1 of 14 Pages
Exhibit Index
Appears on page 13
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the quarterly period ended June 3, 1994
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 reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
As of July 7, 1994, 49,572,115 shares of the registrant's common stock,
$.25 par value, were outstanding and 6,196,514 of the registrant's
Preferred Stock Purchase Rights, which trade with the registrant's common
stock, were outstanding.<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
THE STRIDE RITE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars In Thousands)
<TABLE>
<CAPTION>
June 3, May 28,
1994 December 3, 1993
(Unaudited) 1993 (Unaudited)
Assets
Current Assets:
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 754 $ 38,763 $ 23,748
Short-term investments 47,421 65,645 63,130
Accounts and notes
receivable, net 127,350 75,184 114,459
Inventories:
Finished goods 107,756 127,925 87,457
Work in process 2,303 1,670 4,101
Raw materials 2,595 3,130 3,604
112,654 132,725 95,162
Deferred income taxes
and prepaid expenses 31,593 31,403 30,083
Total current assets 319,772 343,720 326,582
Property and equipment, net 45,610 47,737 26,278
Other assets 23,119 20,992 21,463
Total assets $388,501 $412,449 $374,323
</TABLE>
The accompanying notes are an integral part of the
condensed consolidated financial statements.
2<PAGE>
PART I - FINANCIAL INFORMATION (Continued)
THE STRIDE RITE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
(Dollars In Thousands)
<TABLE>
<CAPTION>
June 3, May 28,
1994 December 3, 1993
(Unaudited) 1993 (Unaudited)
Liabilities and Stockholders' Equity
Current Liabilities:
Current maturities of long-term
<S> <C> <C> <C> <C> <C> <C>
debt $ 833 $ 833 $ 833
Short-term debt 7,000 - -
Accounts payable 12,660 30,495 9,066
Income taxes payable 32,125 31,701 32,917
Accrued expenses and other
liabilities 29,976 37,442 33,555
Total current liabilities 82,594 100,471 76,371
Deferred income taxes 7,005 7,005 3,806
Long-term debt 2,500 2,500 3,333
Stockholders' Equity:
Preferred stock, $1 par value
Shares authorized - 1,000,000
Shares issued - None - - -
Common stock, $.25 par value
Shares authorized - 135,000,000
Shares issued - 56,946,544 14,237 14,237 14,237
Capital in excess of par value 23,397 23,710 23,395
Retained earnings 350,711 347,677 330,939
Less cost of 7,274,429 shares of
common stock held in treasury
(6,666,690 on December 3, 1993
and 6,301,206 on May 28, 1993) (91,943) (83,151) (77,758)
Total stockholders' equity 296,402 302,473 290,813
Total liabilities and stockholders'
equity $388,501 $412,449 $374,323
</TABLE>
The accompanying notes are an integral part of the
condensed consolidated financial statements.
3<PAGE>
PART I - FINANCIAL INFORMATION (Continued)
THE STRIDE RITE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
For the periods ended June 3, 1994 and May 28, 1993
(In Thousands Except Per Share Data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 3, 1994 May 28, 1993 June 3, 1994 May 28, 1993
<S> <C> <C> <C> <C>
Net sales $161,720 $164,524 $283,778 $305,316
Cost of sales 101,119 94,136 178,040 175,577
Selling and administrative
expenses 47,386 39,637 84,375 75,144
Operating income 13,215 30,751 21,363 54,595
Other income (expense):
Interest income 807 650 1,317 1,360
Interest expense (98) (99) (175) (219)
Other, net (805) (474) (1,361) (409)
(96) 77 (219) 732
Income before income taxes
and cumulative effect of
change in accounting 13,119 30,828 21,144 55,327
Provision for income taxes 5,439 11,472 8,615 20,790
Income before cumulative
effect of change in
accounting principle 7,680 19,356 12,529 34,537
Cumulative effect of
change in accounting
principle - - - (2,034)
Net income $ 7,680 $19,356 $12,529 $32,503
Per share of common stock:
Income before cumulative
effect of change in
accounting principle $.15 $.38 $.25 $.68
Cumulative effect of
change in accounting
principle - - - (.04)
Net Income $.15 $.38 $.25 $.64
Dividends $.095 $.085 $.19 $.17
Average common shares
and common equivalents
outstanding during
the period 50,037 51,032 50,232 51,101
</TABLE>
The accompanying notes are an integral part of the
condensed consolidated financial statements.
