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1 of 94 pages
Exhibit Index
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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 2, 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 report), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
-Continued-
<PAGE>
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 17, 1995, was $602,824,742
based on the closing price on that date on the New York Stock Exchange. As of
February 17, 1995, 49,541,864 shares of the registrant's Common Stock, $.25 par
value, were outstanding and 6,192,733 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 2, 1994 Part I and Part II
Portions of the Registrant's Proxy
Statement for 1995 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 in the Dominican Republic 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 consumers between the ages of
six months and 12 years, encompasses a complete line of products, including
dress and recreational shoes, boots, sandals 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.
Marine 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.
The Company acquired, in the first quarter of fiscal 1995, the TODDLER
UNIVERSITY(R), KIDS UNIVERSITY(R) and STREET HOT(R) brands from the University
Brands division of Genesco Inc. The Company plans to market these brands
through its newly formed subsidiary, Boston Footwear Group, Inc.
Sales and Distribution
- ----------------------
During the 1994 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 bootery stores,
manufacturers' outlet stores, a Keds store, a new concept store called Great
Feet(TM), and children's 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 2, 1994.
The Company provides assistance to a limited number of qualified specialty
retailers to enable them to operate independent Stride Rite children's bootery
stores. Such assistance sometimes includes the sublease of a desirable retail
site by the Company to a dealer. There are
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approximately 60 independent dealers who currently sublease store locations from
the Company.
An 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 Company's annual report to stockholders entitled
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Results of Operations" 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 1994, in addition to the United States, KEDS(R) brand products
were distributed through third parties in Argentina, Brazil, Chile, Denmark,
England, France, Germany, Greece, Hong Kong, Israel, Japan, Portugal, Singapore,
Sweden and the United Kingdom, as well as in several other countries in Latin
America and Asia, using local distributors. KEDS(R) brand products were also
manufactured and sold by a distributor in Israel under a license agreement,
which terminated in 1994, 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, Colombia, Ecuador, Peru, Venezuela and in
the Caribbean countries and territories (except the United States and French
territories) under a license agreement.
In fiscal 1994, in addition to the United States, the Company distributed
its SPERRY TOP-SIDER(R) brand products in Italy, Japan and the United Kingdom,
as well as other countries in Europe, South America and Asia, through local
distributors. During fiscal year 1993, the Company commenced operations to
distribute SPERRY TOP-SIDER(R) products in Belgium, France and the Netherlands,
through a subsidiary.
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 20 stores are currently operating in Canada, Costa
Rica, Guatemala, Honduras, Mexico and Peru. In addition, the Company also
distributes STRIDE RITE(R) brand products to several retailers in the Caribbean,
South 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 117 professional and technical personnel
in South Korea, Taiwan and Thailand, to supervise a substantial portion of its
canvas and leather footwear production. 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 1994, approximately 16% 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. In December 1994, the Company terminated its
relationship with one buying agent which sourced approximately 33% of the
Company's total production requirements in fiscal year 1994. The Company has
reopened its Taiwan office to perform the services formerly provided by the
buying agent.
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 trade sanctions,
loss of most favored nation trading status and other trading restrictions.
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. On February 4, 1995, the United States announced that it would, on
February 26, 1995, impose sanctions on China, relating to the export of numerous
products, including certain types of footwear, due to China's failure to enforce
its intellectual property rights. The Company believes that the sanctions will
not have a material adverse effect on it, even if the sanctions are implemented,
which is not certain. 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 2, 1994, the Company operated 136 Stride Rite Bootery
stores, 103 leased children's shoe departments in leading department stores, one
retail store for KEDS(R) brand products, one new concept store operated under
the name GREAT FEET(TM) and 11 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 103 leased
children's shoe departments which the Company operates in certain Macy's, Jordan
Marsh, Abraham & Straus, Rich's and Lazarus department stores. The Stride Rite
Bootery stores carry a complete line of the Company's STRIDE RITE(R) and SPERRY
TOP-SIDER(R) children's
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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 GREAT FEET(TM) store, in the Natick Mall, Natick,
Massachusetts, carries a full line of products for children aged 0 to 12,
including STRIDE RITE(R), KEDS(R) and SPERRY TOP-SIDER(R) brand 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.
During the 1994 fiscal year, the Company opened 51 leased departments, nine
manufacturers' outlet stores and the GREAT FEET(TM) store. In addition during
fiscal 1994, the Company commenced operating 11 Stride Rite booteries, ten of
which were purchased from independent dealers. During 1994, the Company also
closed 10 booteries. The Company currently plans to open approximately 25
retail stores during fiscal 1995 and close or sell approximately three Stride
Rite retail stores during fiscal 1995.
Sales through the Company's retail operations accounted for approximately
14.4% of consolidated net sales for the fiscal year ended December 2, 1994.
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, a license agreement under which apparel, using
the KEDS(R) trademark, is marketed in Japan and a license agreement under which
handbags for women are marketed under the KEDS(R) trademark in the United
States. License royalties accounted for less than one percent of the Company's
sales in fiscal year 1994. 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 2, 1994 and December 3, 1993, the Company had a backlog of
orders amounting to approximately $184,000,000 and $201,000,000, 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 in 1994 and 1993 of the
opening and operation of the Company's 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 - Results of Operations".
6
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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 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 2, 1994, the Company employed approximately 3,700 full-time
and part-time employees, approximately 700 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
- ---------------------
The Company has been named as a potentially responsible party under the
Resource Conservation and Recovery Act of 1976, as amended, with respect to a
hazardous waste site in Saco, Maine. The Company is investigating its potential
responsibility with respect to this site and believes that its liability will be
immaterial. There can be no assurance, however, that this will be the case.
The Company is vigorously defending itself with respect to this action. Except
as specified above, compliance with federal, state, local and foreign
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. In January, 1995, the Company acquired the
trademarks, patents and other intellectual property of the University Brands
division of Genesco, Inc., including TODDLER UNIVERSITY(R), KIDS UNIVERSITY(R)
and STREET HOT(R).
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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 17, 1995.
Executive Officers of the Registrant
- ------------------------------------
<TABLE>
<CAPTION>
Name Position with Company Age
- ---- --------------------- ---
<S> <C> <C>
Robert C. Siegel Chairman of the Board of Directors, 58
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.
Stephen R. DuMont Executive Vice President, of the 51
Company from October 1994. Prior to
joining the Company, Mr. DuMont served
as a principal of DuMont and Associates,
an international management consulting
firm from August 1993 to September 1994,
as the Chief Executive Officer and Chief
Operating Officer of The Antigua Group,
Inc., an apparel and accessories
manufacturer and wholesale and retail
distributor from May 1992 to July 1993
and as Executive Vice President and
Chief Financial Officer of Mast
Industries, Inc. (a wholly owned
subsidiary of The Limited, Inc.), an
apparel manufacturer and wholesale
distributor from February 1986 to April 1992.
Jonathan D. Caplan President of The Keds Corporation from 41
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.
</TABLE>
8
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Executive Officers of the Registrant
- ------------------------------------
<TABLE>
<CAPTION>
Name Position with Company Age
- ---- --------------------- ---
<S> <C> <C>
Robert B. Moore, Jr. President, Sperry Top-Sider, Inc. since 44
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.
Dennis Garro President, Retail division, since 47
joining the Company in April 1994.
Prior to joining the Company, Mr.
Garro served as Senior Vice President
and General Merchandise Manager for
Mervyns division of Dayton Hudson
Corp. from May 1992 to September 1993
and as Senior Vice President and
General Merchandise Manager of DFS
Group, Ltd. from November 1989 to
April 1992.
Gerrald B. Silverman President, Stride Rite International 36
Corp., since joining the Company in
April 1994. Prior to joining the
Company, Mr. Silverman served as the
national sales manager of the Dockers
division of Levi Strauss & Co. from
October 1992 to April 1994, as West
Coast regional manager of the Dockers
division of Levi Strauss & Co. from
April 1991 to October 1992, as East
Coast district manager of the Dockers
division of Levi Strauss & Co. from
May 1990 to April 1991 and as
national account manager of the
Dockers division of Levi Strauss & Co.
from September 1987 to May 1990.
C. Madison Riley III Vice President and General Manager, 36
Boston Footwear Group, Inc. since
November 1994. Mr. Riley served as
Director, Strategic Planning of the
Company from June 1993 to September
1993, as Vice President, Strategic
Planning of The Keds Corporation from
September 1993 to January 1994 and as
Vice President, Strategic Planning of
the Company from January 1994 to
November 1994. Prior to joining the
Company, Mr. Riley served as a partner
and regional director of Kurt Salmon
Associates from July 1985 to June 1993.
</TABLE>
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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 43
Controller of the Company since
February 1993. Mr. Kelliher has been
Corporate Controller of the Company
since March 1982.
John P. McMahon, Jr. Vice President, Human Resources since 42
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 since 49
October 1992, Clerk of the Company
since November 1992 and Secretary of
the Company since April 1994.
Ms. Crider was U.S. Counsel to
British Airways, Plc., from May
1988 to September 1992.
</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. The Company is constructing a 50,000 square foot
facility in Missouri, to replace one of the leased facilities, consisting of
approximately 18,400 square feet of manufacturing space. The Company also
manufactures footwear components at a 30,000 square foot facility in the
Dominican Republic. The Company closed a 45,000 square foot leased
manufacturing facility in Puerto Rico during fiscal 1994. In addition, the
Company leases approximately 17,000 square feet of space for a technical center
in Lawrence, Massachusetts. The Company is seeking space for this center closer
to the Company's new corporate headquarters in Lexington, Massachusetts, as
described below.
Present manufacturing space totals approximately 170,000 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.
An 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 - Results of Operations" 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 leased a warehouse located in New
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Bedford, Massachusetts, consisting of approximately 742,000 square feet, which
closed during the first quarter of 1994. The Company's Canadian subsidiary
leases approximately 28,000 square feet for warehousing in Mississauga, Ontario.
The Company leases approximately 132,000 square feet for its headquarters
and administrative offices in Cambridge, Massachusetts in office buildings, one
of which is owned by a partnership in which the Company is a limited partner.
The Company has signed a lease for a 162,700 square foot building in Lexington,
Massachusetts and anticipates moving its headquarters in fiscal 1996. The
Company leases 6,000 square feet of space for sales offices and showrooms in New
York City, New York; Dallas, Texas and St. Louis, Missouri and subleases 17,000
square feet of space in Richmond, Indiana for its Keds order processing and
telemarketing functions. In addition, the Company leases approximately 1,700
square feet of office space in Paris, France for its Sperry Top-Sider Europe
distribution subsidiary and 20,200 square feet of space for its liaison offices
in Korea, Taiwan and Thailand.
At December 2, 1994, the Company operated 149 retail stores throughout the
country on leased premises which, in the aggregate, covered approximately
203,000 square feet of space. The Company also operates 103 children's footwear
departments in five major department store chains. In addition, the Company is
the lessee of 62 retail locations totaling approximately 68,000 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 for a period of five years ending
August 31, 1998. Following preliminary Court approval on September 27, 1993,
Keds paid the administrative costs and part of the settlement amount. Following
final court approval on March 28, 1994, Keds made the remaining payments.
11
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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
12
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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 1994
Annual Report to Stockholders on pages 17, 30 and 33, and is incorporated herein
by reference.
Item 6. Selected Financial Data
- ------ -----------------------
The information required by this item is included in the Registrant's 1994
Annual Report to Stockholders on pages 17, 25 and 30 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 1994
Annual Report to Stockholders on pages 18 through 20 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 1994
Annual Report to Stockholders on pages 21 through 30 and is incorporated herein
by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting
- ------ -----------------------------------------------------------
and Financial Disclosure
------------------------
None.
13
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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 1995 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 2, 1994, 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 1995 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 2, 1994, 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 1995 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 2, 1994, 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 1995 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 2, 1994, which information is incorporated herein by reference.
14
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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:
Page in
Form 10-K
---------
Consolidated Balance Sheets as of December 2, 1994
and December 3, 1993 *
Consolidated Statements of Income for the years ended
December 2, 1994, December 3, 1993 and
November 27, 1992 *
Consolidated Statements of Cash Flows for the years
ended December 2, 1994, December 3, 1993 and
November 27, 1992 *
Consolidated Statements of Changes in Stockholders'
Equity for the years ended December 2, 1994,
December 3, 1993 and November 27, 1992 *
Notes to Consolidated Financial Statements *
Report of Independent Accountants *
Report of Independent Accountants on Financial
Statement Schedules F-1
Financial Statement Schedule for the years ended
December 2, 1994, December 3, 1993 and
November 27, 1992:
Schedule II - Valuation and Qualifying
Accounts F-2
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 13 of this
Annual Report on Form 10-K.
15
<PAGE>
Exhibits. The following exhibits are contained herein or are incorporated
- --------
herein by reference:
Exhibit No. Description of Exhibit
- ----------- ----------------------
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.
16
<PAGE>
Exhibit No. Description of Exhibit
- ----------- ----------------------
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)* 1995 Long-Term Growth Incentive Plan of the Registrant
(vii)* Annual Executive Incentive Compensation Plan (dated as of
December 4, 1994)
(viii)* Form of executive termination agreement, as amended and restated on
February 17, 1995. 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(viii) attached hereto.
(ix)* 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(ix) attached hereto.
*Denotes a management contract or compensatory plan or arrangement.
17
<PAGE>
Exhibit No. Description of Exhibit
- ----------- ----------------------
(x)* Employment Agreement between the Registrant and Robert C. Siegel
dated as of October 21, 1993 -- Such Agreement was filed as Exhibit
10(x) to the Registrant's Annual Report on Form 10-K for the fiscal
period ended December 3, 1993 and is incorporated herein by
reference.
(xi) 1994 Non-Employee Director Stock Ownership Plan -- Such Plan was
filed as Appendix A to the Registrant's Proxy Statement for its
1994 annual meeting of stockholders, portions of which were filed
with the Commission on March 1, 1994 and is incorporated herein by
reference.
(xii)* Form of severance agreement dated February 22, 1995. All
executive officers with whom the Registrant entered into such
an agreement are listed on Addendum 10(xii) attached hereto.
11 Calculation of Net Income Per Share
13 Registrant's 1994 Annual Report to Stockholders
21 Subsidiaries of the Registrant
23 Consent of Independent Accountants
27 Financial Data Schedules
(b) Reports on Form 8-K
None
*Denotes a management contract or compensatory plan or arrangement.
18
<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
- --------------------------- ---------------------------
/s/ John M. Kelliher /s/ Robert C. Siegel
- ----------------------------------- -------------------------------
By: John M. Kelliher, Vice By: Robert C. Siegel, Chairman
President, Finance of the Board, President and
Treasurer and Controller Chief Executive Officer
(Principal Accounting Officer)
Date: February 27, 1995 Date: February 27, 1995
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: February 27, 1995 Date: February 27, 1995
/s/ Theodore Levitt /s/ Margaret A. McKenna
- ----------------------------------- -------------------------------
Theodore Levitt, Director Margaret A. McKenna, Director
Date: February 27, 1995 Date: February 27, 1995
/s/ Myles J. Slosberg /s/ W. Paul Tippett, Jr.
