that Keds' pricing policy did not in any way violate any
antitrust laws or any other laws and continues to believe that its pricing
policy was entirely lawful. Keds decided to resolve this complicated legal
issue expeditiously in order to avoid any further disruption to its business.
The full cost of the settlement, $4,274,000 net of income taxes or $.08 per
share, is included in the consolidated statement of income for the year ended
December 3, 1993.
The Company's operating results for the fiscal year ended November 27, 1992
included the accrual of $18,319,000 in nonrecurring charges. These charges were
primarily related to the Company's decision to consolidate and relocate its two
Massachusetts distribution centers to a new facility in Louisville, Kentucky.
The nonrecurring charges included the estimated costs of severance, relocation,
training and other expenses associated with the move to the new facility, as
well as estimated losses on the disposal of property and equipment. The Company
completed construction of the new facility in December 1993. Capital
expenditures in fiscal 1993 includes $29,423,000 representing the cost of
constructing and equipping the new facility.
<PAGE>
3. INVENTORIES
The cost of inventories at December 3, 1993 and November 27, 1992, was
determined primarily on a last-in, first-out (LIFO) basis. A summary of
inventory values is as follows:
<TABLE>
<CAPTION>
(in thousands) 1993 1992
- --------------------------------------------------------------
<S> <C> <C>
Finished goods $127,925 $124,061
Work in process 1,670 2,259
Raw materials 3,130 4,498
-------- --------
$132,725 $130,818
======== ========
</TABLE>
During 1993, the LIFO reserve decreased by $183,000 to $22,928,000 at December
3, 1993. If all inventories had been valued on a FIFO basis, net income would
have been lower by $108,000 (less than $.01 per share) in 1993. During 1992,
the LIFO reserve decreased by $4,636,000 and in 1991 the reserve increased by
$535,000. If all inventories had been valued on a FIFO basis, net income would
have been lower in 1992 by $2,770,000 ($.05 per share) and, in 1991, net income
would have been higher by $319,000 ($.01 per share).
During each year, reductions in certain inventory quantities resulted in the
sale of products carried at costs prevailing in prior years which were different
than current costs. As a result of these inventory reductions, net income was
decreased in 1993 by $444,000 ($.01 per share) and was increased in 1992 and
1991 by $1,304,000 and $1,421,000, respectively ($.03 per share in each year).
4. PROPERTY AND EQUIPMENT
The components of property and equipment at December 3, 1993 and November 27,
1992 are as follows:
<TABLE>
<CAPTION>
(in thousands) 1993 1992
- ----------------------------------------------------------------
<S> <C> <C>
Land and improvements $ 3,267 $ 818
Buildings and improvements 15,094 6,876
Machinery, equipment and
fixtures 40,906 20,268
Leaseholds and leasehold
improvements 12,494 12,234
-------- --------
71,761 40,196
Less accumulated depreciation
and amortization (24,024) (22,298)
-------- --------
$ 47,737 $ 17,898
======== ========
</TABLE>
5. OTHER ASSETS
As of December 3, 1993 and November 27, 1992, other assets includes $8,622,000
and $7,369,000, respectively, related to long-term investments. In 1986, the
Company agreed to invest $5,000,000 in a limited partnership which is authorized
to make investments in assets and securities of all kinds. Cash distributions
are made to the limited partners as investments are sold. In 1993, the Company
recognized a gain of $3,004,000 due to the sale of certain investments by the
limited partnership and the recovery of previously recorded valuation reserves.
The Company had reduced the carrying value of this investment by $140,000 in
1992 and $411,000 in 1991 because of declines in the market value of certain
assets of the limited
<PAGE>
partnership. The Company's investment in this limited partnership, which is
accounted for under the cost method, amounted to $2,243,000 at December 3, 1993
and $2,495,000 at November 27, 1992. The fair value of this investment as of
September 30, 1993, the latest valuation as determined by the General Partner,
totaled approximately $2,700,000.