4<PAGE>
PART I - FINANCIAL INFORMATION (Continued)
THE STRIDE RITE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the six months ended June 3, 1994 and May 28, 1993
(Dollars In Thousands)
<TABLE>
<CAPTION>
June 3, 1994 May 28, 1993
Cash was provided from (used for)
Operations:
<S> <C> <C>
Net income $12,529 $32,503
Adjustments to reconcile to net cash
provided from (used for) operations:
Depreciation and amortization 4,052 3,147
Deferred income taxes, net - (840)
Equity in earnings of affiliate (690) (556)
Loss on disposal of property and equipment 1,583 63
Cumulative effect of change in accounting
principle - 2,034
Changes in:
Accounts and notes receivable (52,166) (30,874)
Inventories 20,071 35,656
Prepaid expenses (190) (314)
Accounts payable, income taxes, accrued
expenses and other current liabilities (24,578) (26,580)
Net cash provided from (used for) operations (39,389) 14,239
Investments:
Short-term investments 18,224 (19,952)
Additions to property and equipment (2,282) (10,393)
Proceeds from sales of property and equipment 6 41
Increase in other assets (2,668) (1,385)
Net cash provided from (used for) investments 13,280 (31,689)
Financing:
Proceeds from sale of stock under stock plans 11 10
Cash dividends paid (9,532) (8,659)
Repurchase of common stock (9,379) (5,179)
Short-term debt 7,000 -
Net cash used for financing (11,900) (13,828)
Net decrease in cash and cash
equivalents (38,009) (31,278)
Cash and cash equivalents at beginning of
the period 38,763 55,026
Cash and cash equivalents at end of
the period $ 754 $ 23,748
</TABLE>
The accompanying notes are an integral part of the
condensed consolidated financial statements.
5<PAGE>
PART I - FINANCIAL INFORMATION (Continued)
THE STRIDE RITE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1
The financial information included in this Form 10-Q of The Stride Rite
Corporation (the "Company") for the periods ended June 3, 1994 and May 28,
1993 is unaudited and subject to year-end audit adjustments. However, such
information includes all adjustments (including all normal recurring
adjustments) which, in the opinion of management, are considered necessary
for a fair presentation of the consolidated results for those periods. The
results of operations for the period ended June 3, 1994 are not necessarily
indicative of the results of operations that may be expected for the complete
fiscal year. The year-end condensed balance sheet data was derived from the
audited financial statements, but does not include all disclosures required
by generally accepted accounting principles. Certain reclassifications have
been made to the 1993 condensed consolidated financial statements to conform
to the fiscal 1994 presentation.
NOTE 2
During the third quarter of fiscal 1993, the Company adopted, effective
November 28, 1992, Statement of Financial Accounting Standards ("SFAS") No.
109, "Accounting for Income Taxes." Results for the first quarter of 1993
were restated to reflect the change in accounting principle. The cumulative
effect of adopting this Statement was to decrease net income by $2,034,000 or
$.04 per share.
NOTE 3
During the first six months of fiscal 1994, interest payments amounted
to $162,000 ($187,000 in 1993). For the first six months of 1994, payments
for income taxes totaled $8,192,000 ($23,769,000 in 1993).