- ----------------------------------- -------------------------------
Myles J. Slosberg, Director W. Paul Tippett, Director
Date: February 27, 1995 Date: February 27, 1995
/s/ Robert Seelert /s/ Jeanette S. Wagner
- ----------------------------------- -------------------------------
Robert Seelert, Director Jeanette S. Wagner, Director
Date: February 27, 1995 Date: February 27, 1995
19
<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 1994 Annual Report to Stockholders of The Stride Rite Corporation and
appears on page 31 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 15 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.
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
January 19, 1995
20
<PAGE>
THE STRIDE RITE CORPORATION
Schedule II - 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 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
====== ====== ====== ======
Fiscal year ended
December 2, 1994:
Deducted from assets:
Allowance for doubt-
ful accounts 3,845 3,117 1,101(a) 5,861
Allowance for sales
discounts 1,757 2,579 1,566(b) 2,770
------ ------ ------ ------
$5,602 $5,696 $2,667 $8,631
====== ====== ====== ======
</TABLE>
(a) Amounts written off as uncollectible.
(b) Amounts charged against the reserve.
21
<PAGE>
THE STRIDE RITE CORPORATION
ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 2, 1994
Index to Exhibits
- -----------------
Exhibit No. Description of Exhibit Page No.
- ----------- ---------------------- --------
10 (vi) 1995 Long-Term Growth Incentive Plan 23
(vii) Annual Executive Incentive Compensation Plan 32
(viii)* Form of executive termination agreement, as 39
amended and restated on February 17, 1995.
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(viii)
attached hereto.
(ix)* Form of executive termination agreement, as 53
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(ix)
attached hereto.
(xii)* Form of severance agreement dated 54
February 22, 1995. All executive officers with
whom the Registrant entered into such an agreement
are listed on Addendum 10(xii) attached hereto.
11 Calculation of Net Income Per Share 57
13 Registrant's 1994 Annual Report to Stockholders 58
21 Subsidiaries of the Registrant 91
23 Consent of Independent Accountants 92
27 Financial Data Schedules 93
*Denotes a management contract or compensatory plan or arrangement.
<PAGE>
EXHIBIT 10(vi)
THE STRIDE RITE CORPORATION
1995 LONG-TERM GROWTH INCENTIVE PLAN
Section 1: Purpose
The purpose of the Stride Rite Corporation 1995 Long-Term Growth Incentive Plan
(the "Plan") is to enable The Stride Rite Corporation (the "Corporation") and
its Subsidiaries to attract and retain key employees who will make significant
contributions towards the successful management, growth and protection of the
Corporation and to provide meaningful incentives to such employees who are more
directly linked to the achievement of long-term business goals and increase in
shareholder value. In addition, the Plan is designed to encourage and provide
opportunities for stock ownership by such employees which will more closely
align their interests with those of the stockholders of the Corporation.
Section 2: Definition of Terms
(a) Award means any Stock Option or Stock Award granted under the Plan.
(b) Board means the Board of Directors of the Corporation.
(c) Code means the Internal Revenue Code of 1986, as amended from time to time.
(d) Committee means a committee of not less than two non-employee members of
the Board, appointed by the Board to administer the Plan. The Committee
shall be comprised of members who qualify to administer this Plan as
contemplated by (a) both Rule 16b-3 and item 402(i) under the 1934 Act or
any successor rule, and (b) Section 162(m) under the Code.
(e) Common Stock means the Common Stock of the Corporation.
(f) Corporation means The Stride Rite Corporation, a corporation established
under the laws of the State of Massachusetts, and its Subsidiaries.
(g) Fair Market Value means, with respect to Common Stock, the fair market
value of such property as determined by the Committee in good faith in such
manner as shall be established by the Committee from time to time. Under no
circumstances shall the Fair Market Value be less than the par value of the
Common Stock. Any time that the Common Stock is traded on a public market,
Fair Market Value means the last reported sale price at which the Common
Stock is traded on such date or, if no Common Stock is traded on such date,
the most recent date on which Common Stock was traded, as reflected on such
public market.
(h) Incentive Stock Option (ISO) means a Stock Option to purchase Shares
awarded to a Participant which is intended to be an "Incentive Stock
Option" within the meaning of Section 422 of the Code or any successor
provision.
(i) Non-Qualified Stock Option (NQSO) means a Stock Option to purchase Shares
of Common Stock awarded to a Participant which is not intended to be an
incentive stock option within the meaning of Section 422 of the Code or any
successor provision.
1
<PAGE>
(j) 1934 Act means the Securities Exchange Act of 1934, as amended from time to
time.
(k) Participant means a person selected by the Committee (or its delegate as
provided under Section 4) to receive an Award under the Plan.
(l) Reporting Person means an individual who is subject to Rule 16 of the 1934
Act or any successor rule.
(m) Shares means of the Common Stock of the Corporation.
(n) Stock Award means an Award to a Participant comprised of Common Stock or
valued by reference to Common Stock granted under Section 7c of the Plan.
(o) Stock Option means an Award in the form of the right to purchase a
specified number of Shares at a specified price during a specified period.
(p) Subsidiary means any entity that, directly or through one or more
intermediaries, is controlled by, controls or is under common control with
the Corporation or any entity in which the Corporation has a significant
equity interest as determined by the Committee.
Section 3: Effective Dates
The Plan shall be effective as of the date the Shareholders approve the Plan.
No Awards may be made under the Plan after three years from the date of approval
or earlier termination of the Plan by the Board. However, unless otherwise
expressly provided in the Plan or in an applicable Award agreement, any Award
granted prior to the termination date may extend beyond such date, and, to the
extent set forth in the Plan, the authority of the Committee to amend, alter,
adjust, suspend, discontinue or terminate any such Award, or to waive any
conditions or restrictions with respect to any such Award, and the authority of
the Board to amend the Plan, shall extend beyond such date.
Section 4: Administration
The Plan shall be administered by the Committee. Unless otherwise expressly
provided in the Plan, all designations, determinations, interpretations, and
other decisions under or with respect to the Plan or any Award shall be within
the sole discretion of the Committee, may be made at any time, and shall be
final, conclusive and binding upon all persons, including the Corporation, any
Subsidiary, any Participant, any holder or beneficiary of any Award, shareholder
and any employee of the Corporation or of any Subsidiary. The Committee shall
have the authority to adopt, alter and repeal such administrative rules,
guidelines and practices governing the operation of the Plan as it shall from
time to time consider advisable. To the extent permitted by applicable law and
the terms and provisions of the Plan, the Committee may delegate to one or more
employee members of the Board the power to make Awards to Participants who are
not Reporting Persons and are not "covered individuals" within the meaning of
Section 162(m) of the Code or any successor provision.
2
<PAGE>
Section 5: Eligibility
Key executives of the Corporation and its Subsidiaries plus, on a highly
selective basis, other employees of the Corporation and its Subsidiaries whom
the Committee determines are key contributors to the business of the Corporation
and its Subsidiaries shall be eligible to receive an Award under the Plan,
provided that such participation would not jeopardize the Plan's compliance with
Rule 16b-3 under the 1934 Act or any successor rule.
Section 6: Stock Available for Awards
(a) Common Shares Available. Subject to adjustment as provided in Section 6(c)
below, the maximum number of Shares available for Awards under the Plan
shall be 2,400,000, plus, to the extent permitted by Rule 16b-3 under the
1934 Act or any successor rule, the number of shares added back pursuant to
Section 6(d).
(b) Share Usage Limits. For the period that the Plan is in effect the aggregate
number of Shares that shall be granted as Awards shall not exceed 200,000
for Stock Awards. Additionally, the aggregate number of Shares that shall
be awarded to any one Participant of the Plan over the period that the Plan
is in effect shall not exceed 500,000 Shares.
(c) Adjustments. In the event of any stock dividend, stock split, combination
or exchange of Shares, merger, consolidation, spin-off or other
distribution (other than normal cash dividends) of the Corporation's assets
to shareholders, or any other change affecting Shares, such proportionate
adjustments, if any, as the Committee in its discretion may deem
appropriate to reflect such change shall be made with respect to (i) the
aggregate number and kind of shares that may be issued under the Plan; (ii)
the number and kind of shares covered by each outstanding Award made under
the Plan; (iii) the option, base or purchase price per share for any
outstanding Stock Option and other Awards granted under the Plan, provided
that any such actions are consistently and equitably applicable to all
affected Participants. In addition, any shares issued by the Corporation
through the assumption or substitution of outstanding grants or grant
commitments from an acquired entity shall not reduce the shares available
for issuance under the Plan.
(d) Common Stock Usage. Subject to Rule 16b-3 under the 1934 Act or any
successor rule, the Shares of Common Stock underlying any Awards which are
forfeited, cancelled, reacquired by the Corporation, satisfied without the
issuance of Common Stock or otherwise terminated (other than by exercise)
shall be added back to the Shares of Common Stock available for issuance
under the Plan so long as the Participants to whom such Awards had been
previously granted received no benefits of ownership of the underlying
Shares of Common Stock to which the Award related.
(e) Accounting for Awards. The number of Shares covered by an Award under the
Plan, or to which such Award relates, shall be counted on the date of grant
of such Award against the number of Shares available for granting Awards
under the Plan.
3
<PAGE>
Section 7: Awards
(a) General. The Committee shall determine the number and type(s) of Award(s)
(as set forth below) to be made to each Participant and shall approve the
terms and conditions of all such Awards in accordance with Sections 4 and 8
of the Plan. Awards may be granted singly, in combination or in tandem such
that the settlement of one Award automatically reduces or cancels the
other. Awards may also be made in replacement of, as alternatives to or as
forms of payment for grants or rights under any other employee compensation
plan or arrangement of the Corporation, including the plans of any acquired
entity.
(b) Stock Options. A Stock Option shall confer on a Participant the right to
purchase a specified number of Shares from the Corporation subject to the
terms and conditions of the Stock Option grant. The Committee shall
establish the option price at the time each Stock Option is awarded,
provided that the per-share price shall not be less than 100% of the Fair
Market Value of a Share on the date of grant. Stock Options may be in the
form of ISOs or NQSOs, and the Committee shall specify at the time of grant
whether the Stock Option is an ISO or an NQSO. If a Participant owns or is
deemed to own (by reason of the attribution rules applicable under Section
424(d) of the Code) more than 10% of the combined voting power of all
classes of stock of the Corporation or any subsidiary or parent corporation
and an ISO is awarded to such Participant, the option price shall not be
less than 110% of the Fair Market Value at the time such ISO is awarded.
The aggregate Fair Market Value at time of grant of the Shares covered by
ISOs exercisable by any one optionee in any calendar year shall not exceed
$100,000 (or such other limit as may be required by the Code). The term of
each Stock Option shall be fixed by the Committee, provided, however, that
in no event shall the term of any Stock Option exceed a period of ten years
from the date of its grant. A Stock Option shall become exercisable over a
three year period (one third in each year) or, alternatively, in such
manner and within such period or periods and in such installments or
otherwise as shall be determined by the Committee. The recipient of a Stock
Option grant shall pay for the Shares at the time of exercise in cash or
such other forms as the Committee may approve, including Shares valued at
their Fair Market Value on the date of exercise, or in a combination of
form(s). The Committee may also permit Participants to have the option
price delivered to the Corporation by a broker pursuant to an arrangement
whereby the Corporation, upon irrevocable instructions from a Participant,
delivers the exercised Shares to the broker.
(c) Stock Awards. A Stock Award shall confer on a Participant the right to
receive a specified number of Shares subject to the terms and conditions of
the Award, which may include forfeitability contingencies based on
continued employment with the Corporation or on meeting performance
criteria or both. The restriction period for Stock Awards will be a five
year restriction period with restrictions lapsing in equal installments in
years three, four and five or any other such terms as the Committee shall
establish. Such Stock Awards may be subject to the attainment of specified
performance goals or targets, as determined by the Committee and set forth
in the specific Stock Award agreements. The Committee shall determine the
restrictions and restriction or performance period, and any other terms,
conditions and rights relating to a grant of Stock Awards,
4
<PAGE>
including the determination to adjust performance goals (up or down) as
business conditions so warrant. The Committee may also grant Stock Awards
that are not subject to any restrictions.
Section 8: General Provisions Applicable to Awards
(a) Transferability and Exercisability. Any Award under this Plan will be non-
transferable and accordingly shall not be assignable, alienable, saleable
or otherwise transferable by the Participant other than by will or the laws
of descent and distribution.
If so permitted by the Committee, a Participant may designate a beneficiary
or beneficiaries to exercise the Participant's rights and receive any
distributions under this Plan upon the Participant's death. To the extent
required to comply with regulations and rules under the 1934 Act, including
Rule 16b-3, any contrary requirements shall prevail over the provisions set
forth above in regards to Reporting Persons.
(b) General Restrictions. Each Award shall be subject to the requirement that,
if at any time the Committee shall determine, in its sole discretion, that
the listing, registration or qualification of any Award under the Plan upon
any securities exchange or under any state or federal law, or the consent
or approval of any government regulatory body, is necessary or desirable as
a condition of, or in connection with, the granting of such Award or the
grant or settlement thereof, such Award may not be exercised or settled in
whole or in part unless such listing, registration, qualification, consent
or approval have been effected or obtained free of any conditions not
acceptable to the Committee.
(c) Grant Terms and Conditions. Subject to the terms and conditions of this
Plan, the Committee shall determine the provisions and duration of grants
made under this Plan, including the option prices for all Stock Options,
the consideration, if any, to be required from Participants for Stock
Awards, and the conditions under which a Participant will retain rights
under this Plan in the event of the Participant's termination of employment
while holding any outstanding Awards.
(d) Tax Withholding. No later than the date as of which an amount first becomes
includible in the gross income of a Participant for federal income tax
purposes with respect to any Award under this Plan, the Participant shall
pay to the Corporation, or make arrangements satisfactory to the
Corporation regarding the payment of, any federal, state, local or foreign
taxes of any kind required by law to be withheld with respect to such
amount. Unless otherwise determined by the Committee, withholding
obligations may be settled with Shares, including Shares that are part of
the Award that gives rise to the withholding requirement. The obligations
of the Corporation under this Plan shall be conditional on such payment or
arrangements, and the Corporation and its Subsidiaries shall, to the extent
permitted by law, have the right to deduct any such taxes from any payment
otherwise due to the Participants. The Committee may establish such
procedures as it deems appropriate, including the making of irrevocable
elections, for the settlement of withholding obligations with Shares.
Shares that are used to satisfy withholding obligations shall be valued at
their Fair Market Value on the date the tax
5
<PAGE>
withholding is effective.
(e) Documentation of Grants. Awards made under the Plan shall be evidenced by
written agreements or such other appropriate documentation as the Committee
shall prescribe. The Committee need not require the execution of any
instrument or acknowledgment of notice of an Award under the Plan, in which
case acceptance of such Award by the respective Participant will constitute
agreement to the terms of the Award.
(f) Settlement. The Committee shall determine, at the time of grant or
settlement of an Award, whether such Award will be settled in whole or in
part in cash, Shares, or other Awards subject, in the case of Participants
subject to Section 16(b) of the 1934 Act, to compliance with such Rule. The
Committee may require or permit a Participant to defer all or any portion
of a payment under the Plan, including the crediting of interest on
deferred amounts denominated in cash.
(g) Change of Control. Notwithstanding any other provision of this Plan to the
contrary, in the event of a Change of Control (as hereinafter defined), the
provisions of this Section 8(g) shall apply.