Long-term investments also includes the Company's affiliate in Thailand, which
is accounted for under the equity method. During 1988 and 1989, the Company
invested a total of $1,948,000 in a joint venture with a foreign manufacturer to
construct and operate a footwear manufacturing facility in Thailand. The
consolidated statements of income include income of $1,043,000 in 1993,
$1,809,000 in 1992 and $2,298,000 in 1991, representing the Company's share of
the joint venture's operating results in those years. The joint venture paid
cash dividends of $1,292,000 and $586,000 to shareholders in 1992 and 1991,
respectively, which reduced the carrying value of the Company's investment. The
Company's investment in the affiliate amounted to $5,758,000 at December 3, 1993
and $4,715,000 at November 29, 1992.
Other assets also includes $8,934,000 and $11,099,000 at December 3, 1993 and
November 27, 1992, respectively, related to goodwill, trademark rights and other
intangible assets. These other assets are presented net of accumulated
amortization of $4,919,000 at December 3, 1993 and $2,471,000 at November 27,
1992. In 1992, the Company entered into an agreement to acquire trademark
registrations in certain countries and to terminate existing license
arrangements relating to the use of the Keds(R) and PRO-Keds(R) trademarks
outside the United States, Canada and Puerto Rico. As part of the agreement,
the Company paid $10 million and also entered into a new license agreement
relating to the distribution of Keds(R) and PRO-Keds(R) products in certain
countries in the Caribbean and Central and South America. The trademark rights
acquired in the transaction ($874,000) are being amortized over a 25-year
period. The other intangible assets associated with this agreement ($9,126,000)
are being amortized over a four-year period, the remaining term of the
terminated license agreements.
6. DEBT
The Company utilizes short-term bank loans to finance seasonal working capital
requirements. Banks have extended lines of credit to the Company amounting to
$80 million, of which $10 million is formally committed by agreement.
Compensation for these lines is paid with fees, which are computed on the
committed amount. During fiscal 1993, 1992 and 1991, borrowings under these
lines averaged $17,000, $741,000 and $2,101,000, respectively, with a maximum
amount outstanding of $4,300,000 in 1993, $8,200,000 in 1992 and $12,200,000 in
1991. The weighted average interest rate paid on these borrowings during the
year was 3.6% in 1993, 4.6% in 1992 and 6.8% in 1991. No short-term borrowings
were outstanding on December 3, 1993 or November 27, 1992.
Long-term debt at December 3, 1993 and November 27, 1992 ($2,500,000 and
$3,333,000, respectively) represents loans due to several institutional lenders
in connection with the Company's 8.45% Senior Notes. The Senior Notes require
mandatory prepayments amounting to $833,000 per year. An agreement signed in
connection with the loan requires that certain levels of working capital be
maintained, restricts the amount of other borrowings and lease obligations and
limits dividend payments and treasury stock purchases. Such dividend payments
and treasury stock purchases may not reduce stockholders' equity below
$33,537,000. Amounts due on long-term debt in future years are $833,000 per
year from 1995 through 1997.
<PAGE>
Interest payments amounted to $373,000, $477,000 and $656,000 in fiscal 1993,
1992 and 1991, respectively.
7. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities at December 3, 1993 and November
27, 1992 consist of the following:
<TABLE>
<CAPTION>
(in thousands) 1993 1992
- --------------------------------------------
<S> <C> <C>
Salaries, wages and
commissions $ 9,867 $11,608
Nonrecurring charges 15,276 18,319
Insurance 1,564 3,526
Dividends 4,776 4,327
Charitable contributions - 4,264
Other liabilities 5,959 4,462
------- -------
$37,442 $46,506
======= =======
</TABLE>
8. LEASES
The Company leases office and retail store space, certain factory space and
equipment. A portion of the retail store space is sublet. Some of the leases
have provisions for additional rentals based on increased property taxes and the
leases for retail store space generally require additional rentals based on
sales volume in excess of certain levels. Manufacturing equipment leases
generally require additional rentals based on usage. Some leases have renewal
options.