6<PAGE>
PART I - FINANCIAL INFORMATION (Continued)
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
At June 3, 1994, the Company's balance sheet continued to show financial
strength with a current ratio of 3.9 to 1 and a debt-to-equity relationship
of 0.8%. The Company's cash and short-term investments totaled $48.2 million
at June 3, 1994, down 45% from the $86.9 million amount at the end of the
second quarter in fiscal 1993. In the first half of fiscal 1994, the Company
used $39.4 million of cash to fund operating needs. The current period's
negative cash flow from operations amount compared to a positive cash flow
from operations of $14.2 million achieved in the first six months of fiscal
1993. The Company's lower net income in the first half of 1994 accounted for
37% of the change in cash flow. Additionally, higher levels of accounts
receivable and inventory, which were principally caused by the shipping
difficulties at the Company's new distribution center in Kentucky, adversely
impacted the cash flow performance in the first half of 1994. At June 3,
1994, receivable and inventory levels totaled $240 million, up $30.4 million
or 14.5% from the amount at the end of the second quarter of 1993. The
increased accounts receivable level (up 11.3% from 1993) was caused by the
later delivery of Spring products to customers, as well as reduced reorders
at Keds, which generally carry shorter payment terms than future orders. The
distribution center problems limited Keds reorder capabilities during the
first six months of 1994. The higher inventory levels (up 18.4% from 1993)
were also caused by the Spring season shipping problems at Keds as customer
order cancellations resulted in excess quantities of seasonal merchandise and
higher levels of basic products. The Company expects to sell the excess
seasonal merchandise under special value programs in the second half of
fiscal 1994 and will adjust future procurement levels on basic merchandise in
an effort to reduce overall inventory levels. The Company's operating
results in the first half of 1994 included a higher obsolescence expense to
provide for price reductions related to the excess seasonal merchandise.
While the Kentucky distribution facility is still far short of the
intended performance level, the Company believes that current capacity is
sufficient to handle Keds projected needs in the second half of fiscal 1994.
However, as of June 3, 1994, Keds order backlog calling for shipment in the
second half of fiscal 1994 is off 4% from the 1993 backlog level. All
efforts are being focused on shipping Keds Fall season products in accordance
with customer requested delivery dates. The move of the Company's Stride
Rite and Sperry Top-Sider divisions to the new facility, which was planned
for the second half of 1994, has been delayed. Over the next few months,
work is continuing on systems enhancements in an effort to improve the
facility's capabilities for the Spring 1995 season.
The Company's overall cash flow for the first half of fiscal 1994
resulted in a net decrease in cash of $38 million compared to a net decrease
of $31.3 million in the comparable period of fiscal 1993. The 1994 cash flow
benefited from a decrease of $18.2 million in short-term investments and $7
million of short-term borrowings under the Company's bank lines of credit.
In the first half of 1994, the Company expended $9.4 million of cash to
purchase 654,400 shares of the Company's common stock. The most recent
purchases bring the cumulative repurchase total to 13,602,500 shares or 85%
of the 16,000,000 share total which had been authorized by the Company's
Board of Directors.
7<PAGE>
PART I - FINANCIAL INFORMATION (Continued)
THE STRIDE RITE CORPORATION
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
The following table summarizes the Company's performance for the second
quarter and six-month period:
Percent Increase (Decrease) vs. 1993 Results for Comparative Periods:
<TABLE>
<CAPTION>
Second Quarter Six Months
<S> <C> <C>
Net sales (1.7%) (7.1%)
Gross profit (13.9%) (18.5%)
Selling and administrative
expenses 19.5% 12.3%
Operating income (57.0%) (60.9%)
Income before income taxes and
cumulative effect of change in
accounting principle (57.4%) (61.8%)
Income before cumulative effect
of change in accounting
principle (60.3%) (63.7%)
Net income (60.3%) (61.4%)
</TABLE>
<TABLE>
Operating Ratios as a Percentage
<CAPTION>
of Net Sales: Second Quarter Six Months
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Gross profit 37.5% 42.8% 37.3% 42.5%
Selling and administrative
expenses 29.3% 24.1% 29.7% 24.6%
Operating income 8.2% 18.7% 7.5% 17.9%
Income before income taxes
and cumulative effect
of change in accounting
principle 8.1% 18.7% 7.5% 18.1%
Income before cumulative
effect of change in
accounting principle 4.7% 11.8% 4.4% 11.3%
Net income 4.7% 11.8% 4.4% 10.6%
</TABLE>
8<PAGE>
PART I - FINANCIAL INFORMATION (Continued)
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations (Continued)
Net sales decreased $2.8 million (1.7%) in the second quarter of
fiscal 1994 and the six month results showed a decline of $21.5 million
(7.1%) from the sales level achieved in the first half of fiscal 1993.