(i) Any Stock Options outstanding as of the date of Change of Control that
are not then exercisable and vested shall become fully exercisable and
vested and all restrictions applicable to any then-outstanding Stock
Award shall lapse, upon the occurrence of a Change of Control.
(ii) During the 60-day period from and after a Change of Control (the
"Exercisable Period"), unless the Committee shall determine otherwise
at the time of grant, each holder of a Stock Option (an "Optionee")
shall have the right, whether or not such Stock Option is then fully
exercisable and in lieu of the payment of the exercise price for the
Shares being purchased under the Stock Option and by giving notice to
the Corporation, to elect (within the Exercisable Period) to surrender
all or part of the Stock Option to the Corporation and to receive
cash, within 30 days of such notice, in an amount equal to the amount
by which the Change of Control Price (as hereinafter defined) per
Share on the date of such election shall exceed the exercise price per
Share under the Stock Option (the "Spread"), multiplied by the number
of Shares granted under the Stock Option as to which the right granted
under this Section 8(g)(ii) shall have been exercised; provided,
however, that if the Change of Control is within six months after the
date of grant of a particular Stock Option held by an Optionee who is
an officer or director of the Corporation and is subject to Section
16(b) of the 1934 Act, no such election shall be made by such Optionee
with respect to such Stock Option prior to six months from the date of
grant. However, if the end of such 60-day period from and after a
Change of Control is within six months after the date of grant of a
Stock Option held by an Optionee who is an officer or director of the
Corporation and is subject to Section 16(b) of the 1934 Act, such
Stock Option shall be cancelled in exchange for a cash payment to the
Optionee, effected on the day which is six months and one day after
the date of grant of such Option, equal to the Spread multiplied by
the number of Shares granted under the Stock Option. Notwithstanding
the foregoing, if any right granted pursuant to this Section 8(g)(ii)
would make a Change of Control transaction ineligible for pooling of
interest accounting under APB No. 16 that but for this Section
6
<PAGE>
8(g)(ii) would otherwise be eligible for such accounting treatment, the
Committee shall have the ability to substitute for the cash payable
pursuant to this Section 8(g)(ii), Shares with a Fair Market Value equal to
the cash that would otherwise be payable hereunder.
(iii) Definition of Change of Control. For purposes of this Plan, a
-------------------------------
"Change of Control" shall mean any of the following events:
(A) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the 1934 Act (a "Person")
of beneficial ownership (within the meaning of Rule 13d-3 promulgated
under the 1934 Act) of voting securities of the Corporation where such
acquisition causes such Person to own 20 percent or more of the
combined voting power of the then outstanding voting securities of the
Corporation entitled to vote generally in the election of directors
(the "Outstanding Corporation Voting Securities"); provided, however,
that for purposes of this subsection (A), the following acquisitions
shall not be deemed to result in a Change of Control: (i) any
acquisition directly from the Corporation, (ii) any acquisition by the
Corporation, (iii) any acquisition by any employee benefit plan (or
related trust) sponsored or maintained by the Corporation or any
corporation controlled by the Corporation, or (iv) any acquisition by
any corporation pursuant to a transaction that complies with clauses
(i), (ii) and (iii) of subsection (C) below: and provided, further,
that if any Person's beneficial ownership of the Outstanding
Corporation Voting Securities reaches or exceeds 20 percent as a
result of a transaction described in clause (i) or (ii) above, and
such Person subsequently acquires beneficial ownership of additional
voting securities of the Corporation, such subsequent acquisition
shall be treated as an acquisition that causes such Person to own 20
percent or more of the Outstanding Corporation Voting Securities; or
(B) individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming
a director subsequent to the date hereof whose election, or nomination
for election by the Corporation's shareholders, was approved by a vote
of at least a majority of the directors then comprising the Incumbent
Board shall be considered as though such individual were a member of
the Incumbent Board, but excluding, for this purpose, any such
individual whose initial assumption of office occurs as a result of an
actual or threatened election contest with respect to the election or
removal of directors or other actual or threatened solicitation of
proxies or consents by or on behalf of a Person other than the Board;
or
(C) The approval by the shareholders of the Corporation of a
reorganization, merger or consolidation or sale or other disposition
of all or substantially all of the assets of the Corporation
("Business Combination") or, if consummation of such Business
Combination is subject, at the time of such approval by shareholders,
to the consent of any government or governmental agency, the obtaining
of such consent (either explicitly or implicitly by consummation);
excluding, however, such a Business
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Combination pursuant to which (i) all or substantially all of the
individuals and entities who were the beneficial owners of the
Outstanding Corporation Voting Securities immediately prior to such
Business Combination beneficially own, directly or indirectly, more
than 60% of, respectively, the then outstanding shares of common stock
and the combined voting power of then outstanding voting securities
entitled to vote generally in the election of directors, as the case
may be, of the corporation resulting from such Business Combination
(including, without limitation, a corporation that as a result of such
transaction owns the Corporation or all or substantially all of the
Corporation's assets either directly or through one or more
subsidiaries) in substantially the same proportions as their
ownership, immediately prior to such Business Combination of the
Outstanding Corporation Voting Securities, (ii) no Person (excluding
any employee benefit plan (or related trust) of the Corporation or
such corporation resulting from such Business Combination)
beneficially owns, directly or indirectly, 20% or more of,
respectively, the then outstanding shares of common stock of the
corporation resulting from such Business Combination or the combined
voting power of the then outstanding voting securities of such
corporation except to the extent that such ownership existed prior to
the Business Combination and (iii) at least a majority of the members
of the Board of Directors of the corporation resulting from such
Business Combination were members of the Incumbent Board at the time
of the execution of the initial agreement, or of the action of the
Board, providing for such Business Combination; or
(D) approval by the shareholders of the Corporation of a complete
liquidation or dissolution of the Corporation.
(iv) Change of Control Price. For purposes of this Plan, "Change of
-----------------------
Control Price" means the higher of (i) the highest reported sales price of
a Share in any transaction reported on the New York Stock Exchange
Composite Tape during the 60-day period prior to and including the date of
a Change of Control and (ii) if the Change of Control is the result of a
tender or exchange offer or a Business Combination, the highest price per
share of Stock paid in such tender or exchange offer or Business
Combination; provided, however, that (x) in the case of a Stock Option
which (A) is held by an Optionee who is an officer or director of the
Corporation and is subject to Section 16(b) of the 1934 Act and (B) was
granted within 240 days of the Change of Control, then the Change of
Control Price for such Stock Option shall be the Fair Market Value of the
Stock on the date such Stock Option is exercised or cancelled and (y) in
the case of ISOs, the Change of Control Price shall be in all cases the
Fair Market Value of the Stock on the date such ISO is exercised. To the
extent that the consideration paid in any such transaction described above
consists all or in part of securities or other non-cash consideration, the
value of such securities or other non-cash consideration shall be
determined in the sole discretion of the Committee.
Section 9: Miscellaneous
(a) Plan Amendment. The Board may amend, alter, suspend, discontinue or
terminate the Plan as it deems necessary or appropriate to better achieve
the purposes of the Plan except that no amendment shall be
8
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made which would (i) increase the total number of Shares available for
issuance under the Plan; or (ii) cause the Plan not to comply with
Rule 16b-3 of the 1934 Act or any successor rule.
(b) No Right to Employment. No person shall have any claim or right to be
granted an Award, and the grant of an Award shall not be construed as
giving a Participant the right to continued employment. The Corporation
expressly reserves the right at any time to dismiss a Participant free from
any liability or claim under the Plan, except as expressly provided by an
applicable Award.
(c) No Rights as Shareholder. Only upon issuance of Shares to a Participant
(and only with respect to such Shares) shall the Participant obtain the
rights of a shareholder, subject, however, to any limitations imposed by
the terms of the applicable Award.
(d) No Fractional Shares. No fractional shares shall be issued under the Plan,
however, the Committee may provide for a cash payment as settlement in lieu
of any fractional shares.
(e) Other Corporate Benefit and Compensation Programs. Except as expressly
determined by the Committee, settlements of Awards received by Participants
under this Plan shall not be deemed as part of a Participant's regular,
recurring compensation for purposes of calculating payments or benefits
from any Corporate benefit or severance program (or severance pay law of
any country). The above notwithstanding, the Corporation may adopt other
compensation programs, plans or arrangements as it deems appropriate or
necessary.
(f) Unfunded Plan. The Plan shall be unfunded and shall not create (or be
construed to create) a trust or a separate fund(s). Likewise, the Plan
shall not establish any fiduciary relationship between the Corporation and
any Participant or other person. To the extent any person holds any rights
by virtue of an Award granted under the Plan, such right shall be no
greater than the right of an unsecured general creditor of the Corporation.
(g) Successors and Assignees. The Plan shall be binding on all successors and
assignees of a Participant, including, without limitation, the estate of
such Participant and the executor, administrator or trustee of such estate,
or any receiver or trustee in bankruptcy or representative of the
Participant's creditors.
(h) Governing Law. The validity, construction and effect to the Plan and any
actions taken under or relating to the Plan shall be determined in
accordance with the laws of the State of Massachusetts and applicable
federal law.
9
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EXHIBIT 10(vii)
THE STRIDE RITE CORPORATION
ANNUAL INCENTIVE COMPENSATION PLAN
----------------------------------
(Amended and Restated Effective As of December 3, 1994)
ARTICLE I
Introduction
------------
The purpose of The Stride Rite Corporation Annual Incentive Compensation
Plan is to provide incentives to key employees of the Company to enhance the
value of the Company. By offering annual financial rewards, the Plan can
recognize contributions made by individual Eligible Employees in the attainment
of important operating objectives. It is also anticipated that the Plan will
help the Company attract and retain the highest quality employees available.
ARTICLE II
Definitions
-----------
2.1. "Board" shall mean the Board of Directors of the Company.
2.2 "Bonus Allocation" shall mean that amount of a Participant's Bonus
Percentage which is allocable to the Participant's Bonus Pool in accordance with
Section 4.4(c).
2.3. "Bonus Award" shall mean the amount of award (if any) made to a
Participant under the Plan in a Plan Year.
2.4. "Bonus Percentage" shall mean that percentage of a Participant's
base salary targeted for the Plan Year upon which a Bonus Award is calculated.
2.5 "Bonus Pool" shall mean the sum total of the Bonus Allocations of all
the Participants whose Bonus Awards are subject to (i) the Corporate Income Goal
and the same Divisional Goal or (ii) only the Corporate Income Goal.
2.6. "Committee" shall mean the Compensation Committee of the Board or, if
no such Committee is in office at the relevant time, the Board.
2.7. "Company" shall mean The Stride Rite Corporation and its successors
and assigns.
2.8 "Corporate Income" shall mean, for any Plan Year, the operating
income generated by the Company. For purposes of the Plan, Corporate Income for
any Plan Year shall be determined by the Committee, in its sole discretion, in
accordance with generally accepted accounting principles and after accounting
for non-operating income or expenses and before accounting for federal income
taxes.
2.9. "Corporate Income Goal" shall mean, for any Plan Year, that amount of
Corporate Income which the Committee targets for achievement in the Plan Year.
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2.10 "Divisional Goal" shall mean, for any Plan Year, that amount of
Corporate Income which the Committee targets for achievement in the Plan Year
for a division of the Company.
2.11. "Eligible Employee" shall mean a full-time salaried employee of the
Company who is a director or officer of the Company or who is employed in a
managerial or professional position which the Committee determines can
materially affect overall corporate operating results and provide a significant
opportunity to contribute to current earnings and the future success of the
Company.
2.12 "Incentive Goal" shall mean, for any Participant, the Corporate
Income Goal and/or Divisional Goal assigned to the Participant.
2.13. "Participant" shall mean any Eligible Employee who has been
designated as such by the Committee pursuant to Article III to participate in
the Plan for a Plan Year.
2.14. "Plan" shall mean The Stride Rite Corporation Annual Incentive
Compensation Performance Plan.
2.15. "Plan Year" shall mean the fiscal year of the Company.
2.16. "Threshold Corporate Result" shall mean, for any Plan Year, the
minimum level of Corporate Income which the Committee determines must be
generated in a Plan Year as a condition precedent to the payment of any Bonus
Award which the Committee establishes for the Plan Year.
2.17. "Total Disability" shall mean the permanent inability of a
Participant, as a result of accident or sickness, to perform any and every duty
pertaining to such Participant's occupation or employment for which the
Participant is suited by reason of the Participant's previous training,
education and experience.
ARTICLE III
Eligibility
-----------
For each Plan Year the Committee shall designate Participants from among
Eligible Employees who are employee-directors of the Company or who hold the
title of President of any division and/or any other Eligible Employees who
report directly to the Chief Executive Officer of the Company. All other
Participants shall be designated from among Eligible Employees by the Chief
Executive Officer of the Company or by such other officer as he or she may
designate.
Participants shall be selected prior to the commencement of each Plan Year.
During the Plan Year other Participants may be added by the Committee because of
promotion, hiring or other reasons warranting their inclusion or Participants
may be excluded by the Committee or the Chief Executive Officer of the Company
by reason of demotion or other reasons warranting exclusion.
2
<PAGE>
ARTICLE IV
Annual Bonuses
--------------
4.1. Establishment of Corporate Income Goal and Divisional Goals.
------------------------------------------------------------
Before the beginning of each Fiscal Year of the Company, the Committee shall, in
consultation with the Chief Executive Officer of the Company, establish the
Threshold Corporate Result, Corporate Income Goal and Divisional Goal for each
of the Company's divisions, pursuant to which, annual bonuses shall be payable,
if at all, under the Plan to a Participant with respect to such fiscal year's
performance.
4.2 Assignment of Incentive Goals.
-----------------------------
(a) At the time each Eligible Employee is designated as a Participant
pursuant to Article III, he or she shall be notified of such designation by the
Committee and shall be assigned at least one, but no more than two, Incentive
Goals by the Committee. If the Committee determines that a Participant's
position is substantially tied to and functional at the divisional level, one of
the Incentive Goals shall be the Corporate Income Goal, which shall be 50% of
the Participant's bonus opportunity in any Plan Year. Such a Participant shall
also be assigned as a second Incentive Goal the Divisional Goal of his or her
respective Division, which shall also be weighted at 50%. A Participant whose
position is not determined to be substantially tied to and functional at the
divisional level shall be assigned only a Corporate Income Goal which shall
represent 100% of his or her bonus opportunity. Each Participant shall also be
assigned a Bonus Percentage for the Plan Year by the Committee, which shall
percentage bear a relationship to the level of the Participant's position in the
Company.
(b) The Bonus Percentage shall be confirmed and Incentive Goals assigned by
(i) the Committee with respect to the Chairman and Chief Executive Officer of
the Company, (ii) by the Committee upon the recommendation of the Chief
Executive Officer of the Company with respect to other employee-directors of the
Company, division Presidents and other Participants who report directly to the
Chief Executive Officer, and (ii) the Chief Executive Officer with respect to
any other Participants.
4.3 Review of Performance. As soon as practicable after the close of a
---------------------
Plan Year, the Company's independent auditors shall advise the Committee of
income generated by the Company for its fiscal year just ended and of the degree
to which the Threshold Corporate Result and Corporate Income Goal have been
achieved, if at all. The Chief Executive Officer of the Company shall determine,
in his or her sole discretion, the degree to which the Divisional Goals have
been met, if at all, in accordance with generally accepted accounting principles
and after accounting for capital charges allocable to the relevant division and
shall advise the Committee accordingly. Achievement of each goal assigned to
each Participant shall be rated; a rating of 100% of an assigned goal shall
indicate full achievement of targeted performance and lesser or greater
achievement shall be rated below 100% or up to 125% as appropriate.