Rent expense for operating leases for the three years in the period ended
December 3, 1993 was as follows:
<TABLE>
<CAPTION>
(in thousands) 1993 1992 1991
- ----------------------------------------------------------
<S> <C> <C> <C>
Base rent $14,383 $14,658 $13,182
Additional rent 1,387 1,257 1,552
Less rental from subleases (2,960) (3,162) (3,100)
------- ------- -------
$12,810 $12,753 $11,634
======= ======= =======
</TABLE>
<PAGE>
The future minimum rental payments for all non-cancellable operating leases
and the amounts due from tenants on related subleases at December 3, 1993 are as
follows:
<TABLE>
<CAPTION>
<S> <C>
1994 $10,360
1995 9,181
1996 7,217
1997 4,571
1998 3,422
Later years 6,062
-------
Total minimum rental payments 40,813
Less rental due from subleases (9,308)
-------
$31,505
=======
</TABLE>
9. BENEFIT PLANS
The Company has several non-contributory defined benefit pension plans covering
eligible employees. A plan covering salaried, management, sales and non-
production hourly employees provides pension benefits based on the employee's
service and compensation. Plans covering production employees provide pension
benefits at a fixed unit rate based on service. As a result of the distribution
center consolidation and relocation, the Company merged two of its pension plans
into a third plan as of December 31, 1993. Net assets of these plans are
sufficient to fund the related projected benefit obligations.
<PAGE>
Pension expense, including amortization of prior service costs over the
remaining service periods of employees and the remaining lives of vested and
retired employees, consists of the following:
<TABLE>
<CAPTION>
(in thousands) 1993 1992 1991
- ------------------------------------------------------
<S> <C> <C> <C>
Service cost-benefit
earned during the
period $ 1,151 $ 1,107 $ 1,039
Interest cost on
benefit obligations 2,036 1,867 1,609
Actual return on plan
assets (3,369) (5,516) (2,989)
Amortization and
deferral, net
505 3,191 972
------- ------- -------
$ 323 $ 649 $ 631
======= ======= =======
</TABLE>
The prepaid pension cost in the Company's consolidated balance sheets at
December 3, 1993 and November 27, 1992 includes the following:
<TABLE>
<CAPTION>
(in thousands) 1993 1992
- ------------------------------------------------
<S> <C> <C>
Fair market value of
plan assets $30,686 $28,070
Projected benefit
obligations 28,078 22,058
------- -------
Excess assets 2,608 6,012
Unrecognized prior service
cost 504 496
Unrecognized net (gain) (167) (3,442)
Unrecognized net asset (2,029) (2,320)
------- -------
$ 916 $ 746
======= =======
</TABLE>
At December 3, 1993, the accumulated benefit obligation, which represents the
actuarial present value of the Company's pension obligation if the plans were to
be discontinued, totaled $24,134,000, including a vested benefit obligation of
$23,216,000. The accumulated benefit obligation at November 27, 1992 was
$18,945,000, including a vested benefit obligation of $18,469,000. Discount
rates of 7.5% in 1993 and 9% in 1992 and an annual compensation increase at the
rates of 4% in 1993 and 5.5% in 1992 were assumed to determine these
liabilities.
During fiscal 1993, approximately 66% of the plan assets were invested in
equity investments with the remaining 34% in fixed income securities. In 1992,
approximately 60% of the plan assets were invested in equity investments with
the remaining 40% invested in fixed income securities. The expected long-term
rate of return, net of related expenses, on plan assets is 9%.
The Stride Rite Corporation Employee Savings and Investment Plan, as amended,
enables eligible employees to defer a portion of their salary to be held by the
Trustees of the Plan. The Company makes an additional contribution to the Plan
equal to a maximum of 25% of the first 6% of savings by each participant.
During fiscal 1993, 1992 and 1991, this contribution amounted to $471,000,
$437,000 and $375,000, respectively.
<PAGE>
10. STOCK PURCHASE AND OPTION PLANS
An Employee Stock Purchase Plan, as amended, permits eligible employees to elect
to subscribe for an aggregate of 5,640,000 shares of common stock of the
Company. Under the Plan, participating employees may authorize the Company to
withhold either 2.5% or 5% of their earnings for a one-or two-year payment
period for the purchase of shares. At the conclusion of the period, employees
may purchase shares at the lesser of 85% of the market value of the Company's
common stock on either their entry date into the Plan or ten days prior to the
end of the payment period. The Board of Directors may set a minimum price for
the stock.