Keds division sales improved somewhat during the second quarter as revenues
were down only 6% from 1993 compared to the 22% decline in the first
quarter of 1994. Keds entered the Spring 1994 season with a 15% gain in
order backlog, but the distribution center start-up problems described
above caused serious shipping delays. As a result, order cancellations
during the Spring 1994 season were more than double the rate experienced in
1993. The higher order cancellation level at Keds resulted in a revenue
decline of approximately $31 million. In addition, reorder capabilities
were restricted because of the service problems at the new facility during
the Spring season. For the first half of 1994, sales of the Keds division
declined 13% from 1993, despite the higher backlog of orders entering the
Spring season. The Keds shipping problems offset higher sales of Stride
Rite and Sperry Top-Sider products. Higher average selling prices,
primarily due to product mix changes, and increased retail sales partially
offset the 9.7% decline in unit shipments of current line merchandise
during the first half of 1994. Excluding the impact of product mix
changes, net sales in the first six months of 1994 was reduced by
approximately $5.2 million due to selling price deflation.
Sales of the Stride Rite Children's Group in the first six months of
1994 were 8% higher than last year as both the wholesale and retail
portions of the Group posted sales increases. Retail sales increased 16%
during the first half as a higher store count, up 10% from 1993, and
improved sales performance at existing stores combined to produce the
increase. Sales of the Sperry Top-Sider division increased 11% during the
first six months of 1994 despite the fact that sales of discontinued
products were down 60% from the 1993 level. Sales of Sperry Top-Sider's
current line merchandise increased 22% in the first half of 1994. During
the first six months of 1994, sales of the Company's International division
declined 25% due to reduced demand for Keds Spring products in
International markets.
During the first half of 1994, gross profit declined 18.5% from the
comparable period in 1993 compared to the sales decrease of 7.1%. Gross
profit was also lower for the second quarter of 1994, showing a decline of
13.9% compared to the sales decrease of 1.7%. The consolidated gross
profit percent in the first six months decreased to 37.3% in 1994 from the
42.5% rate recorded in the first half of 1993. The gross profit rate for
the second quarter of 1994 was also below last year, 37.5% in 1994 compared
to 42.8% in 1993. The gross profit rate in both the second quarter and
six-month periods of 1994 was negatively impacted by a higher obsolescence
provision primarily caused by anticipated markdowns of seasonal merchandise
due to the shipping problems at Keds. Keds gross profit performance was
also hurt by increased sales allowances because of late product deliveries.
The LIFO provision in the first half reduced gross profit by $0.1 million
(less than 0.1% of net sales) in 1994 compared to a provision of $1.3
million (0.4% of net sales) in 1993.
9<PAGE>
PART I - FINANCIAL INFORMATION (Continued)
THE STRIDE RITE CORPORATION
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations (Continued)
Despite the sales decline, selling and administrative expenses for the
second quarter and six-month periods of 1994 increased by $7.7 million and
$9.2 million, respectively, from the expenditures recorded in fiscal 1993.
Higher distribution costs impacted both periods as expenses were above 1993
by $4.6 million for the second quarter and by $3.8 million for the six
months. Expense comparisons were also impacted by higher advertising
spending with 1994 costs above last year by $2.6 million or 29.3% for the
second quarter and by $3 million or 17.7% for the six months. Advertising
costs represented 7.1% of net sales in the first half of 1994 compared to
5.6% in 1993 as a higher percentage of annual spending was allocated to
support Spring season programs. The growth of the Stride Rite Children's
Group's retail operations, where selling and administrative costs are
relatively higher as a percentage of net sales, contributed to the increase
as store expenses in the six months increased 12.8% from 1993.
Approximately 60% of the increased retail costs was due to new stores.
Selling and administrative expenses for the first six months of 1994
represented 29.7% of net sales compared to 24.6% in 1993 due to the
increased costs discussed above as well as the fact that fixed
administrative costs are being absorbed by 1994's lower sales level.