4.4 Bonus Awards.
------------
(a) No Bonus Award shall be payable to any Participant for any goal unless
the Threshold Corporate Result set for the Plan Year is achieved. If the
Threshold Corporate Result has been met, Bonus Awards allocated to
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<PAGE>
any of the Corporate Income Goal or Divisional Goal shall be payable, provided
that achievement of the goal is rated at least at 85%.
(b) If achievement of all of the Incentive Goals assigned to a Participant
is rated at 100%, then a Bonus Allocation equal to the Participant's Bonus
Percentage will be allocated to the Bonus Pool in which such Participant
participates. If achievement of any Incentive Goal is rated at least 85%, but
less than 100%, the Bonus Allocation allocated to that goal shall be equal to
the Participant's Bonus Percentage reduced by one-half if rated at 85%, and
prorated for achievement rated at 85% to 99%, and then such Bonus Allocation
shall be allocated to the Bonus Pool in which such Participant participates. If
achievement of any Incentive Goal is rated in excess of 100% up to 125%, then
the Bonus Allocation allocated to that goal shall be equal to the Participant's
Bonus Percentage doubled if 125% or more, and prorated for achievement rated at
101% to 124%, and then such Bonus Allocation shall be allocated to the Bonus
Pool in which such Participant participates.
(c) After the Committee determines the total of the Bonus Allocations
allocated to a Bonus Pool for any year pursuant to (b), Bonus Awards shall be
allocated to each Participant in such Bonus Pool whose employment performance
for such year has been rated a "3" or higher. The Bonus Award payable to any
such Participant shall be determined by the appropriate executive management
personnel (as designated by the Committee) in consultation with the Chief
Executive Officer of the Company (or, with respect to the Chairman and Chief
Executive Officer, in consultation with the Committee), and shall be at least
50% and not greater than 150% of the Participant's Bonus Allocation determined
under (b).
(d) Provided the Threshold Corporate Result is achieved for a Plan Year,
the Committee, with respect to the Chairman and Chief Executive Officer of the
Company, and the Committee upon the recommendation of the Chief Executive
Officer of the Company, with respect to all other Participants, shall have the
discretion to make additional Bonus Awards of up to 20% of a Participant's base
salary, notwithstanding the degree to which any Incentive Goal assigned to such
Participant has been achieved, if at all.
(e) All Bonus Awards to be made under the Plan shall be paid to eligible
Participants in cash less applicable taxes as soon as possible after the review
of performance of all Participants has been completed.
4.5 Termination of Employment.
-------------------------
(a) In the event a Participant terminates employment with the Company
before the completion of a Plan Year because of death, Total Disability, or
Early, Normal or Late Retirement under The Stride Rite Corporation Retirement
Income Plan, such Participant, or, in the case of the Participant's death, the
Participant's surviving spouse (or the Participant's estate if there is no
surviving spouse), shall receive a prorated Bonus Award. A prorated Bonus Award
shall be determined by multiplying the amount equal to the Bonus Award that
would have been earned in view of actual results for the Plan Year by a fraction
the numerator of which is the number of full months of the Plan Year during
which the employee was a Participant in the Plan and the denominator of which is
twelve. The foregoing notwithstanding, the Committee may, in its discretion,
cause payment of a Bonus Award to such a Participant on the basis of a full Plan
Year.
4
<PAGE>
(b) In the event a Participant's employment with the Company is terminated
before the completion of a Plan Year for any reason other than death, Total
Disability, or Retirement, the Participant shall not be entitled to receive any
Bonus Award for that Plan Year; provided, however, the Committee in its
discretion may award a partial Bonus Award based on the formula described above,
or a Bonus Award for the full Plan Year under circumstances which the Committee
determines, in its sole discretion, warrant such exception.
4.6. No Limitation to Corporate Action. Nothing in this Article IV shall
---------------------------------
preclude the Committee or the Board, as each or either shall deem necessary or
appropriate, from authorizing the payment to the Participant of compensation
outside the parameters of the Plan, including, without limitation, base
salaries, awards under any other plan of the Company, any other bonuses (whether
or not based on the attainment of performance objectives) and retention or other
special payments.
ARTICLE V
Plan Administration
-------------------
5.1. Powers of the Committee. The Committee shall have the authority,
-----------------------
subject to the terms of the Plan, to determine each Participant's Bonus Award,
if any, and to make all other determinations under the Plan and to interpret and
administer the Plan, taking into account its purposes and such other factors as
the Committee may deem relevant. The Committee shall have complete control over
the administration of the Plan and complete control and authority to determine,
in its sole discretion, the rights and benefits and all claims, demands and
actions arising out of the provisions of the Plan of any Participant or other
person having or claiming to have any interest under the Plan and the
Committee's determinations shall be conclusive and binding on all such parties.
Neither the Committee nor any member thereof nor the Company shall be liable for
any action or determination made in good faith with respect to the Plan or the
rights of any Participant under the Plan.
5.2. Duties of the Committee. Subject to the limitations of the Plan, the
-----------------------
Committee from time to time shall establish rules for the administration of the
Plan and the transaction of its business. All actions and determinations of the
Committee shall be conclusive and binding on all Participants, their
beneficiaries and estates.
5.3. Action Taken in Good Faith. The members of the Committee and the
--------------------------
Company and its officers, directors and employees shall be entitled to rely upon
all certificates and reports made by any accountant, and upon all opinions given
by any legal counsel, and the members of the Committee, the Company and its
officers, directors and employees shall be fully protected in respect of any
action taken or suffered by them in good faith in reliance upon any such
certificates, reports, opinions or other advice of any accountant or legal
counsel, and all action so taken or suffered, including, without limitation, the
payment of any Bonus Award, shall be conclusive upon each of them and upon all
Participants and their beneficiaries.
5.4. Indemnification. In addition to all other rights of indemnification
---------------
that may exist, the Company shall indemnify the Committee, each of its
respective members, and officers and employees of the Company who assist in the
administration and operation of the Plan from and against
5
<PAGE>
any liability, joint and/or several, arising out of or connected with their
duties hereunder, except such liability as may arise from their gross negligence
or willful misconduct.
5.5. Expenses of Administration. The Company shall pay all expenses of
--------------------------
administration of the Plan, including, without limitation, all expenses incurred
by the Committee, accounting and legal fees and expenses, and any other expenses
related to the administration of the Plan.
ARTICLE VI
Miscellaneous
-------------
6.1 Amendment and Termination. The Company shall have authority, in its
-------------------------
sole discretion, to amend or terminate the Plan at any time, in whole or in
part, and in any manner. Any such amendment or termination may be made by vote
of the Committee or the Board, or by written instrument signed by the Chief
Executive Officer of the Company, and may be made by the Committee or the Chief
Executive Officer retroactively to apply to Bonus Awards not yet paid to
Participants.
6.2. Tax Withholding. The Company shall have the power to withhold, or
---------------
require a Participant to remit to the Company, an amount sufficient to satisfy
Federal, State and local withholding tax requirements on any amount payable
under the Plan, and the Company may defer the payment of any amount until such
requirements are satisfied.
6.3. Inalienability of Interests. Except as otherwise provided by
---------------------------
applicable law, the Participant's interests under the Plan shall not be subject
to alienation, assignment, garnishment, execution or levy of any kind, and any
attempt to cause any benefits to be so subjected shall not be recognized.
6.4 No Funding. Nothing in this Plan will be construed to give any
----------
Participant or any other person rights to any specific assets of the Company, or
of any other person. The Participant shall have only the rights of an unsecured
general creditor of the Company with respect to his or her interest under the
Plan. Any Bonus Award which become payable hereunder shall be paid from the
general assets of the Company in accordance with the terms hereof.
6.5. Limited Effect. Neither the establishment of the Plan nor
--------------
participation in the Plan shall be construed as creating any contract of
employment between the Company and any Participant, employee or other person.
Nor shall anything contained in the Plan give any person the right to be
retained in the employ of the Company or otherwise restrain the Company's right
to deal with its employees, including Participants and employees, and their
hiring, discharge, layoff, compensation, and all other conditions of employment
in all respects as though the Plan did not exist.
6.6. Effect on Other Plans, Programs or Arrangements. The adoption of the
-----------------------------------------------
Plan shall have no effect on awards made or to be made or compensation paid or
to be paid pursuant to other plans, programs, or arrangements covering employees
of the Company, its subsidiaries or parent, or any predecessors or successors
thereto, except that amounts paid hereunder may be taken into account as
"compensation" for purposes of determining the Participant's benefits under such
other plan to the extent provided therein.
6
<PAGE>
6.7. Governing Law. All questions pertaining to the construction, validity
-------------
and effect of the Plan, or to the rights of any person under the Plan, shall be
determined in accordance with the laws of the Commonwealth of Massachusetts.
Executed this ______________ day of ___________________, 199__.
THE STRIDE RITE CORPORATION
By:_____________________________
7
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EXHIBIT 10(viii)
THE STRIDE RITE CORPORATION
Five Cambridge Center
Cambridge, Massachusetts 02142
February 17, 1995
Name
Address
City, State, Zip
Dear _______________,
The Stride Rite Corporation (the "Company") considers it essential to the
best interests of its stockholders to foster the continuous employment of key
management personnel. In this connection, the Board of Directors of the Company
(the "Board") recognizes that, as is the case with many publicly held
corporations, the possibility of a change in control may exist and that such
possibility, and the uncertainty and questions which it may raise among
management, may result in the departure or distraction of management personnel,
to the detriment of the Company and its stockholders. The Board has determined
that appropriate steps should be taken to reinforce and encourage the continued
attention and dedication of members of the Company's management, including
yourself, to their assigned duties without distraction in the face of
potentially disturbing circumstances arising from the possibility of a change in
control of the Company, although no such change is now contemplated. In order to
induce you to remain in the employ of the Company in a key managerial position
and in consideration of your agreement set forth in Section II(B) hereof, the
Company hereby enters into this letter agreement with you dated February 17,
1995, which shall provide that you shall receive the certain severance benefits
in the event your employment with the Company is terminated subsequent to a
"change in control of the Company" (as defined in Section II hereof) under the
circumstances described below.
This Agreement is not an employment agreement. Apart from the obligation of
the Company to make the specified payments, it imposes no restriction on the
power of the Company to terminate your employment for any reason, either
preceding or following a change in control of the Company.
I. Term of Agreement.
-----------------
A. This Agreement shall be effective on the date hereof and shall continue
in effect through December 31, 1995 provided, however, that commencing on
January 1, 1996 and each January 1 thereafter, the term of this Agreement shall
automatically be extended for one additional year, unless not later than October
31 of any year, the Company shall have given notice that it does not wish to
extend this Agreement; and provided further that, notwithstanding any such
notice by the Company not to extend, this Agreement shall continue in effect for
a period of 24 months beyond the term provided herein if a change in control of
the Company, as defined in Section II hereof, shall have occurred during such
term.
B. The Company reserves the right to terminate this Agreement
1
<PAGE>
unilaterally upon written notice to you under circumstances deemed appropriate
by the Board of Directors, including, but not limited to, the substantial change
during the term of duties or responsibilities assigned to you to those deemed by
the Board as not consistent with or appropriate to a key managerial position
within the Company, and upon notice to you of the termination of this Agreement,
your entitlement to any payments pursuant to this Agreement shall expire
immediately; provided that, notwithstanding any such notice of termination by
the Company pursuant to this Subsection, this Agreement shall continue in effect
for the period provided for in Subsection I(A), if notice of termination
hereunder is given after a change in control of the Company (as defined below)
shall have occurred.
II. Change in Control.
-----------------
A. No benefits shall be payable hereunder unless there shall have been a
change in control of the Company, as set forth below, and your employment by the
Company shall thereafter have been terminated in accordance with Section III
hereof. For purposes of this Agreement, a "change in control of the Company"
shall mean any of the following events:
1. The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Exchange Act) of 25% or more of
either (i) the then outstanding shares of common stock of the Company or (ii)
the combined voting power of the then outstanding voting securities of the
Company entitled to vote generally in the election of directors; provided,
however, that the following acquisitions shall not constitute a change in
control: (i) any acquisition directly from the Company (excluding an acquisition
by virtue of the exercise of a conversion privilege), (ii) any acquisition by
the Company, or (iii) any acquisition by any employee benefit plan (or related
trust) sponsored or maintained by the Company or any corporation controlled by
the Company; or
2. Individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority of the
Board; provided, however, that any individual becoming a director subsequent to
the date hereof whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a majority of the directors
then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of either an actual or threatened election contest with respect to the
election or removal of directors or other actual or threatened solicitation of
proxies or consents by or on behalf of a Person other than the Board; or
3. Approval by the shareholders of the Company of a reorganization,
merger or consolidation, a complete liquidation or dissolution of the Company or
the sale or other disposition of all or substantially all of the assets of the
Company.
B. For the purposes of this Agreement, a "potential change in control of
the Company" shall be deemed to have occurred if (i) the Company enters into
an agreement which provides for or contemplates a change in control of the
Company; (ii) any person becomes the beneficial owner,
2
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directly or indirectly, of securities of the Company representing 9.5% or more
of the combined voting power of the Company's then outstanding securities; or
(iii) the Board adopts a resolution to the effect that a potential change in
control of the Company for purposes of this Agreement has occurred. You agree
that, subject to the terms and conditions of this Agreement, in the event of a
potential change in control of the Company, you will remain in the employ of the
Company for not less than 12 months following the initial occurrence of such a
potential change in control of the Company.
III. Termination Following Change in Control.
---------------------------------------
A. If any of the events described in Section II hereof constituting a
change in control of the Company shall have occurred, you shall be entitled to
the benefits provided in Section IV hereof upon the subsequent termination of
your employment during the term of this Agreement, unless such termination is
(i) because of your death, (ii) because of an election by you for Retirement
absent any of the circumstances described in Subsection C as Good Reason, (iii)
by the Company for Cause or Disability, or (iv) by you other than for Good
Reason.
B. Disability; Retirement. If, as a result of your incapacity due to
----------------------
physical or mental illness, you shall have been absent from your duties with the
Company on a full-time basis for six consecutive months, and within thirty days
after written notice of termination is given you shall not have returned to the
full-time performance of your duties, the Company may terminate your employment
for "Disability". Termination of your employment based on "Retirement" shall
mean termination by you of your employment in accordance with the Company's
retirement policy, including early retirement, generally applicable to its
salaried employees and/or in accordance with any retirement arrangement with
respect to you established with your consent.
