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1 of 13 Pages
Exhibit Index
Appears on Page 12
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 4, 1994
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 Identified 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
As of April 6, 1994, 50,085,531 shares of the registrant's common
stock, $.25 par value, were outstanding and 6,260,691 of the
registrant's Preferred Stock Purchase Rights, which trade with
the registrant's common stock, were outstanding.
<PAGE>
I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
THE STRIDE RITE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
<TABLE>
<CAPTION>
March 4, February 26,
1994 December 3, 1993
(Unaudited) 1993 (Unaudited)
Assets
Current assets:
<S> <C> <C> <C>
Cash and cash equivalents $ 9,160 $ 38,763 $ 31,038
Short-term investments 56,651 65,645 44,697
Accounts and notes
receivable, net 105,667 75,184 122,505
Inventories:
Finished goods 115,196 127,925 100,927
Work in process 2,179 1,670 3,029
Raw materials 3,712 3,130 3,680
121,087 132,725 107,636
Deferred income taxes
and prepaid expenses 31,096 31,403 30,297
Total current assets 323,661 343,720 336,173
Property and equipment, net 45,440 47,737 18,584
Other assets 22,858 20,992 22,184
Total assets $391,959 $412,449 $376,941
</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>
March 4, February 26,
1994 December 3, 1993
(Unaudited) 1993 (Unaudited)
Liabilities and Stockholders' Equity
Current Liabilities:
Current maturities of
<S> <C> <S> <C> <C> <C> <C> <C> <C>
long-term debt $ 833 $ 833 $ 833
Accounts payable 18,119 30,495 7,631
Income taxes payable 34,601 31,701 41,640
Accrued expenses and other
liabilities 29,781 37,442 37,945
Total current liabilities 83,334 100,471 88,049
Deferred income taxes 7,005 7,005 4,646
Long-term debt 2,500 2,500 3,333
Stockholder's 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 23,588 23,710 23,417
Retained earnings 347,749 347,677 315,887
Less cost of 6,876,280 shares
of common stock held in
treasury (6,666,690 on
December 3, 1993 and
5,983,904 on February 26,
1993) (86,454) (83,151) (72,628)
Total stockholders' equity 299,120 302,473 280,913
Total liabilities and
stockholders' equity $391,959 $412,449 $376,941
</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 March 4, 1994 and February 26, 1993
(In Thousands Except Per Share Data)
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Net sales $122,058 $140,792
Cost of sales 76,921 81,441
Selling and administrative expenses 36,989 35,507
Operating income 8,184 23,844
Other income (expense):
Interest income 510 710
Interest expense (77) (120)
Other, net (556) 65
(123) 655
Income before income taxes and cumulative
effect of change in accounting principle 8,025 24,499
Provision for income taxes 3,176 9,318
Income before cumulative effect of change
in accounting principle 4,849 15,181
Cumulative effect of change in accounting
principle - (2,034)
Net income $ 4,849 $ 13,147
Per share of common stock:
Income before cumulative effect of
change in accounting principle $.10 $.30
Cumulative effect of change in accounting
principle - (.04)
Net income $.10 $.26
Dividends $.095 $.085
Average common shares and common
equivalents outstanding during
the period 50,419 51,185
</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 three months ended March 4, 1994 and February 26, 1993
(Dollars in Thousands)
<TABLE>
<CAPTION>
1994 1993
Cash was provided from (used for)
Operations:
<S> <C> <C>
Net income $ 4,849 $13,147
Adjustments to reconcile to net cash
provided from (used for) operations:
Depreciation and amortization 2,047 1,568
Equity in earnings of affiliate (264) (185)
Loss on disposal of property and equipment 1,404 -
Cumulative effect of change in
accounting principle - 2,034
Changes in:
Accounts and notes receivable (30,483) (38,920)
Inventories 11,638 23,182
Prepaid expenses 306 (528)
Accounts payable, income taxes, accrued
expenses and other current liabilities (16,984) (14,958)
Net cash used for operations (27,487) (14,660)
Investments:
Short-term investments 8,994 (1,519)
Additions to property and equipment (544) (1,636)
Increase in other assets (2,211) (1,856)
Net cash provided from (used for)
investments 6,239 (5,011)
Financing:
Proceeds from sale of stock under stock plans 5 10
Cash dividends paid (4,776) (4,327)
Repurchase of common stock (3,584) -
Net cash used for financing (8,355) (4,317)
Net decrease in cash and cash equivalents (29,603) (23,988)
Cash and cash equivalents at beginning
of the period 38,763 55,026
Cash and cash equivalents at end of
the period $ 9,160 $31,038
</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 March 4, 1994 and
February 26, 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 March 4, 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 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 three months of fiscal 1994, interest payments
amounted to $4,000 ($2,000 in 1993). For the first quarter of 1994,
payments for income taxes totaled, $275,000 ($3,562,000 in 1993).