For the payment period which ended in fiscal 1993, 183,145 shares were issued
under the plan for an aggregate amount of $2,471,000. In 1991, 223,098 shares
were issued under the plan for an aggregate amount of $2,362,000. Funds are
currently being withheld from 895 participating employees during a payment
period ending October 31, 1995. As of December 3, 1993, $167,000 has been
withheld from employees' earnings and, if all participating employees had been
allowed to exercise their stock purchase rights, approximately 12,800 shares
could have been purchased at a price of $13.07 per share. At December 3, 1993,
a total of 4,792,281 shares had been purchased under the Plan and 847,719 shares
are available for purchase by participating employees.
Under the 1975 Executive Incentive Stock Purchase Plan, as amended, rights to
purchase up to an aggregate of 5,600,000 shares of the Company's common stock
may be granted from time to time to officers and other key employees of the
Company at a price determined by the Board of Directors. This price may not be
less than the current par value of the Company's common stock, which is $.25 per
share. In 1993, 64 employees were eligible to participate in the Plan and 81
employees held outstanding rights under the Plan.
Rights to purchase shares may be exercised at any time within ten years of the
grant date, cannot be transferred and must be paid for in full at the time of
exercise. Shares issued under the Plan may be subject to restrictions.
Restricted shares may not be sold, pledged or otherwise transferred and
generally must be resold to the Company upon termination of employment.
Restrictions on transfer of shares and the obligation to resell shares to the
Company generally will lapse at the rate of one-third of the granted shares at
the end of the third year, the fourth year and the fifth year following the date
of grant. The Company charges to compensation expense the difference between
the fair market value at the date of grant and the purchase price over a five-
year period. This Plan expires on December 31, 1995.
The purchase price for all rights granted was at par value as of the date of
grant. The activity in stock rights for the three years in the period ended
December 3, 1993 was as follows:
<TABLE>
<CAPTION>
1993 1992 1991
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Outstanding at beginning of year 537,238 789,034 1,089,964
Granted 157,015 138,230 120,100
Cancelled (200,051) (39,484) (28,402)
Exercised (85,879) (350,542) (392,628)
--------- --------- ---------
Outstanding at end of year 408,323 537,238 789,034
========= ========= =========
</TABLE>
<PAGE>
At December 3, 1993, a total of 3,817,458 shares had been granted under the
Plan and rights to purchase an additional 1,782,542 shares (1,739,506 shares at
November 27, 1992) could be granted.
Under the Company's Key Executive Long-Term Incentive Plan, income goals are
established for three-year cycles and a certain number of performance shares,
which are equivalent in value to the Company's common stock, are granted to each
participant. Payments under the Plan are based on the income achieved by the
Company in relation to the goals established for each cycle. Payments are made
in cash, Company common stock or a combination of both at the discretion of the
Compensation Committee of the Board of Directors. The Company issued 16,878
shares to eight individuals in 1993, 55,830 shares to nine individuals in 1992
and 6,436 shares to one individual in 1991 as a result of performance against
the goals for the cycles which ended in 1992, 1991 and 1990. For the cycles
ending in 1993, 1994 and 1995, performance shares totaling 30,466, 20,707 and
36,986, respectively, have been granted to ten individuals. The Company charges
to compensation expense the costs associated with the Plan.
11. PREFERRED STOCK PURCHASE RIGHTS
In 1987, the Company's Board of Directors adopted a Stockholder Rights Plan and
declared a dividend under the Plan at the rate of one preferred stock purchase
right for each share of outstanding common stock. Effective with the stock
splits in December 1991, July 1989 and December 1987, one-eighth of one
preferred stock purchase right attaches to each share of common stock. The
rights may be exercised (in whole units only), or transferred apart from the
common stock, beginning 10 days after a person or group acquires 20% or more of
the Company's outstanding common stock or 10 business days after a person or
group announces a tender offer that would result in the person or group owning
at least 30% of the Company's common stock.