C. Cause. Termination by the Company of your employment for "Cause" shall
-----
mean termination upon (i) the willful and continued failure by you substantially
to perform your duties with the Company (other than any such failure resulting
from your incapacity due to physical or mental illness or any such actual or
anticipated failure resulting from your termination for Good Reason), after a
demand for substantial performance is delivered to you by the Board which
specifically identifies the manner in which the Board believes that you have not
substantially performed your duties or (ii) the willful engaging by you in
conduct which is demonstrably and materially injurious to the Company,
monetarily or otherwise. For purposes of this Subsection, no act, or failure to
act, on your part shall be considered "willful" unless done, or omitted to be
done, by you not in good faith and without reasonable belief that your action or
omission was in the best interest of the Company. Notwithstanding the foregoing,
your employment shall not be deemed to have been terminated for Cause unless and
until there shall have been delivered to you a copy of a resolution duly adopted
by the affirmative vote of not less than three-quarters of the entire membership
of the Board at a meeting of the Board called and held for the purpose (after
reasonable notice to you and an opportunity for you, together with your counsel,
to be heard before the Board), finding that in the good faith opinion of the
Board you were guilty of conduct set forth above in clauses (i) or (ii) of the
first sentence of this Subsection and specifying the particulars thereof in
detail.
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<PAGE>
D. Good Reason. You shall be entitled to terminate your employment for
-----------
Good Reason. For purposes of this Agreement, "Good Reason" shall, without your
express written consent, mean:
1. a substantial alteration in your status and office as compared to
immediately prior to the change in control of the Company, including, but not
limited to, (i) the failure of the Company to continue to be a public company
which is required to file periodic reports with the Securities and Exchange
Commission under the Exchange Act and which has at least 1,000 equity security
holders of record calculated as set forth in Rule 12g5-1 under the Exchange Act
(a "Public Company"), (ii) the assignment to you of any duties inconsistent with
your status immediately prior to the change in control of the Company, (iii) a
substantial alteration in the nature or status of your responsibilities from
those in effect immediately prior to a change in control of the Company, whether
or not resulting from the fact that the Company is no longer a Public Company,
or (iv) a substantial change in your reporting responsibility as compared to
that immediately prior to the change in control of the Company;
2. a reduction by the Company in your annual base salary as in effect
immediately prior to the change in control of the Company or as the same may be
increased thereafter from time to time, except for across-the-board salary
reductions similarly affecting all executives of the Company and all executives
of any person in control of the Company;
3. the relocation of the Company's principal executive offices to a
location more than 40 miles from their location immediately prior to the change
in control of the Company, or the Company's requiring you to be based anywhere
other than the Company's principal executive offices, or to travel on behalf of
the Company to carry out its business, except to an extent substantially
consistent with your business travel obligations during the 12-month period
prior to the change in control of the Company (or, if you were not employed by
the Company for such 12-month period, then for such shorter period as you were
employed by the Company);
4. the failure by the Company to continue in effect any compensation plan
or program in which you were participating at the time of a change in control of
the Company, including, but not limited to, the Company's Annual Incentive
Compensation Plan (the "Annual Bonus Plan"), 1975 Executive Incentive Stock
Purchase Plan, 1995 Long-Term Growth Incentive Plan (individual and collectively
the "Incentive Stock Purchase Plan") or any substitute or additional plans or
programs adopted prior to the change in control, unless an equitable arrangement
(embodied in an ongoing substitute or alternative plan or program) has been made
with respect to each such plan or program in connection with the change in
control of the Company, or the failure by the Company to continue your
participation therein;
5. the failure by the Company to continue to provide you with benefits in
the aggregate substantially equivalent to those enjoyed by you under any of the
Company's pension, employee stock purchase, life insurance, medical, health and
accident, or disability plans or executive automobile program in which you were
participating at the time of the change in control of the Company, the taking of
any action by the Company which would directly or indirectly materially reduce
any of such benefits or deprive you of any material fringe benefit enjoyed by
you at the time of a change in control of the Company, or the failure by the
Company to provide you with the number of paid vacation days to which you are
entitled
4
<PAGE>
on the basis of years of service with the Company in accordance with the
Company's normal vacation policy in effect at the time of the change in control;
6. the failure of the Company to obtain a satisfactory agreement from
any successor to assume and agree to perform this Agreement, as contemplated in
Section V hereof; or
7. any purported termination of your employment which is not effected
pursuant to a Notice of Termination satisfying the requirements of Subsection E
below (and, if applicable, Subsection C above); and for purposes of this
Agreement, no such purported termination shall be effective. Your right to
terminate your employment pursuant to this Subsection shall not be affected by
your incapacity due to physical or mental illness or by any delay in asserting a
right pursuant to this Subsection D.
For purposes of this Agreement, any good faith determination of Good
Reason made by you shall be conclusive.
E. Notice of Termination. Any purported termination by the Company or by
---------------------
you of your employment shall be communicated by written Notice of Termination to
the other party hereto in accordance with Section VI hereof. For the purposes of
this Agreement, a "Notice of Termination" shall mean a notice which shall
indicate the specific termination provision in this Agreement relied upon and
shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of your employment under the provision so
indicated.
F. Date of Termination. "Date of Termination" shall mean (i) if your
--------------------
employment is terminated for Disability, thirty days after Notice of Termination
is given (provided that you shall not have returned to the performance of your
duties on a full-time basis during such thirty-day period), and (ii) if your
employment is terminated pursuant to Subsection C or D above or for any other
reason, the date specified in the Notice of Termination (which, in the case of a
termination pursuant to Subsection C above, shall not be less than thirty days,
and in the case of a termination pursuant to Subsection D above shall not be
more than sixty days, respectively, from the date such Notice of Termination is
given); provided that if within thirty days after any Notice of Termination is
given the party receiving such Notice of Termination notifies the other party
that a dispute exists concerning the termination, the Date of Termination shall
be the date on which the dispute is finally determined, either by mutual written
agreement of the parties, by a binding arbitration award or by a final judgment,
order or decree of a court of competent jurisdiction (the time for appeal
therefrom having expired and no appeal having been perfected); and, provided
further, that the Date of Termination shall be extended by a notice of dispute
only if such notice is given in good faith and the party giving such notice
pursues the resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such dispute, the Company will continue to
pay you your full compensation in effect when the notice giving rise to the
dispute was given (including, but not limited to, base salary) and continue you
as a participant in all compensation, benefit and insurance plans or programs in
which you were participating when the notice giving rise to the dispute was
given, until the dispute is finally resolved in accordance with this Subsection.
Amounts paid under this Subsection are in addition to all other amounts due
under this Agreement and, except as provided in Subsection IV(C)(6) and
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<PAGE>
Subsection IV(E) below, shall not be offset against or reduce any other amounts
due under this Agreement.
IV. Compensation Upon Termination or During Disability.
--------------------------------------------------
A. During any period after a change in control occurs that you fail to
perform your duties hereunder as a result of incapacity due to physical or
mental illness, you shall continue to receive your full base salary at the rate
then in effect and all compensation, including under the Annual Bonus Plan or
Incentive Stock Plan or any other bonus or incentive compensation plan or
program otherwise payable during the period until this Agreement is terminated
pursuant to Subsection III(A) hereof. Thereafter, your benefits shall be
determined in accordance with the Company's insurance programs then in effect
and the Company's retirement income plan (the "Retirement Plan") and any other
retirement arrangement with respect to you established with your consent.
B. If your employment shall be terminated for Cause, the Company shall pay
you your full base salary through the Date of Termination at the rate in effect
at the time Notice of Termination is given, and the Company shall have no
further obligations to you under this Agreement.
C. If your employment by the Company shall be terminated (i) by the
Company other than for Cause or Disability or (ii) by you for Good Reason, then
you shall be entitled to the benefits provided for in Subsections 1 through 6
which follow.
1. The Company shall pay you your full base salary through the Date of
Termination at the greater of (x) the rate in effect on the Date of Termination
or (y) the rate in effect immediately prior to the occurrence of the
circumstances giving rise to the Notice of Termination given in respect thereof.
2. In lieu of any further salary payments to you for periods
subsequent to the Date of Termination, the Company shall pay as severance pay to
you, not later than the fifth day following the Date of Termination, a lump sum
severance payment in cash (together with the payments provided in paragraphs 3
and 4 below, the "Severance Payments") equal to your Three Year Discounted
Compensation (as defined below). For the purposes of this Agreement, "Three Year
Discounted Compensation" means the present value, using a discount rate of 10%
and assuming the amounts described in clauses b. and c. below are paid at the
end of the year, of the sum of:
a. your annual base salary for the three full years after the
Date of Termination, assuming an 8% increase in annual base salary every twelve
months. For purposes of this paragraph 2a., annual base salary means the highest
of your annual base salary in effect (x) immediately prior to the change in
control of the Company, (y) on the Date of Termination, or (z) immediately prior
to the occurrence of the circumstance giving rise to the Notice of Termination
given in respect thereof; plus
b. your annual bonus under the Annual Bonus Plan (as in effect
immediately prior to the change in control of the Company) for the three full
years after the Date of Termination, assuming achievement by the Company
(including any divisions applicable to you) of target financial goals in the
first such year, 105% of target(s) in the second such year and 110% of target(s)
in the third such year; plus
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<PAGE>
c. three full years of "Dividend Equivalents" (as defined in the
1975 Executive Incentive Stock Purchase Plan) on the vested and unvested Rights
held by you immediately prior to the change in control, assuming that the
dividend for the first such year is the same as the dividends paid on the
Company's common stock for the last full year prior to the change in control,
that the dividend for the second such year is 108% of such amount, and the
dividend for the third such year is 116% of such amount.
3. Notwithstanding any provision to the contrary in the Annual Bonus
Plan, Incentive Stock Purchase Plan or any other incentive compensation plan or
program in which you were a participant immediately prior to the occurrence of
circumstances giving rise to the Notice of Termination, the Company shall pay to
you, not later than the fifth day following the Date of Termination or, if
later, the date of computation of an accrued benefit, a lump sum amount equal to
the sum of (i) any incentive compensation which has been accrued but has not yet
been paid for the fiscal year preceding that in which, and/or for the fiscal
year during which, the Date of Termination occurs and (ii) any incentive
compensation which has not yet been paid for any period which has closed prior
to the Date of Termination.
4. Notwithstanding any provision of the Incentive Stock Purchase
Plan, restrictions on the purchase, sale or disposition and obligations to offer
to resell to the Company to which company shares issued to you upon exercise of
rights granted under either plan are subject shall be removed immediately prior
to the change in control and all such company shares shall be declared to be
free and clear of any and all restrictions under the 1975 Executive Incentive
Stock Purchase Plan and/or the 1995 Long-Term Growth Incentive Plan.
5. a. Anything in this Agreement to the contrary notwithstanding, in
the event it shall be determined that any payment or distribution by the Company
to or for your benefit (whether paid or payable or distributed or distributable
pursuant to the terms of this Agreement or otherwise, but determined without
regard to any additional payments required under this Section IV.C.5.) (a
"Payment") would be subject to the excise tax imposed by Section 4999 of the
Code or any interest or penalties are incurred by you with respect to such
excise tax (such excise tax, together with any such interest and penalties, are
hereinafter collectively referred to as the "Excise Tax"), then you shall be
entitled to receive an additional payment (a "Gross-Up Payment") in an amount
such that after payment by you of all taxes (including any interest or penalties
imposed with respect to such taxes), including, without limitation, any income
taxes (and any interest and penalties imposed with respect thereto) and Excise
Tax imposed upon the Gross-Up Payment, you retain an amount of the Gross-Up
Payment equal to the Excise Tax imposed upon the Payments.
b. Subject to the provisions of clause (c) below, all
determinations required to be made under this Section IV.C.5., including whether
and when a Gross-Up Payment is required and the amount of such Gross-Up Payment
and the assumptions to be utilized in arriving at such determination, shall be
made by Coopers & Lybrand or such other nationally recognized certified public
accounting firm as may be designated by you (the "Accounting Firm") which shall
provide detailed supporting calculations both to the Company and you within 15
business days of the receipt of notice from you that there has been a Payment,
or such earlier time as is requested by the Company. In the event that the
Accounting Firm
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<PAGE>
is serving as accountant or auditor for the individual, entity or group
effecting the change in control of the Company, you shall appoint another
nationally recognized accounting firm to make the determinations required
hereunder (which accounting firm shall then be referred to as the Accounting
Firm hereunder). All fees and expenses of the Accounting Firm shall be borne
solely by the Company. Any Gross-Up Payment, as determined pursuant to this
Section IV.C.5., shall be paid by the Company to you within five days of the
receipt of the Accounting Firm's determination. If the Accounting Firm
determines that no Excise Tax is payable by you, it shall furnish you with a
written opinion acceptable to you stating that failure to report the Excise Tax
on your applicable federal income tax return would not result in the imposition
of a negligence or similar penalty. Any determination by the Accounting Firm
shall be binding upon the Company and you. As a result of the uncertainty in the
application of Section 4999 of the Code at the time of the initial determination
by the Accounting Firm hereunder, it is possible that Gross-Up Payments which
will not have been made by the Company should have been made ("Underpayment"),
consistent with the calculations required to be made hereunder. In the event
that the Company exhausts its remedies pursuant to clause (c) below and you
thereafter are required to make a payment of any Excise Tax, the Accounting Firm
shall determine the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company to you or for your benefit.
c. You shall notify the Company in writing of any claim by the
Internal Revenue Service that, if successful, would require the payment by the
Company of the Gross-Up Payment. Such notification shall be given as soon as
practicable but no later than ten business days after you are informed in
writing of such claim and shall apprise the Company of the nature of such claim
and the date on which such claim is requested to be paid. You shall not pay such
claim prior to the expiration of the 30-day period following the date on which
the Internal Revenue Service gives such notice to the Company (or such shorter
period ending on the date that any payment of taxes with respect to such claim
is due). If the Company notifies you in writing prior to the expiration of such
period that it desires to contest such claim, you shall:
(i) give the Company any information reasonably requested by the
Company relating to such claim;
(ii) take such action in connection with contesting such claim as the
Company shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation
with respect to such claim by an attorney reasonably selected by
the Company;
(iii) cooperate with the Company in good faith in order to effectively
contest such claims; and
(iv) permit the Company to participate in any proceedings relating to
such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold harmless, on an after-tax basis,
for any Excise Tax or income tax (including interest and penalties and legal
expenses with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation
8
<PAGE>
on the foregoing provisions of this clause (c), the Company shall control all
proceedings taken in connection with such contest and, at its sole option, may
pursue or forego any and all administrative appeals, proceedings, hearings and
conferences with taxing authority in respect of such claim and may, at its sole
option, either direct you to pay the tax claimed and sue for a refund or contest
the claim in any permissible manner, and you agree to prosecute such contest to
a determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs you to pay such claim
and sue for a refund, the Company shall advance the amount of such payment to
you, on an interest-free basis and shall indemnify and hold you harmless, on an
after-tax basis, from any Excise Tax or income tax (including interest or
penalties with respect thereto) imposed with respect to such advance or with
respect to any imputed income with respect to such advance; and further provided
that any extension of the statute of limitations relating to payment of taxes
for your taxable year with respect to which such contested amount is claimed to
be due is limited solely to such contested amount. Furthermore, the Company's
control of the contest shall be limited to issues with respect to which a Gross-
Up Payment would be payable hereunder and you shall be entitled to settle or
contest, as the case may be, any other issue raised by the Internal Revenue
Service or any other taxing authority.
d. If, after the receipt by you of an amount advance by the
Company pursuant to clause (c), you become entitled to receive any refund with
respect to such claim, you shall (subject to the Company's complying with the
requirements of clause (c)) promptly pay to the Company the amount of such
refund (together with any interest paid or credited thereon after taxes
applicable thereto). If, after the receipt by you of an amount advanced by the
Company pursuant to clause (c), a determination is made that you shall not be
entitled to any refund with respect to such claim and the Company does not
notify you in writing of its intent to contest such denial of refund prior to
the expiration of 30 days after such determination, then such advance shall be
forgiven and shall not be required to be repaid and the amount of such advance
shall offset, to the extent thereof, the amount of Gross-Up Payment required to
be paid.
