1 of 15 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 September 1, 1995
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 October 6, 1995, 49,369,890 shares of the registrant's common
stock, $.25 par value, were outstanding and 6,171,236 of the
registrant's Preferred Stock Purchase Rights, which trade with the
registrant's common stock, were outstanding.
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
THE STRIDE RITE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars In Thousands)
<TABLE>
<CAPTION>
Sept. 1, Sept. 2,
1995 December 3, 1994
(Unaudited) 1994 (Unaudited)
Assets
Current Assets:
<S> <C> <C> <C>
Cash and cash equivalents $ 12,574 $ 45,413 $ 43,623
Short-term investments 35,972 30,534 30,534
Accounts and notes
receivable, net 98,513 63,403 111,747
Inventories:
Finished goods 116,555 148,056 101,249
Work in process 699 2,416 2,058
Raw materials 2,128 3,148 3,175
119,382 153,620 106,482
Deferred income taxes
and prepaid expenses 38,879 37,973 31,966
Total current assets 305,320 330,943 324,352
Property and equipment, net 53,260 48,267 47,103
Other assets 18,437 17,410 20,738
Total assets $377,017 $396,620 $392,193
</TABLE>
The accompanying notes are an integral part of the
condensed consolidated financial statements.
2
PART I - FINANCIAL INFORMATION (Continued)
THE STRIDE RITE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
(Dollars In Thousands)
<TABLE>
<CAPTION>
Sept. 1, Sept. 2,
1995 December 3, 1994
(Unaudited) 1994 (Unaudited)
Liabilities and Stockholders' Equity
Current Liabilities:
<S> <C> <C> <C> <C> <C> <C>
Current maturities of long-term debt $ 833 $ 833 $ 833
Short-term debt 1,000 - -
Accounts payable 11,740 26,597 14,374
Income taxes payable 33,693 33,167 36,001
Accrued expenses and other
liabilities 30,726 33,718 33,157
Total current liabilities 77,992 94,315 84,365
Deferred income taxes 8,132 8,132 7,178
Long-term debt 1,667 1,667 2,500
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 23,365 23,665 23,398
Retained earnings 347,010 348,577 345,517
Less cost of 7,576,787 shares of
common stock held in treasury
(7,428,613 on December 3, 1994
and 7,430,929 on September 2,
1994) (95,386) (93,973) (94,002)
Total stockholders' equity 289,226 292,506 298,150
Total liabilities and stockholders'
equity $377,017 $396,620 $392,193
</TABLE>
The accompanying notes are an integral part of the
condensed consolidated financial statements.
3
PART I - FINANCIAL INFORMATION (Continued)
THE STRIDE RITE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
For the periods ended September 1, 1995 and September 2, 1994
(In Thousands Except Per Share Data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
<C> <C> <C> <C> <C> <C> <C> <C>
Sept. 1,1995 Sept. 2,1994 Sept. 1,1995 Sept. 2,1994
Net sales $139,140 $154,962 $418,298 $438,740
Cost of sales 91,168 97,740 267,884 275,780
Selling and administrative
expenses 42,228 43,129 129,506 127,504
Operating income 5,744 14,093 20,908 35,456
Other income (expense):
Investment income 750 623 2,375 1,940
Interest expense (90) (122) (801) (297)
Other, net (712) (504) (2,119) (1,865)
(52) (3) (545) (222)
Income before income taxes 5,692 14,090 20,363 35,234
Provision for income taxes 2,205 5,584 7,900 14,199
Net income $ 3,487 $ 8,506 $12,463 $21,035
Net income per share $.07 $.17 $.25 $ .42
Dividends per share $.095 $.095 $.285 $.285
Average common shares
and common
equivalents outstanding
during the period 49,741 49,683 49,816 50,023
</TABLE>
The accompanying notes are an integral part of the
condensed consolidated financial statements.