In 1989, the Plan was amended to allow the exercise of rights immediately
after an "adverse person" has become the beneficial owner of at least 10% of the
shares of common stock then outstanding and a determination is made by the
continuing directors and outside directors that such ownership is intended to
cause the Company to repurchase the shares or to cause a material adverse impact
on the business or prospects of the Company.
Subject to possible extension, the rights may be redeemed by the Company at
$.05 per whole right at any time until 10 days after 20% or more of the
Company's common stock is acquired by a person or group. Once exercisable,
unless redeemed, one whole right entitles the holder to purchase 1/100 of a
share of Series A Junior Participating Preferred Stock for $132 per share,
subject to adjustment. If the continuing directors and the outside directors
determine that a person is an "adverse person," or at any time after the rights
become exercisable the Company is the surviving corporation in a merger with a
person or group owning 20% or more of the Company's common stock, or a person or
group acquires at least 30% of the Company's common stock (with one exception),
or a person or group owning 20% or more of the Company's common stock engages in
certain "self-dealing" transactions, or an event occurs which increases by more
than 1% the ownership of a person or group already owning at least 20% of the
Company's common stock, then each whole right (except those owned by an "adverse
person" or a person or group owning at least 20% of the Company's common
<PAGE>
stock) will entitle the holder to receive, upon exercise, shares of the
Company's common stock (or in certain circumstances cash, property or other
securities of the Company) having a value equal to $264, subject to adjustment.
Alternatively, if, after the rights become exercisable, the Company is acquired
in a certain merger or other business combination transaction and is not the
surviving entity, or 50% or more of the Company's assets or earning power is
sold or transferred, then each whole right will entitle the holder to receive,
upon exercise, common stock in the acquiring company having a value equal to
$264, subject to adjustment.
The rights, which have no voting power, expire on July 17, 1997. Preferred
stock purchase rights outstanding at December 3, 1993, November 27, 1992 and
November 29, 1991 totaled 6,284,982, 6,363,488 and 6,435,079, respectively.
12. LITIGATION
The Company is a party to various litigation arising in the normal course of
business. Having considered facts which have been ascertained and opinions of
counsel handling these matters, management does not believe the ultimate
resolution of such litigation will have a material adverse effect on the
Company's financial position or results of operation.
13. INCOME TAXES
The provision for income taxes, which in 1993 is computed under SFAS No. 109,
consists of the following for the three years in the period ended December 3,
1993:
<TABLE>
<CAPTION>
(in thousands) 1993 1992 1991
- ---------------------------------------------
<S> <C> <C> <C>
Current:
Federal $28,792 $ 38,928 $36,556
State 7,712 10,695 9,577
------- -------- -------
36,504 49,623 46,133
------- -------- -------
Deferred:
Federal 236 (8,376) (4,389)
State 900 (2,528) (99)
------- -------- -------
1,136 (10,904) (4,488)
------- -------- -------
$37,640 $ 38,719 $41,645
======= ======== =======
</TABLE>
The deferred provision for income taxes in 1992 included a tax benefit of
$7,232,000 related to the nonrecurring charges described in Note 2. The
deferred provision in 1991 included tax benefits of $2,880,000 related to timing
differences on "safe harbor" lease agreements.
With the adoption of SFAS No. 109, net deferred tax assets of $23,459,000 as
included on the Company's consolidated balance sheet at November 27, 1992 have
been reduced by $2,034,000, the cumulative effect of the change in accounting
principle. Net deferred tax assets as of December 3, 1993 and November 28,
1992, restated for the adoption of SFAS No. 109, have the following significant
components:
<PAGE>
<TABLE>
<CAPTION>
(in thousands) 1993 1992
- ------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Inventory valuation reserves $ 3,583 $ 3,767
Distribution center relocation cost accrual 4,520 5,804
Accounts receivable allowances 2,281 2,368
Compensation accruals 2,121 3,682
Other accounting reserves and accruals 14,789 10,450
------- -------
27,294 26,071
------- -------
Deferred tax liabilities:
Undistributed earnings of foreign affiliates 1,711 1,230
Depreciation and amortization 2,632 2,359
Other items 2,662 1,057
------- -------
7,005 4,646
------- -------
Net deferred tax assets $20,289 $21,425
======= =======
</TABLE>
A valuation allowance has not been assigned to the deferred tax assets since
the Company expects to fully realize the benefits of such tax assets.