D. The Company shall also pay to you all legal fees and expenses incurred
by you as a result of the termination of your employment (including all such
fees and expenses, if any, incurred in contesting or disputing any such
termination or in seeking to obtain or enforce any right or benefit provided by
this Agreement).
E. If your employment is terminated (i) by the Company other than for
Cause or Disability or (ii) by you for Good Reason, then for a thirty-six-month
period after such termination, the Company shall arrange to provide you with
life, disability, accident and health insurance benefits substantially similar
to those which you are receiving immediately prior to the change in control.
Benefits otherwise receivable by you pursuant to this Subsection IV(E) shall be
reduced to the extent comparable benefits are actually received by you during
the thirty-six-month period following your termination, and any such benefits
actually received by you shall be reported to the Company.
F. If your employment is terminated (i) by the Company other than for
Cause or Disability or (ii) by you for Good Reason, then in addition to the
retirement benefits to which you are entitled under the Retirement Plan
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<PAGE>
or any successor plans thereto, the Company shall pay you in one sum in cash on
or before the fifth day following the Date of Termination, a lump sum equal to
the actuarial equivalent of the excess of (x) the retirement pension (determined
as a straight life annuity commencing at age sixty-five) which you would have
accrued under the terms of the Retirement Plan (without regard to any amendment
to the Retirement Plan made subsequent to a change in control of the Company and
on or prior to the Date of Termination, which amendment adversely affects in any
manner the computation of retirement benefits thereunder), determined as if you
had accumulated (after the Date of Termination) thirty-six additional months of
service credit thereunder at your highest annual rate of compensation during the
twelve months immediately preceding the Date of Termination over (y) the
retirement pension (determined as a straight life annuity commencing at age
sixty-five) which you had then accrued pursuant to the provisions of the
Retirement Plan. Notwithstanding the previous sentence, if as a result of the
minimum vesting requirement under the Retirement Plan, with such additional
thirty-six months of service you would not have accumulated sufficient service
credit to attain the minimum vested benefit payable under the Retirement Plan,
such lump sum shall be equal to (u) the actuarial equivalent of the minimum
vested benefit payable under the Retirement Plan (determined as a straight life
annuity commencing at age sixty-five) multiplied by (v) the total number of
months of service credit you would have accumulated determined as if you had
accumulated (after the Date of Termination) thirty-six additional months of
service credit thereunder at your highest annual rate of compensation during the
twelve months immediately preceding the Date of Termination divided by (w) the
number of months of service credit necessary to qualify you for the minimum
vested benefit payable under the Retirement Plan. For purposes of clauses (x)
and (v), the term "compensation" shall include amounts payable pursuant to
Subsection IV(C)(2) hereof, and amounts payable pursuant to Subsection IV(C)(2)
hereof shall be deemed to represent thirty-six months of compensation for
purposes of determining benefits under the Retirement Plan. For purposes of this
Subsection IV(E), "actuarial equivalent" shall be determined using the same
methods and assumptions utilized under the Retirement Plan immediately prior to
the change in control of the Company.
G. You shall not be required to mitigate the amount of any payment
provided for in this Section IV by seeking other employment or otherwise, nor
shall the amount of any payment or benefit provided for in this Section IV be
reduced by any compensation earned by you as the result of employment by another
employer or by retirement benefits after the Date of Termination, or otherwise,
except as provided in Subsection IV(C)(6) and Subsection IV(E) above.
H. In addition to all other amounts payable to you under this Section IV,
you shall be entitled to receive all benefits payable to you under the
Retirement Plan, and any other plan or agreement relating to retirement
benefits.
I. If the Company shall fail to pay to you, in accordance with the terms
hereof, any amount payable to you hereunder to which an arbitrator or a court of
competent jurisdiction as provided herein determines you are entitled, then the
Total Payments as defined in Subsection IV(C)(6) shall be calculated without
including either
1. any payments pursuant to Subsection IV(D) or
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2. the excess of any award of compensatory or other damages over the
amount otherwise payable in accordance with the terms hereof and
any interest payable thereon, as determined by any arbitrator or
court of competent jurisdiction,
and in such event, if any payment to you or for your benefit (whether payable
pursuant to the terms of this Agreement or otherwise) is subject to the excise
tax imposed under section 4999 of the Code, the Company shall pay to you an
additional amount such that the aggregate amount retained by you after payment
of such excise tax, plus any excise tax or federal or state income tax imposed
on such additional amount, shall equal the aggregate amount which you would have
retained had such excise tax not been imposed.
V. Successors; Binding Agreement.
-----------------------------
A. The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business or assets of the Company expressly to assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform it if no such succession had taken place. Failure of the
Company to obtain such assumption and agreement prior to the effectiveness of
any such succession shall be a breach of this Agreement and shall entitle you to
compensation from the Company in the same amount and on the same terms as you
would be entitled hereunder if you terminate your employment for Good Reason,
except that for purposes of implementing the foregoing, the date on which any
such succession becomes effective shall be deemed the Date of Termination. As
used in this Agreement, "Company" shall mean the Company as defined above and
any successor to its business or assets as aforesaid which assumes and agrees to
perform this Agreement by operation of law, or otherwise.
B. This Agreement shall inure to the benefit of and be enforceable by your
personal or legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. If you should die while any amount would
still be payable to you hereunder if you had continued to live, all such
amounts, unless otherwise provided herein, shall be paid in accordance with the
terms of this Agreement to your devisee, legatee or other designee, or if there
is no such designee, to your estate.
VI. Notice.
------
For the purposes of this Agreement, notices and all other communications
provided for in the Agreement shall be in writing and shall be deemed to have
been duly given when delivered or mailed by United States registered or
certified mail, return receipt requested, postage prepaid, addressed to the
respective addresses set forth on the first page of this Agreement; provided
that all notices to the Company shall be directed to the attention of the Board
with a copy to the Secretary of the Company, or to such other address as either
party may have furnished to the other in writing in accordance herewith, except
that notice of change of address shall be effective only upon receipt.
VII. Miscellaneous.
-------------
No provision of this Agreement may be modified, waived or discharged unless
such waiver, modification or discharge is agreed to in writing and
11
<PAGE>
signed by you and such officer as may be specifically designated by the Board.
No waiver by either party hereto at any time of any breach by the other party
hereto of, or compliance with, any condition or provision of this Agreement to
be performed by such other party shall be deemed a waiver of similar or
dissimilar provisions or conditions at the same or at any prior or subsequent
time. No agreements or representations, oral or otherwise, express or implied,
with respect to the subject matter hereof have been made by either party which
are not expressly set forth in this Agreement. 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.
VIII. Validity.
--------
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.
IX. Counterparts.
------------
This Agreement may be executed in several counterparts, each of which shall
be deemed to be an original but all of which together will constitute one and
the same instrument.
X. Arbitration.
-----------
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration in Boston, Massachusetts
in accordance with the rules of the American Arbitration Association then in
effect. Judgment may be entered on the arbitrator's award in any court having
jurisdiction; provided, however, that you shall be entitled to seek specific
performance of your right to be paid until the Date of Termination during the
pendency of any dispute or controversy arising under or in connection with this
Agreement.
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If this letter correctly sets forth our agreement on the subject matter
hereof, kindly sign and return to the Company the enclosed copy of this letter,
which will then constitute our agreement under seal on this subject.
Very truly yours,
THE STRIDE RITE CORPORATION
By:
---------------------------
Robert C. Siegel
Chairman, President & CEO
Agreed to this ____ day of
_______________________, 19____:
_______________________________
13
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THE STRIDE RITE CORPORATION
FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 2, 1994
Addendum 10(viii)
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, Jr. October 5, 1992
Margaret C. Whitman* October 5, 1992
Dennis Garro March 21, 1994
John P. McMahon, Jr. March 21, 1994
Gerrald B. Silverman March 21, 1994
Stephen R. DuMont October 1, 1994
C. Madison Riley III February 10, 1995
*Ms. Whitman's agreement terminated upon her resignation as President, Stride
Rite Children's Group, Inc., effective February 17, 1995.
14
<PAGE>
THE STRIDE RITE CORPORATION
FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 2, 1994
Addendum 10(ix)
James F. Montiegel August 2, 1989*
* As amended on January 29, 1990
<PAGE>
EXHIBIT 10(xii)
February 22, 1995
Name
Stride Rite Corporation
5 Cambridge Center
Cambridge, MA 02142
Dear __________:
The Stride Rite Corporation (the "Company") agrees that in the event that your
employment is terminated by the Company for any reason except for cause, or as a
result of your death or disability, then the Company will continue to pay to
you, as a severance allowance, a monthly amount equal to your monthly base
salary, as in effect immediately prior to the termination of your employment,
for the period from the date of the termination of your employment through the
earlier of (i) your death or (ii) the thirteen-month anniversary of the date
your employment was terminated; provided, that in the event you obtain other
employment or engage in self-employment, the amount payable to you by the
Company as a severance allowance shall be reduced (but not below zero) by the
amount of all compensation earned by you from such other employment or self-
employment (regardless of whether such compensation is received currently or
deferred until a later date). In addition to, and while you are entitled to
receive, the severance allowance provided for above, the Company will provide
continued coverage to you under its medical, dental, life and disability plans
and policies on the same basis and at the same cost to you as was in effect
immediately prior to the termination of your employment. Because the purpose of
this severance allowance is to help bridge you financially to your next
employment, you will be required to exert reasonable efforts to find new
employment; the Company reserves the right to discontinue payments to you if
such efforts are not made. Further, payment of any severance pursuant to this
paragraph shall be conditioned upon your prior execution of the Company's form
of release which includes, among other things, the waiver of any and all claims
which you or any persons claiming under or through you may have against the
Company.
The determination whether a termination of your employment by the Company is
for cause shall be made by the Company in good faith. If your employment is
terminated for cause, the Company shall have no obligation to pay any severance
to you or to provide any continued coverage under insurance or other benefit
plans except as may be required by law.
In the event that your employment is terminated as a result of a change of
control of the Company, your severance benefits shall be governed solely by the
terms of the executive termination agreement between you and the Company dated
February 17, 1995 and this agreement shall be of no effect.
1
<PAGE>
Please indicate your acceptance of this agreement by signing and returning the
enclosed copy of this letter. Please feel free to call me if you have any
questions regarding this letter.
Sincerely,
Karen Crider
General Counsel
Agreed to this _______day
of February, 1995.
- ------------------------------
Name
cc: Robert Siegel
2
<PAGE>
THE STRIDE RITE CORPORATION
FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 2, 1994
Addendum 10(xii)
Robert C. Siegel
Jonathan D. Caplan
Karen K. Crider
Stephen R. DuMont
Dennis Garro
John M. Kelliher
John P. McMahon, Jr.
Robert B. Moore, Jr.
C. Madison Riley III
Gerrald B. Silverman
3
<PAGE>
EXHIBIT 11
THE STRIDE RITE CORPORATION
CALCULATION OF NET INCOME PER SHARE
FOR THE FIVE FISCAL YEARS ENDED DECEMBER 2, 1994
<TABLE>
<CAPTION>
Nov. 30, Nov. 29, Nov. 27, Dec. 3, Dec. 2,
1990 1991 1992 1993 1994
-------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Calculation of
shares:
Weighted average
number of common
shares
outstanding 52,172,580 51,086,310 51,259,960 50,619,238 49,811,244
Common shares
attributable to
assumed exercise
of dilutive stock
options and stock
purchase rights
using the treasury
stock method 491,326 570,562 295,717 192,251 92,964
----------- ----------- ----------- ----------- ----------
Average common
shares and common
equivalent shares
outstanding 52,663,906 51,656,872 51,555,677 50,811,489 49,904,208
=========== =========== =========== =========== ==========
Net income
available for
common stock $55,541,000 $65,960,000 $61,506,000* $58,291,000**$19,798,000
=========== =========== =========== =========== ===========
Primary and
fully diluted
net income
per share $1.05 $1.28 $1.19* $1.15** $.40
===== ===== ===== ===== ====
</TABLE>
* 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).
** Net income and net income per common share in 1993 included 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>
(in thousands,
except for per share information) 1994 1993
- ---------------------------------------------------------------
<S> <C> <C>
Net sales $523,877 $582,868
Net income 19,798 58,291*
Net income per common share .40 1.15*
Dividends per common share .38 .35
Working capital 236,628 243,249
Total assets 396,620 412,449
Long-term debt 1,667 2,500
Stockholders' equity 292,506 302,473
Book value per common share outstanding 5.91 6.02
Return on average equity 6.6% 20.2%
Common shares outstanding at end of year 49,518 50,280
</TABLE>
* Amount in 1993 includes a charge of $2,034,000 ($.04 per share)
representing the cumulative effect of an accounting change related to
income taxes.
1
<PAGE>
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
1990 1991 1992 1993 1994
- --------------------------------------------------------------------------------
OPERATING RESULTS/1/
<S> <C> <C> <C> <C> <C>
Net sales 15,842 $574,379 $585,926 $582,868 $523,877
Income before cumu-
lative effect of
change in accounting
principle/2,3/ 55,541 65,960 61,506 60,325 19,798
Net income/3/ 55,541 65,960 61,506 58,291 19,798
Common stock
dividends 10,382 13,050 15,872 17,686 18,898
Per common share:
Income before cumu-
lative effect of
change in accounting
principle/2,3/ 1.05 1.28 1.19 1.19 .40
Net income/3/ 1.05 1.28 1.19 1.15 .40
Cash dividends .20 .255 .31 .35 .38
FINANCIAL POSITION/1/
Working capital 62,949 217,665 241,310 243,249 236,628
Total assets 66,023 332,090 383,524 412,449 396,620
Long-term debt 5,000 4,167 3,333 2,500 1,667
Stockholders'
equity 81,359 240,427 271,535 302,473 292,506
Book value per
common share 3.57 4.67 5.33 6.02 5.91
STATISTICS/1/
Return on average
equity 31.6% 31.3% 23.6% 20.2% 6.6%
Return on sales 10.8% 11.5% 10.5% 10.0% 3.8%
Common shares
outstanding at
end of year 50,857 51,481 50,908 50,280 49,518
Number of employees 3,700 3,600 3,100 3,600 3,700
Number of share-
holders 3,000 2,900 4,100 4,800 5,100
</TABLE>
1. Financial data is in thousands, except for per share information.
2. Amount in 1993 is before a charge of $2,034,000 ($.04 per
share)representing the cumulative effect of an accounting change related
to income taxes.
3. 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.
2
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
OVERVIEW - 1990 to 1994
The Company's performance over the last five years is summarized in the
preceding table, entitled "Selected Financial Data". In the early part of
this five-year period, the Company continued its impressive record as sales
and earnings grew to new highs in 1990 and 1991. The profitability ratios
achieved in those years placed the Company among the leaders in its industry
group. Much of this growth was fueled by the success of the Keds brand with
the basic Champion(R) Oxford style becoming a fashion necessity for women of
all ages. Fiscal 1992 and 1993 saw a slowdown in performance as the sales of
Keds leveled off and new fashions became prominent in women's casual footwear.