6
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PART I - FINANCIAL INFORMATION (Continued)
THE STRIDE RITE CORPORATION
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
At March 4, 1994, the Company's balance sheet continues to reflect
favorable trends 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 $65.8 million at the end of the latest quarter, down from the year-
end 1993 level of $104.4 million and below the cash and investments balance
of $75.7 million as of February 26, 1993. The Company's normal seasonal
shipping and cash flow patterns generally require the use of funds in the
first quarter of the fiscal year. During the first quarter of 1994, the
Company used $27.5 million of cash to fund operating needs. This negative
cash flow amount was up significantly from the $14.7 million use of cash to
fund operations during the first quarter of fiscal 1993. Lower
profitability during the first quarter, which was primarily caused by
start-up difficulties at the Company's new distribution center in Kentucky,
accounted for approximately 65% of the increased cash needs. At March 4,
1994, receivable and inventory levels totaled $226.8 million, down slightly
from the $230.1 million amount at the end of the first quarter of 1993.
Because of the shipping delays related to the Keds division, the 1994 first
quarter receivable levels were below 1993 by $16.8 million (13.7%), while
inventories were above last year by $13.4 million (12.5%). In 1994,
inventories decreased $11.6 million from the year-end level compared to the
decrease of $23.2 million in the 1993 quarter.
The Company expects the start-up difficulties at the new distribution
center to continue to impact Keds results in the second quarter. At the
end of the first quarter of 1994, Keds order backlog was above the 1993
level by 39%. However, because of the shipping delays, approximately one-
third of the Keds backlog is overdue for shipment. Consequently, the
Company expects heavy order cancellations from customers during the second
quarter of 1994. While improvements are expected in the second quarter,
the delivery of future orders will continue to run behind schedule through
May. The complete reorder and electronic data interchange (EDI) features
of the new facility are expected to begin functioning on a limited basis in
mid-May. With the operating improvements expected during the second
quarter and the addition of alternative distribution facilities to
supplement the Kentucky facility's capabilities, the Company is committed
to shipping Keds orders on time during the Fall selling season.
During the first quarter of 1994, the Company repurchased 232,000
shares of its common stock at a cost of $3.6 million. The latest
transactions brought the cumulative shares repurchased under the Board's 16
million share authorization to 13,180,000 shares or 82% of the authorized
total.
7
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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 first
quarter:
Increase (Decrease) Percent vs. 1993 Results:
<TABLE>
<CAPTION>
First Quarter
<S> <C>
Net sales (13.3%)
Gross profit (23.9%)
Selling and administrative expenses 4.2%
Operating income (65.8%)
Income before income taxes and cumulative
effect of change in accounting principle (67.2%)
Income before cumulative effect of change
in accounting principle (68.1%)
Net income (63.1%)
</TABLE>
Operating Ratios as a Percent to Net Sales:
<TABLE>
<CAPTION>
First Quarter
1994 1993
<S> <C> <C>
Gross profit 37.0% 42.2%
Selling and administrative expenses 30.3% 25.2%
Operating income 6.7% 16.9%
Income before income taxes and
cumulative effect of change in
accounting principle 6.6% 17.4%
Income before cumulative effect of change
in accounting principle 4.0% 10.8%
Net income 4.0% 9.3%
</TABLE>
Net sales decreased $18.7 million (13.3%) in the first quarter of 1994 from
the sales level achieved in the 1993 period. Start-up difficulties at the
Company's new distribution center had a severe impact on Keds division
revenue as first quarter sales finished 22% below 1993. Keds order backlog
at the end of the quarter included approximately $48 million of sales value
which the Company had intended to ship in the first three months. 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 18.7% decline in
unit shipments of current line merchandise during the first quarter of
1994. Excluding the impact of product mix changes, net sales in the first
quarter of 1994 was reduced by approximately $2.3 million due to selling
price deflation.