4
PART I - FINANCIAL INFORMATION (Continued)
THE STRIDE RITE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the nine months ended September 1, 1995 and September 2, 1994
(Dollars In Thousands)
<TABLE>
<CAPTION>
Sept. 1, 1995 Sept. 2, 1994
Cash was provided from (used for)
Operations:
<S> <C> <C>
Net income $12,463 $21,035
Adjustments to reconcile to net cash provided
from (used for) operations:
Depreciation and amortization 8,459 6,275
Deferred income taxes, net - (263)
Equity in earnings of affiliate (149) (1,046)
Loss on disposal of property and equipment 407 1,636
Changes in:
Accounts and notes receivable (35,110) (36,563)
Inventories 40,410 26,243
Prepaid expenses (904) (127)
Long-term notes receivable - (368)
Accounts payable, income taxes, accrued
expenses and other current liabilities (16,956) (15,727)
Net cash provided from operations 8,641 1,095
Investments:
Short-term investments (5,438) 35,111
Additions to property and equipment (11,934) (5,444)
Proceeds from sale of property and equipment 30 6
Long term investments 98 1,699
Acquisition of business (5,308) -
Increase in other assets (2,085) (1,870)
Net cash provided from (used for)
investments (26,368) 29,502
Financing:
Proceeds from sale of stock under stock plans 12 12
Cash dividends paid (14,118) (14,267)
Repurchase of common stock (2,006) (11,482)
Short-term borrowings 1,000 -
Net cash used for financing (15,112) (25,737)
Net increase (decrease)in cash and cash
equivalents (32,839) 4,860
Cash and cash equivalents at beginning
of the period 45,413 38,763
Cash and cash equivalents at end
of the period $12,574 $43,623
</TABLE>
The accompanying notes are an integral part of the
condensed consolidated financial statements.
5
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 September 1, 1995 and
September 2, 1994 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 September 1, 1995
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 1994 condensed
consolidated financial statements to conform to the 1995 presentation.
NOTE 2
During the first nine months of fiscal 1995, interest payments totaled
$780,000 ($214,000 in 1994). For the first nine months of 1995, payments
for income taxes totaled $7,374,000 ($10,103,000 in 1994).
NOTE 3
On January 11, 1995, the Company, through its newly formed subsidiary,
Boston Footwear Group, Inc., purchased certain assets, including inventory,
trademarks, patents and other intangible assets, associated with the
University Brands division of Genesco, Inc. for $5,308,000. University
Brands sold children's footwear under the Toddler University , Kids
University and Street Hot brands.
The acquisition has been recorded using the purchase method of
accounting. Accordingly, the purchase price was allocated to assets based
on their estimated fair value as of the date of acquisition. Operating
results associated with the acquired brands were not significant during the
nine months ended September 1, 1995. Proforma financial information for
the first nine months of fiscal 1994 has not been presented because the
amounts were immaterial to the 1994 consolidated results of operations.
6
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 third
quarter and nine-month period:
Percent Increase (Decrease) vs. 1994 Results:
<TABLE>
<CAPTION>
Third Quarter Nine Months
<S> <C> <C>
Net sales (10.2%) (4.7%)
Gross profit (16.2%) (7.7%)
Selling and administrative
expenses 2.1% (1.6%)
Operating income (59.3%) (41.0%)
Income before income taxes (59.6%) (42.2%)
Net income (59.0%) (40.8%)
</TABLE>
<TABLE>
Operating Ratios as a Percentage
of Net Sales: Third Quarter Nine Months
<CAPTION>
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Gross profit 34.5% 36.9% 36.0% 37.1%
Selling and administrative
expenses 30.3% 27.8% 31.0% 29.1%
Operating income 4.1% 9.1% 5.0% 8.1%
Income before income taxes 4.1% 9.1% 4.9% 8.0%
Net income 2.5% 5.5% 3.0% 4.8%
</TABLE>
Net sales decreased $15.8 million (10.2%) in the third quarter of
fiscal 1995 compared to the similar period of fiscal 1994 due primarily to
a weak order position entering the period and soft retail conditions. The
performance in the third quarter continued the revenue declines experienced
in the first half of 1995 resulting in sales for the nine-month period
being down $20.4 million or 4.7% below last year's level. During the first
nine months of fiscal 1995, increased retail sales and higher sales of
discontinued products partially offset an 11.4% decrease in the unit
shipments of current line merchandise. Excluding the impact of product mix
changes, net sales in the first nine months of 1995 were reduced by
approximately $5.9 million due to selling price deflation.
Sales of the Company's Retail division, which includes the Stride Rite
children's booteries and leased departments, manufacturers' outlets and the
initial stores of the Great Feet and Keds retail concepts, increased 16%
during the first nine months of 1995. In the 1995 nine-month period, sales
of new stores offset a 2.5% decline at comparable stores. Sales at
comparable stores in the third quarter of 1995 were below last year by
4.4%. The Retail division operated an average of 268 stores during the
first nine months of 1995, up 40% from the 192 stores operated during the
comparable period of fiscal 1994. The 1995 store count includes 48 lower
volume leased departments opened in October 1994.