Entering fiscal 1994, the Company's order trends, helped by new products
at Keds and Sperry Top-Sider, had begun to show progress. The Keds division
also expected to begin realizing the benefits of the Company's new, automated
distribution center in Louisville, Kentucky as it transitioned to the new
facility for the Spring 1994 season. However, start-up difficulties,
primarily related to computer software, at the new distribution center
severely impacted the Company's results in 1994. The new facility, which was
designed to offer improved service and reduced delivery times, became a major
disruption for Keds. As a result, the move of the Sperry Top-Sider and Stride
Rite businesses to the new facility, originally scheduled to be completed
during the second half of fiscal 1994, was delayed until the problems could be
corrected. The late deliveries of Keds' Spring products led to high levels of
order cancellations and lower bookings for the 1994 Fall season.
Significant progress was made in the second half of 1994 and the facility
will be in a position to provide the service level expected by Keds customers
during the Spring 1995 season. However, year-end order backlog supporting
Spring 1995 business was below last year's level by 9% as lower Keds orders
more than offset double digit order gains in the Stride Rite, Sperry Top-Sider
and International businesses. While current conditions at retail, especially
in the women's apparel segment, and fashion trends away from Keds basic look
will continue to represent challenges in fiscal 1995, improved execution at
Keds should avoid the high order cancellations experienced during 1994. The
current plan calls for further systems enhancements and other adjustments to
the facility during the first half of 1995 to allow for the complete
consolidation of the Company's distribution function into the new facility by
the end of fiscal 1995.
3
<PAGE>
OPERATING RESULTS
1992 TO 1994
The table below and the paragraphs which follow summarize the Company's
performance in the last three fiscal years:
<TABLE>
<CAPTION>
Percent Change
----------------------------------
1994 vs. 1993 1993 vs. 1992
<S> <C> <C>
Increase (decrease)
-------------------------------------------------------------------------
Net sales (10.1%) (0.5%)
Gross profit (18.9%) (4.5%)
Selling and administrative expenses 15.8% 3.0%
Operating income (65.9%) (4.6%)
Income before income taxes and
change in accounting principle (66.8%) (2.3%)
Income before change in
accounting principle (67.2%) (1.9%)
Net income (66.0%) (5.2%)
<CAPTION>
Percent to Net Sales
----------------------------------
1994 1993 1992
-------------------------------------------------------------------------
<S> <C> <C> <C>
Gross profit 37.6% 41.7% 43.5%
Selling and administrative expenses 31.6% 24.5% 23.7%
Operating income 6.1% 16.0% 16.7%
Income before income taxes and
change in accounting principle 6.2% 16.8% 17.1%
Income before change in
accounting principle 3.8% 10.3% 10.5%
Net income 3.8% 10.0% 10.5%
</TABLE>
NET SALES
Net sales decreased $59 million or 10.1% in fiscal 1994 from the sales
level achieved in fiscal 1993. Unit shipments of current line merchandise were
below last year by 13.7%. Changes in product mix in the Keds division and
higher retail sales offset a portion of the decrease in shipments. Excluding
the impact of product mix changes, consolidated net sales were also reduced by
approximately $10 million due to selling price deflation.
Sales for the Keds division, the Company's largest business, in fiscal
1994 were 17% below last year's revenue total. While changes in women's
fashion trends away from Keds basic look continued to negatively impact
results, the most significant factor affecting sales during the year was the
start-up difficulties at the Company's new distribution center. The Keds
division, which began fiscal 1994 with a 15% increase in Spring order backlog,
experienced abnormally high order cancellations, more than double the 1993
total, because of shipping delays during the first half of 1994. Keds' reorder
response capabilities were also limited in the Spring season as the start-up
problems made it difficult to process smaller orders. Decreases in sales were
experienced in both the Keds children's and women's product lines as 1994
revenues were below 1993 by 16% and 19%, respectively. Women's category sales
levels were hurt by the continuing decline of the basic Keds Champion(R)
silhouette as sales of this style in 1994 were below last year by 22%. The
impact of higher average selling prices, primarily caused by changes in
product mix, and revenue increases associated with the efforts to broaden the
women's product offering were not sufficient to offset the weakness in demand
for Keds basic styles and
4
<PAGE>
the service disruption caused by the distribution center start-up
difficulties.
Net sales of the Stride Rite Children's Group increased 1% in fiscal 1994
as higher sales from the retail portion of the Group offset a 4% decrease in
sales to independently owned specialty stores, department stores and family
shoe stores. Retail sales increased 10% in 1994 after adjusting last year's
revenue total for the fact that fiscal 1993 included 53 weeks. Comparable
store sales (stores open for a full year in each fiscal year) were up 5% in
1994, accounting for approximately 45% of the retail sales gain over 1993.
The balance of the adjusted sales gain was related to store openings as the
Children's Group operated an average of 195 stores in fiscal 1994 compared to
176 stores in 1993. At year-end, the store count was 239 stores, up from 187
stores at the end of fiscal 1993 with 48 of the new locations representing
leased operations, which were opened in Lazarus department stores during
October 1994.
The Company's other retail operations, consisting of manufacturers'
outlets and the initial test stores of the Keds and Great Feet(TM) retail
concepts, contributed $3.3 million to consolidated net sales. These new
retail concepts totaled 13 stores at the end of fiscal 1994, with 10 of the
stores opened during the year.
The Sperry Top-Sider division's sales increased 12% in fiscal 1994 as a
27% increase in the sales of current line merchandise offset sharply lower
sales of discontinued styles. Sales of Sperry's leather product line were 22%
higher in 1994 as increased demand for Authentic Original(TM) boat shoes and
the introduction of the washable leather Bal Harbour(TM) deck shoe produced
the revenue gain. Sales of canvas footwear also increased in fiscal 1994,
posting a 60% improvement over the 1993 sales level.
Sales of the Company's International division decreased $5.6 million or
21% from the sales level achieved in 1993. Reduced sales of Keds products to
independent distributors in Europe and Japan was the primary cause of the
decrease. The Company's French subsidiary, formed in 1993, contributed $2.2
million to international revenues, while sales of its Canadian operations were
down 15% in 1994, due to lower Keds sales and the weakening of the Canadian
dollar. During fiscal 1994, the Company evaluated its existing international
strategies and, in 1995, will begin to implement changes to build greater
brand awareness and to balance short-term growth with long-term success.
Consolidated net sales decreased slightly in fiscal 1993, down $3 million
from 1992. A 1.2% increase in the unit shipments of current line merchandise
and higher retail sales were more than offset by selling price deflation of
approximately $4 million and a change in product mix at Keds which resulted in
lower average selling prices. Keds division revenues were down 3% in 1993 as
a 9% reduction in sales of Keds Champion(R) style and the shift in product mix
offset a 6% sales gain in new women's products. Sales of the Stride Rite
Children's Group increased 6% in fiscal 1993 with the wholesale and retail
portions of Children's Group both contributing to the increase. Retail sales
were up 8% from 1992 with 40% of the increased volume due to sales gains at
comparable stores. Revenues from new stores and the extra week in the fiscal
1993 calendar accounted for the balance of the increase. Sperry Top-Sider
division sales were off 11% in 1993 due to a 15% decrease in the sales of
discontinued styles and weak sales of canvas products. Higher sales of Keds
products helped the International division post a revenue increase of $3.8
million in 1993, 17% above the 1992 total.
5
<PAGE>
GROSS PROFIT
Gross profit in 1994 was $197.2 million, a decrease of $46.1 million or
18.9% from 1993, compared to the sales decrease of 10.1%. In fiscal 1994, the
Company's consolidated gross profit rate of 37.6% finished 4.1 percentage
points below the 41.7% rate achieved in fiscal 1993. LIFO adjustments had a
favorable impact in both years, increasing gross profit by $1.5 million (0.3%
of net sales) in 1994 and by $0.2 million in 1993. The continuing shift of
product sourcing to lower cost countries in the Far East and the closing of
the Company's manufacturing facility in Puerto Rico resulted in lower product
costs during 1994. The distribution center start-up difficulties, which were
described above, contributed to increased obsolescence charges during fiscal
1994 as the cancellation of customer orders resulted in excess inventories of
Keds seasonal products. This high level of inventory markdowns reduced the
consolidated gross profit percent by 4.3% in 1994, more than double the
obsolescence impact of 1.9% experienced in fiscal 1993. The changing sales
mix in the Keds division also negatively impacted gross profit in 1994, as
margins on new women's styles were generally lower than those of the basic
Champion(R) canvas style. Increases in warehousing and procurement staffing
costs during 1994 and, the fact that these expenses, which have significant
fixed components, were absorbed over a lower sales level, also contributed to
the reduced gross profit percent in 1994. Gross profit performance was helped
by the increased significance of retail sales, the division of the Company
with the highest gross profit percentage, as retail sales accounted for 14.4%
of consolidated sales in 1994 compared to 11.6% in 1993.
In fiscal 1993, the Company's gross profit rate decreased by 1.8
percentage points from the 43.5% rate achieved in fiscal 1992. LIFO benefits
of $0.2 million were lower in 1993 than the LIFO income of $4.6 million (0.8%
of net sales) recorded in 1992. As in fiscal 1994, the product mix shift from
basic styles to other items in the Keds women's business also had a negative
impact on the 1993 gross profit rate. The increased significance of the
Children's Group's retail sales (11.6% of consolidated sales in 1993 compared
to 10.7% in 1992), and increased production levels at the Stride Rite domestic
manufacturing facilities in 1993, favorably impacted gross profit performance.
OPERATING COSTS
Selling and administrative expenses in fiscal 1994 increased $22.6
million or 15.8%. Selling and administrative costs as a percent to net sales
increased by 7.1 percentage points, 31.6% in 1994 compared to 24.5% in 1993.
Advertising and sales promotion expenses in fiscal 1994 were slightly higher,
increasing by $0.3 million from 1993. As a percentage of net sales, these
expenses were 6.3% in 1994 compared to 5.6% in 1993. In 1994, selling and
administrative expenses included $6.8 million of additional costs related to
the relocation and start-up of the Company's distribution center. Despite the
lower sales volume in 1994, spending totals also included $3.1 million in
higher distribution center operating costs due to inefficiencies in the new
Kentucky facility, the computer software problems discussed above and the
delay in closing the Company's distribution facility in Boston. Total
distribution costs, including the start-up expense adjustments, represented
3.5% of net sales in 1994 compared to 1.5% in 1993. Retail store expenses in
1994 increased $4.2 million or 12.6% above 1993 with 50% of the increased
costs related to new stores. The increased significance of retail sales,
where selling expenses are high relative to the Company's other divisions, to
the consolidated
6
<PAGE>
total resulted in an increase of 1.5 percentage points in the selling expense
to sales ratio in 1994. The fixed nature of certain corporate administrative
costs, which were absorbed over the lower sales base in 1994 as compared to
1993, also contributed to the higher expense to sales relationship.
In fiscal 1993, selling and administrative expenses increased $4.1
million or 3% from fiscal 1992. Advertising costs were up $2.5 million or 8%
during the year. Expenses related to new retail stores and international
expansion also contributed to the spending increase. In 1993, the Company's
contributions to its charitable foundation were below 1992 by $4.3 million.
Nonrecurring charges, as described in Note 2 to the consolidated financial
statements, impacted operating results during fiscal 1993 and 1992. In fiscal
1993, the Company incurred pre-tax costs of $7.2 million 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 $0.7 million
in fiscal 1994 compared to increases of $4.6 million and $2.3 million in 1993
and 1992, respectively. Investment income decreased slightly in 1994 as
higher yields on short-term investments offset a 27% decrease in the funds
available for investment during the year. In 1993, investment income
increased $0.2 million from 1992 as a 36% increase in investable funds offset
the impact of lower investment yields. Other income and expense items reduced
pre-tax income by $1.9 million in 1994 compared to a net increase in income of
$1.9 million in 1993 and a net decrease of $0.1 million in 1992. The 1993
income amount had included a gain of $3 million related to cash distributions
from a limited partnership investment compared to a similar gain of $0.5
million realized in 1994. This investment gain, partially offset by expenses
related to a new company-owned life insurance program, accounted for the
additional other income in 1993 over the amount reflected in fiscal 1992's
results.
The provisions for income taxes in fiscal 1994 and 1993 were below the
prior year amount by $24.9 million and $1.1 million, respectively, because of
lower pre-tax earnings. The Company's effective tax rate of 39.2% in 1994
increased from the effective rates of 38.4% in 1993 and 38.6% in 1992. In
fiscal 1994, higher state income taxes offset a lower effective federal income
tax rate as permanent tax differences had a more significant impact on the
effective federal rate given the reduced level of pre-tax income. In 1993,
increased tax exempt investment income and tax savings related to a company-
owned life insurance program offset the impact of the higher statutory federal
income tax rate which took effect on January 1, 1993.
NET INCOME
Income before the cumulative effect of a change in accounting principle
in fiscal 1994 decreased $40.5 million or 67.2% from 1993 due to the lower
sales levels, reduced gross profit performance and increased operating costs.
The start-up difficulties at the Company's new Kentucky distribution facility
and the related impact on the Company's ability to ship products to customers
caused much of the profit deterioration. Net
7
<PAGE>
income in 1994 was below last year by $38.5 million or 66%. Net income in
1993 had been reduced by $2 million which represented the cumulative effect of
adopting, as of November 28, 1992, Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes." In fiscal 1993, net income was below
1992 by $3.2 million or 5.2% as the impact of the lower sales, reduced
operating profitability and the accounting change more than offset the lower
nonrecurring charges and the increased level of non-operating income.
LIQUIDITY AND CAPITAL RESOURCES
As of the end of fiscal 1994, the Company's balance sheet reflected the
results of the Company's long record of positive cash flow. A current ratio
of 3.5 to 1 and a debt to equity relationship of 0.6% demonstrate the
Company's ability to provide internal financing for the future growth of its
existing businesses. While profitability problems and high inventory levels
hurt fiscal 1994's cash flow performance, resulting in an operating cash flow
of only $8.4 million, the Company's operations have generated a total of
$252.3 million of positive cash flow in the 1990 to 1994 period. Operations
in the last three fiscal years have provided cash flow of $131.9 million,
representing just over half of the five-year total. Over the five year
period, the Company has used $78.4 million, or 31% of the cumulative operating
cash flow amount, to repurchase 5,478,500 common shares and $51.2 million (20%
of total operating cash flow) remains on the balance sheet in higher levels of
cash and short-term investments. In the five years, the Company has also
invested $52.4 million in property and equipment with $31.5 million of the
1993 and 1994 capital expenditures related to the distribution facility in
Louisville, Kentucky.
During 1994, the Company's cash and short-term investments decreased
$28.5 million from the 1993 level as fiscal 1994's operating cash flow was not
sufficient to fund $8.5 million in capital expenditures and the use of $30.5
million for dividend payments to shareholders and to continue the Company's
practice of repurchasing common shares. The elements of working capital,
other than cash and short-term investments, increased $21.8 million in 1994,
with the investment in receivables and inventory up $9.1 million or 4.4% above
the 1993 total. Inventories at the end of 1994 were above last year by $20.9
million or 15.7%, with the increase primarily related to Keds products. A
large portion of the higher Keds inventories is comprised of leather and
canvas versions of the basic women's Champion(R) style as production levels on
these basic items were maintained during most of fiscal 1994 in order to
fulfill commitments to the Company's resources in the Far East. Future
product sourcing activity in these styles has been adjusted in order to reduce
inventories to the appropriate level during the first six months of fiscal
1995. Keds' year-end inventory levels also include higher than normal levels
of excess and discontinued seasonal merchandise as a result of the
distribution center problems. Reserves were established during fiscal 1994 to
reflect the reduced value of this seasonal merchandise.