The effective income tax rate differs from the statutory federal income tax
rate as follows:
<TABLE>
<CAPTION>
1993 1992 1991
- --------------------------------------------------------------------
<S> <C> <C> <C>
Statutory federal tax rate 34.9% 34.0% 34.0%
State income taxes, net of
federal income tax benefit 5.7 5.4 5.8
Tax benefit from manufacturing
operations in Puerto Rico (0.3) (0.1) (0.6)
Other (1.9) (0.7) (0.5)
----- ----- -----
Effective income tax rate 38.4% 38.6% 38.7%
===== ===== =====
</TABLE>
Payments of income taxes amounted to $40,224,000, $39,265,000 and $40,544,000
in 1993, 1992 and 1991, respectively.
14. QUARTERLY DATA (UNAUDITED)
The following table provides quarterly data for the fiscal years ended
December 3, 1993 and November 27, 1992.
<TABLE>
<CAPTION>
(in thousands, except
for per share data) First Second Third Fourth
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1993
Net sales $140,792 $164,624 $166,460 $111,092
Gross profit 59,351 70,388 67,647 45,959
Income before change in
accounting principle 15,181 19,366 18,370 7,418
Cumulative effect of
change in accounting
principle (2,034) - - -
Net income 13,147 19,366 18,370 7,418
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Per common share:
Income before change in
accounting principle .30 .38 .36 .15
Cumulative effect of
change in accounting
principle (.04) - - -
Net Income .26 .38 .36 .15
Dividends .086 .086 .085 .095
- -------------------------------------------------------------------------------
1992
Net sales $138,998 $170,989 $168,393 $107,546
Gross profit 62,407 73,810 70,800 47,855
Net income 17,008 21,778 20,741 1,979
Per common share:
Net income .33 .42 .40 .04
Dividends .075 .075 .075 .085
</TABLE>
In the third quarter of 1993, net income included a nonrecurring charge of
$7,200,000 ($4,274,000 after tax or $.08 per share) related to the settlement of
an investigation into Keds suggested retail selling price policy. Net income in
the fourth quarter of 1992 included $18,319,000 in nonrecurring charges
($11,087,000 after-tax or $.22 per share). These charges related primarily to
the Company's decision, which was announced on January 7, 1993, to relocate its
distribution facilities from Massachusetts to Kentucky.
<PAGE>
MANAGEMENT'S REPORT ON FINANCIAL INFORMATION
Management of The Stride Rite Corporation is responsible for the preparation and
integrity of the financial information included in this annual report. The
financial statements have been prepared in accordance with generally accepted
accounting principles. Where required, the financial statements reflect our
best estimates and judgments.
It is the Company's policy to maintain a control-conscious environment through
an effective system of internal accounting controls supported by formal policies
and procedures communicated throughout the Company. These controls are adequate
to provide reasonable assurance that assets are safeguarded against loss or
unauthorized use and to produce the records necessary for the preparation of
financial information. There are limits inherent in all systems of internal
control based on the recognition that the costs of such systems should be
related to the benefits to be derived. We believe the Company's systems provide
this appropriate balance.
The control environment is complemented by the Company's internal auditors who
perform audits and evaluate the adequacy of and the adherence to these controls,
policies and procedures. In addition, the Company's independent public
accountants have developed an understanding of our accounting and financial
controls and have conducted such tests as they consider necessary to support
their report below.
The Board of Directors pursues its oversight role for the financial statements
through the Audit Committee, which consists solely of outside directors. The
Audit Committee meets regularly with management, the corporate internal auditors
and Coopers & Lybrand to review management's process of implementation and
administration of internal accounting controls, and auditing and financial
reporting matters. The independent and internal auditors have unrestricted
access to the Audit Committee.