In the first six months, other income (expense) decreased pre-tax
income by $0.2 million in 1994 compared to an increase of $0.7 million in
the first half of 1993. Interest income during 1994 was only slightly
below last year as higher short-term investment yields offset a 21%
reduction in funds available for investment. Other expenses were higher in
1994 primarily due to costs related to a company-owned life insurance
program which was initiated during fiscal 1993. The provision for income
taxes in the first half of 1994 was below last year because of the lower
pre-tax earnings. The 1994 effective income tax rate of 40.8% was above
the 1993 rate of 37.6% because of the higher federal tax rates, which were
enacted during the third quarter of 1993, and increased state income taxes.
During the first six months of 1994, income before cumulative effect
of change in accounting principle decreased $22 million (63.7%) from the
earnings level achieved in 1993. Net income for the first half decreased
$20 million or 61.4% because of the lower sales level, unfavorable gross
profit performance and increased selling and administrative expenses
mentioned above. As a percent to sales, net income was 4.4% of sales in
1994 compared to the 10.6% return on sales achieved in the six-month period
of 1993.
10<PAGE>
II - OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security Holders
The annual meeting of the Company's shareholders was held during the
second quarter, on April 13, 1994. The two Directors nominated by
management were elected by the vote set forth below. Other directors'
terms continued, in accordance with the terms of the Company's Articles of
Organization and their elections.
<TABLE>
Votes
<CAPTION>
Name of Director For Withheld
<S> <C> <C>
Robert Seelert 43,639,489 291,937
Myles J. Slosberg 43,653,886 277,540
</TABLE>
The shareholders also adopted The Stride Rite Corporation 1994 Non-
Employee Director Stock Ownership Plan, by the vote set forth below:
<TABLE>
<CAPTION>
Votes
For Against Abstentions
<S><C> <S> <C> <S>
36,375,483 6,512,197 1,043,746
The shareholders also ratified the Company's selection of Coopers &
Lybrand as auditors of the Company for the 1994 fiscal year, by the vote
set forth below:
</TABLE>
<TABLE>
<CAPTION>
Votes
For Against Abstentions
<C> <C> <C>
32,765,951 96,185 146,146
ITEM 5. Other Information
On June 30, 1994, the Board of Directors voted to increase the size of
the Board to eight Directors and Jeanette Sarkisian Wagner, the president
of Estee Lauder International, Inc., was appointed to the Board of
Directors in Class I. Her term of office will expire at the 1997 annual
meeting of stockholders.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits. The following Exhibits are contained herein:
Exhibit No. Description of Exhibit
11 Computation of Per Share Earnings
(b) Reports on Form 8-K
The Company did not file any current reports on Form 8-K during the
second quarter of fiscal year 1994.
11<PAGE>
PART II OTHER INFORMATION (Continued)
THE STRIDE RITE CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
THE STRIDE RITE CORPORATION
(Registrant)
Date: July 14, 1994 By:/s/ John M. Kelliher
John M. Kelliher, Vice President,
Finance, Treasurer, and Corporate
Controller
12<PAGE>
THE STRIDE RITE CORPORATION
INDEX TO EXHIBITS
Exhibit No.
Sequential Page No.
11 Computation of Per Share Earnings Page 14 of 14
13
</TABLE>
THE STRIDE RITE CORPORATION
EXHIBIT 11 - COMPUTATION OF PER SHARE EARNINGS
(In Thousands except Per Share Data)
Three Months Ended Six Months Ended
June 3, 1994 May 28, 1993 June 3, 1994 May 28, 1993
Net income applicable
to common shares $ 7,680 $19,356 $12,529 $32,503
Calculation of shares:
Weighted average num-
ber of common
shares outstanding 49,956 50,816 50,101 50,878
Common shares attri-
butable to assumed
exercise of dilu-
tive stock options
and stock purchase
rights using the
treasury stock
method 81 216 131 223
Average common shares
and common equiva-
lents outstanding
during the
period 50,037 51,032 50,232 51,101
Net income per common
share $.15 $.38 $.25 $.64
14