7
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
Sales of the Company's wholesale divisions in 1995 were 8% below the
sales total for the first nine months of 1994. Keds division sales were
below last year by 21% in the third quarter of 1995 and down 14% from 1994
in the nine-month period as the favorable impact of lower order
cancellations due to this year's more timely processing of customer orders
was insufficient to offset Keds' lower advance bookings and slow reorders
during the Spring and Fall seasons. Sales of Sperry Top-Sider products
during the first nine months of 1995 increased 15% from the 1994 level as
the division's results benefited from increased demand for both leather
boat shoes and canvas footwear. Sales of the Stride Rite Children's Group
to independent dealers, family shoe stores and department stores decreased
5% during the first nine months of 1995 due to generally soft conditions at
the retail level and the purchase during the last year of independent
stores by the Company's Retail division. The Company's International
division posted higher revenues during the first nine months of 1995, up $4
million or 22% from 1994. Boston Footwear Group, a business unit organized
to market Grasshoppers and other branded footwear, achieved a 5% sales
increase during the first nine months of 1995.
During the first nine months of 1995, gross profit declined 7.7% from
the comparable period in 1994 compared to the sales decrease of 4.7%.
Gross profit was also lower for the third quarter of 1995 versus the
comparable period, showing a decline of 16.2% compared to the sales
decrease of 10.2%. The consolidated gross profit percentage in the first
nine months decreased to 36% in 1995 from the 37.1% rate recorded in the
comparable period of 1994. The gross profit percentage for the third
quarter of 1995 was also below last year, 34.5% in 1995 compared to 36.9%
in 1994. The LIFO provision in the first nine months reduced gross profit
by $2.3 million (0.6% of net sales) in 1995 compared to a provision of $0.7
million (0.2% of net sales) in 1994. The gross profit performance for both
the third quarter and nine-month period was hurt by an increased provision
for inventory obsolescence and by higher markdowns in the Company's retail
operations. The consolidated gross profit percent was also negatively
impacted by changes in product mix as sales of Keds basic canvas styles,
the division's higher margin product, decreased from last year's sales
level.
Selling and administrative expenses for the third quarter of 1995
decreased $0.9 million or 2.1% from the spending level of the comparable
period in fiscal 1994. Expenses for the nine month period of 1995 increased
$2 million or 1.6% above last year's total. As a percent to sales, these
expenses represented 31% of net sales in the first nine months of 1995
compared to 29.1% in 1994. The growth of retail operations, where selling
and administrative expenses are high as a percentage of sales, contributed
to the higher spending as store expenses in the first nine months of 1995
increased 19.4% from 1994. Approximately $4.2 million of the increased
retail costs were related to new stores. Advertising expenses in the first
nine months of 1995 totaled $27.4 million (6.5% of sales), up slightly from
the spending level of $27.1 million (6.2% of sales) in the 1994 period.
8
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
Distribution costs represented 4.3% of net sales in the first nine months
of 1995 compared to 4.6% of net sales in 1994 as last year's total included
start-up inefficiencies at the Company's new facility in Kentucky which
were resolved in 1995.
Other income (expense) decreased pre-tax income by $0.5 million in
1995 compared to a decrease of $0.2 million in the first nine months of
1994. Interest income during the first nine months of 1995 was above last
year by $0.4 million due to increased short-term investment yields.
Interest expense increased $0.5 million in 1995 as compared to 1994 due to
higher short-term borrowings to fund working capital needs and increased
average interest rates. Other expenses were higher in 1995 primarily due
to costs related to a company-owned life insurance program. The provision
for income taxes in the first nine months of 1995 was below the 1994 amount
due to the reduced pre-tax income earned in 1995. The 1995 effective
income tax rate of 38.8% was below the 1994 rate of 40.3% because of
increased tax savings related to a company-owned life insurance program.
During the first nine months of 1994, net income decreased $8.6 million
(40.8%) from the earnings level achieved in 1994 due to the reduced sales,
unfavorable gross profit performance and increased selling and
administrative expenses described above.
Liquidity and Capital Resources
At September 1, 1995, the Company's balance sheet had a current ratio
of 3.9 to 1 and a debt-to-equity relationship of 0.6%. The Company's cash
and short-term investments totaled $48.5 million at the end of the latest
quarter, down from the year-end 1994 level of $75.9 million and below the
cash and investments balance of $74.2 million as of September 2, 1994.
During the first nine months of 1995, the Company's operations generated
$8.6 million of cash. However, spending related to capital expenditures,
the acquisition of a business, common stock repurchases and the
continuation of dividend payments offset the cash flow from operations and
resulted in a decline of $27.4 million in cash and short-term investments
during the first nine months of fiscal 1995. The 1995 operating cash flow
amount was substantially above the $1.1 million of cash provided from
operations during the first nine months of fiscal 1994. The $7.5 million
improvement in operating cash flow in the nine-month period of fiscal 1995
occurred despite this year's lower net income, down $8.6 million from 1994,
as the non-cash components of working capital grew at a slower rate in the
first nine months of 1995.