The Company maintains high standards in selecting, training and developing
personnel to help ensure that management's objectives of maintaining strong,
effective internal controls and unbiased, uniform reporting standards are
attained. We believe it is essential for the Company to conduct its business
affairs in accordance with the highest ethical standards as expressed in The
Stride Rite Corporation's Code of Ethics.
Robert C. Siegel J. Patrick Spainhour John M. Kelliher,
Chairman of the Board Executive Vice President, Vice President, Finance
of Directors and Finance and Operations Treasurer and Controller
Chief Executive
Officer
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Directors
The Stride Rite Corporation:
We have audited the accompanying consolidated balance sheets of The Stride Rite
Corporation as of December 3, 1993 and November 27, 1992, and the related
consolidated statements of income, cash flows and changes in stockholders'
equity for each of the three years in the period ended December 3, 1993. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of The Stride Rite
Corporation as of December 3, 1993 and November 27, 1992, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 3, 1993, in conformity with generally accepted accounting
principles.
Boston, Massachusetts
January 20, 1994
<PAGE>
ABOUT STRIDE RITE
The Stride Rite Corporation is the leading marketer of high quality children's
footwear in the United States and is a major marketer of athletic and casual
footwear for children and adults.
The Company manufactures products in its own facilities in the United States
and Puerto Rico and imports products from abroad.
The Company markets children's footwear under the trademarks STRIDE RITE(R)
and KEDS(R). Boating shoes and outdoor recreational and casual footwear are
marketed under the Company's SPERRY TOP-SIDER(R) trademark. Additionally,
casual and athletic footwear is marketed under the Company's KEDS(R), PRO-
KEDS(R) and GRASSHOPPERS(R) trademarks.
The Company sells its products nationwide to independent retail shoe stores,
department stores, sporting goods stores, and marinas.
The Company also markets its products directly to consumers by selling
children's footwear through 135 of its own Stride Rite Bootery stores and in 52
leased departments within leading department stores. Products of the Company's
brands are also sold directly to consumers in 2 manufacturers' outlet stores.
BOARD OF DIRECTORS
Robert C. Siegel Margaret A. McKenna
Chairman of the Board of Directors, President, Lesley College
President and Chief Executive Officer
Donald R. Gant Robert L. Seelert
Limited Partner of The Goldman Private Investor and Former Chief
Sachs Group, L.P. Executive Officer of Kayser-Roth
Corporation
Arnold Hiatt Myles J. Slosberg
Former Chairman of the Board of Former Executive Vice President,
Directors Assistant Attorney General for
President and a Director, the Commonwealth of Massachusetts
The Stride Rite Charitable Foundation, Inc.
Theodore Levitt W. Paul Tippett
Edward W. Carter Professor Chairman and Chief Executive
of Business Administration Emeritus Officer of the Council of
Harvard Business School Great Lakes Industries
<PAGE>
COMMITTEES OF THE BOARD
AUDIT COMMITTEE INVESTMENT COMMITTEE
Donald R. Gant Myles J. Slosberg
Robert L. Seelert Arnold Hiatt
Myles J. Slosberg Robert L. Seelert
COMPENSATION COMMITTEE NOMINATING COMMITTEE
Margaret A. McKenna Theodore Levitt
Donald R. Gant Margaret A. McKenna
Theodore Levitt W. Paul Tippett
W. Paul Tippett
<PAGE>
CORPORATE DATA
EXECUTIVE OFFICERS
Robert C. Siegel
Chairman of the Board of Directors,
President and Chief Executive Officer
J. Patrick Spainhour
Executive Vice President, Finance and Operations
Jonathan D. Caplan
President, The Keds Corporation
Karen K. Crider
General Counsel and Clerk
John M. Kelliher
Vice President, Finance,
Treasurer and Controller
John P. McMahon, Jr.
Vice President, Human Resources
Robert B. Moore, Jr.
President, Sperry Top-Sider, Inc.
Margaret C. Whitman
President, Stride Rite Children's Group, Inc.