8
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PART I - FINANCIAL INFORMATION (Continued)
THE STRIDE RITE CORPORATION
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
Results of Operations (cont'd)
Sales of the Stride Rite Children's Group in 1994 were 10% higher than last
year as both the wholesale and retail portions of the Group posted sales
increases. Retail sales increased 18% during the quarter 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 3% during the first quarter. While this increase was relatively
small, it represented only the second quarterly period since fiscal 1990
that Sperry achieved a year-over-year sales gain. During the first three
months of 1994, sales of the Company's International division declined 36%
due to reduced demand for Keds Spring products in international markets.
During the first quarter, gross profit declined 23.9% from 1993
compared to the sales decrease of 13.3%. The consolidated gross profit
percent in the first quarter decreased to 37% in 1994 from the 42.2% rate
recorded in the first quarter of 1993. The gross profit rate in the first
quarter 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 reduced gross profit by $0.1 million (0.1% of net sales) in 1994
compared to a provision of $0.4 million (0.3% of net sales) in the first
quarter of 1993.
Despite the sales decline during the first quarter, selling and
administrative expenses increased $1.5 million or 4.2% from the 1993
period. The growth of the Stride Rite Children's Group's retail
operations, where selling and administrative costs are high as a percentage
of net sales, contributed to the increase as store expenses increased 12.4%
from 1993. Approximately 60% of the increased retail costs was due to new
stores. Advertising expenses in the first quarter of 1994 totaled $8.9
million, up 6% from the 1993 expense amount. Keds media spending was not
reduced as a result of the sales shortfall in an effort to help the retail
sell-through performance of Keds products. Advertising costs represented
7.3% of net sales in 1994 compared to the 6% spending rate in 1993.
Selling and administrative expenses for the first quarter of 1994
represented 30.3% of net sales compared to 25.2% 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.
Other income (expense) decreased pre-tax income by $0.1 million in
1994 compared to an increase of $0.7 million in the first quarter of 1993.
Interest income during the first quarter of 1994 was below last year by
$0.2 million due to lower short-term investment yields and a 4% 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 quarter of 1994 was below last year because of the lower pre-tax
earnings. The 1994 effective income tax rate of 39.6% was above the 1993
rate of 38% because of the higher federal tax rates which were enacted
during the third quarter of 1993 and increased state income taxes.
9
<PAGE>
PART II - OTHER INFORMATION
THE STRIDE RITE CORPORATION
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
During the first quarter of 1994, income before cumulative effect of
change in accounting principle decreased $10.3 million (68.1%) from the
earnings level achieved in 1993. Net income for the first quarter
decreased $8.3 million or 63.1% 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% of sales in 1994 compared to the 9.3% return on sales achieved in
the 1993 period.
ITEM 6. Exhibit and Reports on Form 8-K
(a) Exhibits. The following Exhibits are contained in this
report:
<TABLE>
<S> <C> <S>
Exhibit No. Description of Exhibit
11 Computation of Per Share
Earnings
(b) Reports on Form 8-K None
</TABLE>
10
<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 duly authorized.
THE STRIDE RITE CORPORATION
(Registrant)
Date: April 13, 1994 By: S/D John M. Kelliher
John M. Kelliher
Vice President, Finance,
Treasurer and Corporate
Controller
11
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THE STRIDE RITE CORPORATION
INDEX TO EXHIBITS
Exhibit No. Sequential Page No.
11 Computation of Per Share Earnings 13
12
<PAGE>
Exhibit 11
THE STRIDE RITE CORPORATION
COMPUTATION OF PER SHARE EARNINGS
(In Thousands except Per Share Data)
<TABLE>
<CAPTION>
Three Months Ended
March 4, 1994 February 26, 1993
<S> <C> <C>
Net income applicable to common shares $ 4,849 $13,147
Calculation of shares:
Weighted average number of common
shares outstanding 50,242 50,921
Common shares attributable to
assumed exercise of dilutive
stock options and stock purchase
rights using the treasury stock
method 177 264
Average common shares and common
equivalents outstanding during
the period 50,419 51,185
Net income per common share $.10 $.26
</TABLE>
13