9
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, continued
At September 1, 1995, receivable and inventory levels totaled $217.9
million, down slightly from the asset total of $218.2 million at the end of
the third quarter of fiscal 1994. Inventories at September 1, 1995 were
above the 1994 level by $12.9 million or 12.1% due to the increased number
of retail stores (279 in 1995 compared to 194 in 1994) and higher
inventories of basic Sperry Top-Sider products. Keds inventory levels,
which were high at year end 1994, were reduced during the first nine months
of fiscal 1995 through the sourcing of lower quantities of basic styles and
by selling discontinued seasonal merchandise. The accounts receivable
element of working capital at the end of the third quarter of 1995
decreased $13.2 million or 11.8% from the 1994 receivable amount due to the
lower sales level experienced in 1995.
The Company uses bank lines of credit to fund seasonal working capital
needs. Average outstanding borrowings under these lines of credit during
the first nine months of fiscal 1995 amounted to $14 million compared to
$1.9 million in the similar period of fiscal 1994. Average borrowings
during the third quarter amounted to $4.6 million in 1995 compared to $4.2
million in 1994.
In January 1995, the Company used $5.3 million of cash to acquire
certain assets of the University Brands division of Genesco, Inc. Capital
expenditures of $11.9 million in the first nine months of 1995 were above
the 1994 level of $5.4 million. The higher level of expenditures was
related to new retail stores and spending on the Company's program to
upgrade information systems capabilities.
10
PART I - FINANCIAL INFORMATION (Continued)
THE STRIDE RITE CORPORATION
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
27 Financial Data Schedule
(b) Reports on Form 8-K
The Company did not file any current reports on Form 8-K
during the third quarter of fiscal year 1995.
11
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: October 13, 1995 By: /s/ John M. Kelliher
Vice President, Finance
and Treasurer
12
THE STRIDE RITE CORPORATION
INDEX TO EXHIBITS
Exhibit No.
Sequential Page No.
11 Computation of Per Share Earnings Page 14 of 15
27 Financial Data Schedule Page 15 of 15
13
EXHIBIT 11
THE STRIDE RITE CORPORATION
COMPUTATION OF PER SHARE EARNINGS
(In Thousands Except Per Share Data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
Sept. 1, 1995 Sept. 2, 1994 Sept. 1, 1995 Sept. 2, 1994
Net income applicable
<S> <C> <C> <C> <C>
to common shares $ 3,487 $ 8,506 $12,463 $21,035
Calculation of shares:
Weighted average num-
ber of common
shares outstanding 49,441 49,542 49,506 49,909
Common shares attri-
butable to assumed
exercise of dilu-
tive stock options
and stock purchase
rights using the
treasury stock
method 300 141 310 114
Average common shares
and common equiva-
lents outstanding
during the
period 49,741 49,683 49,816 50,023
Net income per common
share $.07 $.17 $.25 $ .42
</TABLE>
14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The notes to the condensed consolidated financial statements are an integral
part of such statements and the condensed consolidated financial information
in this schedule. Figures below are in thousands, except per-share data.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> DEC-01-1995 DEC-01-1995
<PERIOD-END> SEP-01-1995 SEP-01-1995
<CASH> 12,574 12,574
<SECURITIES> 35,972 35,972
<RECEIVABLES> 98,513 98,513
<ALLOWANCES> 8,305 8,305
<INVENTORY> 119,382 119,382
<CURRENT-ASSETS> 305,320 305,320
<PP&E> 84,230 84,340
<DEPRECIATION> 30,970 30,970
<TOTAL-ASSETS> 377,017 377,017
<CURRENT-LIABILITIES> 77,992 77,992
<BONDS> 0 0
<COMMON> 14,237 14,237
0 0
0 0
<OTHER-SE> 274,989 274,989
<TOTAL-LIABILITY-AND-EQUITY> 377,017 377,017
<SALES> 139,140 418,298
<TOTAL-REVENUES> 139,140 418,298
<CGS> 91,168 267,884
<TOTAL-COSTS> 91,168 267,884
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 542 1,642
<INTEREST-EXPENSE> 90 801
<INCOME-PRETAX> 5,692 20,363
<INCOME-TAX> 2,205 7,900
<INCOME-CONTINUING> 3,487 12,463
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 3,487 12,463
<EPS-PRIMARY> .07 .25
<EPS-DILUTED> .07 .25
</TABLE>