EXECUTIVE OFFICES
Five Cambridge Center
Cambridge, Massachusetts 02142
(617) 491-8800
MAJOR SUBSIDIARIES
The Keds Corporation
Sperry Top-Sider,Inc.
Sperry Top-Sider Europe, S.A.R.L.
Stride Rite Children's Group, Inc.
Stride Rite Canada Limited
Stride Rite International Corp.
Stride Rite Sourcing International, Inc.
AUDITORS
Coopers & Lybrand
Boston, Massachusetts
STOCK LISTING
The Stride Rite Corporation's common stock
is listed on the New York Stock Exchange
and is identified by the symbol SRR.
<PAGE>
ANNUAL MEETING
The 1994 Annual Meeting of Stockholders
of The Stride Rite Corporation will be held
on Wednesday, April 13, 1994 at 10:00 A.M. in the auditorium
of the First National Bank of Boston, 100 Federal
Street, Boston, Massachusetts.
TRANSFER AGENT, REGISTRAR AND DIVIDEND DISBURSING AGENT
Communication concerning transfer requirements, address changes, dividend
reinvestment plan enrollment, and lost certificates should be addressed to:
The First National Bank of Boston
Shareholder Services Department
Investor Relations Unit 45-02-09
P.O. Box 644
Boston, MA 02102-0644
The telephone number is (617) 575-2900.
AUTOMATIC DIVIDEND REINVESTMENT AND STOCK PURCHASE PLANS
For shareholders' submission of enrollment cards, withdrawal and redemption
requests and cash investments, contact:
The First National Bank of Boston
Shareholder Services Department
Dividend Reinvestment Unit 45-01-06
P.O. Box 1681
Boston, MA 02105-1681
FORM 10-K
The Stride Rite Corporation's Annual Report on
Form 10-K, filed with the Securities and Exchange
Commission, is available without charge upon
request and may be obtained by writing to Shareholder
Relations at the Company's executive offices.
<PAGE>
COMMON STOCK PRICES
<TABLE>
<CAPTION>
Fiscal 1993 1992
Quarter High Low High Low
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1st 23 19 1/4 31 25 1/4
2nd 21 15 30 1/8 22 1/4
3rd 17 3/8 13 1/2 25 17 3/4
4th 19 12 1/4 21 16 1/2
</TABLE>
Based on closing prices on the New York Stock Exchange-Composite.
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE STRIDE RITE CORPORATION
The subsidiaries of the Registrant, all of which are wholly-owned by the
Registrant except for PSR Footwear Company Limited (49.5% owned), are listed
below:
<TABLE>
<CAPTION>
Place of Incorporation
- ----------------------
<S> <C>
Stride Rite Children's Group, Inc. Massachusetts
Stride Rite International Corp. Massachusetts
Stride Rite Sourcing International, Inc. Massachusetts
Sperry Top-Sider, Inc. Massachusetts
The Keds Corporation Massachusetts
Stride Rite Investment Corp. Massachusetts
Stride Rite Manufacturing of Missouri, Inc. Missouri
SRR, Inc. Delaware
SR Holdings, Inc. Delaware
SRL, Inc. Delaware
SR California, Inc. California
Stride Rite Export, Ltd. Jamaica
Stride Rite Canada Limited Ontario, Canada
S.R. Footwear Limited Bermuda
PSR Footwear Company Limited Thailand
Sperry Top-Sider Europe, S.A.R.L. France
</TABLE>
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of The Stride Rite Corporation:
We consent to the incorporation by reference in the Registration Statements on
Form S-8 (SEC File No. 2-76795, 2-85041 and 33-19562) of The Stride Rite
Corporation of our reports dated January 20, 1994 on our audits of the
consolidated financial statements and financial statement schedules of The
Stride Rite Corporation as of December 3, 1993 and November 27, 1992 and for the
years ended December 3, 1993, November 27, 1992 and November 29, 1991 which
reports are included or incorporated by reference in this Annual Report on Form
10-K.
Boston, Massachusetts COOPERS & LYBRAND
February 25, 1994