Capital expenditures related to new retail stores totaled $6 million over
the last three years with 45% of this amount invested in fiscal 1994. The
Company opened 72 retail locations during fiscal 1994, consisting of 11
booteries, most of which were purchased from independent dealers, 51 new
leased department locations, 9 manufacturers' outlets and the initial test
location for the Company's new children's concept, Great Feet(TM). The Company
also closed 10 retail locations in 1994. The store opening activity in 1994
was more accelerated than in fiscal 1993 when 24 retail locations were
8
<PAGE>
added. 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. While capital expenditures related to the distribution function
are expected to decline in fiscal 1995, the Company plans to continue a
relatively aggressive pace of store openings by evaluating new opportunities
for Stride Rite booteries and leased departments and by expanding its
manufacturers' outlet operation. Additional test stores of the Great Feet(TM)
and Keds retail concepts are also expected to be opened in fiscal 1995.
Capital expenditures in 1995 will also include approximately $7 million,
representing the initial expenditures related to the Company's "Total Customer
Service" (TCS) initiative. The goal of the TCS project is to streamline
business processes and upgrade computer systems in order to achieve the
objective of pre-eminent customer service. Funding for capital expenditures
generally are expected to be provided from internal sources.
Over the last five 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 1989. In addition, the Board has authorized a stock
repurchase program for 16,000,000 shares of common stock. In fiscal 1994, the
Company expended $11.5 million to repurchase 814,400 common shares. Adjusted
for the stock splits in 1987, 1989 and 1991, the 1994 transactions brought the
shares repurchased under the Board authorization to 13,762,500 shares, or 86%
of the authorized total, for an aggregate expenditure of $118 million since
the current repurchase program was initiated in the fourth quarter of 1987.
The aggregate shares repurchased represent 23% of the total shares outstanding
prior to the Board's authorization. Funds for these repurchases were provided
from internal sources.
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 patterns which are characteristic of the footwear
industry. Over the last five years, the Company's borrowings under these
arrangements averaged $3.6 million. During fiscal 1994, the Company's
borrowings averaged $1.4 million. No short-term borrowings were outstanding
at the end of 1994.
9
<PAGE>
<TABLE>
<CAPTION>
Consolidated Balance Sheets
(in thousands,
except for share data) 1994 1993
------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 45,413 $ 38,763
Short-term investments 30,534 65,645
Accounts and notes receivable,
less allowances of
$8,631 in 1994
and $5,602 in 1993 63,403 75,184
Inventories 153,620 132,725
Deferred income taxes 33,246 27,294
Prepaid expenses 4,727 4,109
-------- --------
Total current assets 330,943 343,720
Property and equipment, net 48,267 47,737
Other assets, net 15,982 19,677
Goodwill, net 1,428 1,315
-------- --------
Total assets $396,620 $412,449
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt 833 833
Accounts payable 26,597 30,495
Income taxes payable 33,167 31,701
Accrued expenses and
other liabilities 33,718 37,442
-------- --------
Total current liabilities 94,315 100,471
Deferred income taxes 8,132 7,005
Long-term debt 1,667 2,500
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 23,665 23,710
Retained earnings 348,577 347,677
-------- --------
386,479 385,624
Less cost of 7,428,613 shares
of common stock held in
treasury (6,666,690 in 1993) (93,973) (83,151)
-------- --------
Total stockholders' equity 292,506 302,473
-------- --------
Total liabilities and
stockholders' equity $396,620 $412,449
======== ========
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements
10
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
(in thousands, Years Ended
-------------------------------
except for per share data) 1994 1993 1992
-------------------------- --------- --------- ---------
<S> <C> <C> <C>
Net sales $523,877 $582,868 $585,926
Cost of sales 326,643 339,523 331,054
Selling and administrative
expenses 165,350 142,739 138,606
Nonrecurring charges - 7,200 18,319
-------- -------- --------
Operating income 31,884 93,406 97,947
Investment income 3,074 3,126 2,896
Interest expense (538) (445) (482)
Other income (expense), net (1,878) 1,878 (136)
-------- -------- --------
Income before income taxes
and cumulative effect of
change in accounting
principle 32,542 97,965 100,225
Provision for income taxes 12,744 37,640 38,719
-------- -------- --------
Income before cumulative
effect of change in
accounting principle 19,798 60,325 61,506
Cumulative effect of change
in accounting principle - (2,034) -
-------- -------- --------
Net income $ 19,798 $ 58,291 $ 61,506
======== ======== ========
Per share of common stock:
Income before cumulative
effect of change in
accounting principle $.40 $1.19 $1.19
Cumulative effect of
change in accounting
principle - (.04) -
-------- -------- --------
Net income $.40 $1.15 $1.19
==== ===== =====
Average common shares and
common equivalents
outstanding 49,904 50,811 51,556
======== ======== ========
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
11
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended
--------------------------------
(in thousands) 1994 1993 1992
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
CASH WAS PROVIDED FROM (USED FOR)
OPERATIONS:
Net income $ 19,798 $ 58,291 $ 61,506
Adjustments to reconcile to
net cash provided from
operations:
Depreciation and amortization 8,486 6,264 5,362
Deferred income taxes (4,825) 1,136 (10,904)
Equity in earnings of affiliate (1,226) (1,043) (1,809)
Loss (gain) related to long-term
investments (516) (3,004) 140
Loss on disposal of property and
equipment 1,981 149 676
Cumulative effect of change in
accounting principle - 2,034 -
Changes in:
Accounts and notes receivable 11,781 8,401 (7,408)
Inventories (20,895) (1,907) (13,965)
Prepaid expenses (618) (411) (805)
Long-term notes receivable 157 (16) 585
Accounts payable, income taxes,
accrued expenses and other
current liabilities (5,756) (2,561) 22,793
-------- -------- --------
Net cash provided from operations 8,367 67,333 56,171
-------- -------- --------
INVESTMENTS:
Short-term investments 35,111 (22,467) (30,798)
Additions to property and equipment (8,522) (33,938) (3,742)
Proceeds from sales of property and
equipment 6 154 195
Distributions and dividends from
long-term investments 2,700 3,255 1,376
Acquisitions of trademarks - (276) (1,021)
Increase in other assets (14) (1,615) (9,326)
-------- -------- --------
Net cash provided from (used for)
investments 29,281 (54,887) (43,316)
-------- -------- --------
FINANCING:
Long-term debt payments (833) (833) (833)
Proceeds from sale of stock under
stock plans 12 2,492 88
Tax benefit in connection with stock
plans 276 284 2,874
Repurchase of common stock (11,482) (13,415) (20,524)
Cash dividends paid (18,971) (17,237) (15,405)
-------- -------- --------
Net cash used for financing (30,998) (28,709) (33,800)
-------- -------- --------
NET INCREASE(DECREASE) IN CASH AND
CASH EQUIVALENTS 6,650 (16,263) (20,945)
Cash and cash equivalents at beginning
of year 38,763 55,026 75,971
-------- -------- --------
Cash and cash equivalents at end
of year $ 45,413 $ 38,763 $ 55,026
======== ======== ========
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
12
<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 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)
Net income 19,798
Issuance of 52,477 common shares
under executive stock plans (321) 660
Tax benefit in connection with
stock plans 276
Repurchase of 814,400 shares of
common stock (11,482)
Cash dividends on common stock,
$.38 per share (18,898)
------- ------- ------- ---------
Balance, December 2, 1994 $14,237 $23,665 $348,577 $(93,973)
======= ======= ======== =========
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
13
<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 1994 presentation.
Fiscal Year-The Company's fiscal year ends on the Friday closest to November
30 in each year. As a result, fiscal 1994 and 1992 comprised 52 weeks, while
the 1993 fiscal year included 53 weeks. Fiscal years 1994, 1993 and 1992
ended on December 2, 1994, December 3, 1993 and November 27, 1992,
respectively.
Cash Equivalents and Short-term Investments-Cash equivalents represent highly
liquid investments, including repurchase agreements, with a maturity of three
months or less at the time of purchase. 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 commercial
paper with a high investment grade, 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's exposure to foreign exchange
risk is limited through dollar denominated transactions. The Company does not
enter into derivative financial instruments such as futures, forward or option
contracts. 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.
14
<PAGE>
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. The carrying value of these intangible
assets is periodically reviewed by the Company and, if necessary, impairments
of values are recognized.
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.
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, Keds resolved this
complicated legal issue expeditiously by agreeing 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
the Company believes was entirely lawful, covered six of its women's shoes,
including the leather and canvas Champion(R) Oxford styles. The full cost of
the settlement, $4,274,000 net of income taxes or $.08 per share, was included
in the 1993 consolidated statement of income.
The Company's operating results for the fiscal year ended November 27, 1992
included the accrual of $18,319,000 in pre-tax 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
15
<PAGE>
facility in December 1993 and began shipping Keds products from the new
distribution center in January 1994 after closing its New Bedford,
Massachusetts warehouse. The Company has delayed the closing of its Boston,
Massachusetts facility, which distributes Stride Rite and Sperry Top-Sider
products, as a result of start-up difficulties experienced during fiscal 1994
at the Kentucky facility. The Company's results of operations for the year
ended December 2, 1994 include charges of $6,811,000 related to unanticipated
relocation and start-up expenses.
3. INVENTORIES
The cost of inventories at December 2, 1994 and December 3, 1993, was
determined primarily on a last-in, first-out (LIFO) basis. A summary of
inventory values is as follows:
<TABLE>
<CAPTION>
(in thousands) 1994 1993
---------------------------------------------------------------
<S> <C> <C>
Finished goods $148,056 $127,925
Work in process 2,416 1,670
Raw materials 3,148 3,130
-------- --------
$153,620 $132,725
======== ========
</TABLE>
During 1994, the LIFO reserve decreased by $1,539,000 to $21,389,000 at
December 2, 1994. If all inventories had been valued on a FIFO basis, net
income would have been lower by $906,000 ($.02 per share) in 1994. During
1993 and 1992, the LIFO reserve decreased by $183,000 and $4,636,000,
respectively. If all inventories had been valued on a FIFO basis, net income
would have been lower in both years - $108,000 (less than $.01 per share) in
1993 and $2,770,000 ($.05 per share) in 1992.
During 1993 and 1992, 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 by $1,304,000 ($.03 per share).
4. PROPERTY AND EQUIPMENT
The components of property and equipment at December 2, 1994 and December 3,
1993 are as follows:
<TABLE>
<CAPTION>
(in thousands) 1994 1993
- ---------------------------------------------------------------
<S> <C> <C>
Land and improvements $ 3,267 $ 3,267
Buildings and improvements 15,164 15,094
Machinery, equipment and
fixtures 42,880 40,906
Leaseholds and leasehold
improvements 11,536 12,494
------- -------
72,847 71,761
Less accumulated depreciation
and amortization (24,580) (24,024)
------- -------
$48,267 $47,737
======= =======
</TABLE>
16
<PAGE>
5. OTHER ASSETS
As of December 2, 1994 and De cember 3, 1993, other assets include $7,579,000
and $8,622,000, respectively, related to long-term investments. In 1986, the
Company agreed to invest $5,0 00,000 in a limited partnership which is
authorized to make investment s in assets and securities of all kinds. Cash
distributions are made to the limited partners as investments are sold. In
1994 and 1993, the Company re cognized gains of $516,000 and $3,004,000,
respectively, due to the sale of certain investments by the limited
partnership and the recovery of previously recorded valuation reserves. The
Company had reduced the carry ing value of this investment by $140,000 in 1992
because of declines in the market value of certain assets of the limited
partnership. The Company's investment in this limited partnership, which is
accounted for under the cost method, amounted to $1,334,000 at December 2,
1994 and $2,243,000 at December 3, 1993. The fair value of this investment as
of September 30, 1994, the latest valuation as determined by the General
Partner, totaled approximately $1,900,000.
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 $1,226,000
in 1994, $1,043,000 in 1993 and $1,809,000 in 1992, representing the Company's
share of the joint venture's operating results in those years. The joint
venture paid cash dividends to shareholders of $1,275,000 in 1994 and
$1,292,000 in 1992, which reduced the carrying value of the Company's
investment. The Company's investment in the affiliate amounted to $5,709,000
at December 2, 1994 and $5,758,000 at December 3, 1993.
Other assets also includes $6,676,000 at December 2, 1994 and $8,934,000
at December 3, 1993, related to goodwill, trademark rights and other
intangible assets. These other assets are presented net of accumulated
amortization of $7,398,000 at December 2, 1994 and $4,919,000 at December 3,
1993. 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 1994, 1993 and 1992, borrowings under these
lines averaged $1,402,000, $17,000 and $741,000, respectively, with a maximum
amount outstanding of $17,400,000 in 1994, $4,300,000 in 1993 and $8,200,000
in 1992. The weighted average interest rate paid on these borrowings during
the year was 4.6% in 1994, 3.6% in
17
<PAGE>
1993 and 4.6% in 1992. No short-term borrowings were outstanding on December
2, 1994 or December 3, 1993.
Long-term debt at December 2, 1994 and December 3, 1993 ($1,667,000 and
$2,500,000, 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 annually for fiscal 1996 and 1997.
Interest payments amounted to $354,000, $373,000 and $477,000 in fiscal
1994, 1993 and 1992, respectively.
7. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities at December 2, 1994 and
December 3, 1993 consist of the following:
<TABLE>
<CAPTION>
(in thousands) 1994 1993
---------------------------------------------------------
<S> <C> <C>
Salaries, wages and
commissions $12,283 $ 9,867
Nonrecurring charges 7,416 15,276
Insurance 1,167 1,564
Dividends 4,704 4,776
Other liabilities 8,148 5,959
------- -------
$33,718 $37,442
======= =======
</TABLE>
8. LEASES
The Company leases office space 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 2, 1994 was as follows:
<TABLE>
<CAPTION>
(in thousands) 1994 1993 1992
---------------------------------------------------------
<S> <C> <C> <C>
Base rent $14,230 $14,383 $14,658
Additional rent 1,537 1,387 1,257
Less rental from subleases (2,488) (2,960) (3,162)
------- ------- -------
$13,279 $12,810 $12,753
======= ======= =======
</TABLE>
18
<PAGE>
The future minimum rental payments for all non-cancellable operating
leases and the amounts due from tenants on related subleases at December 2,
1994 are as follows:
<TABLE>
<S> <C>
1995 $10,542
1996 9,499
1997 8,719
1998 7,496
1999 6,212
Later years 27,595
-------
Total minimum rental payments 70,063
Less rental due from subleases (7,394)
-------
$62,669
======
</TABLE>
The above amounts include future minimum rental payments associated with a
lease signed by the Company on December 22, 1994 for office space related to
its corporate headquarters. The ten-year lease commences on August 31, 1996,
but allows for earlier occupancy depending on the completion by the lessor of
renovations currently in process.
9. BENEFIT PLANS
The Company has two non-contributory defined benefit pension plans covering
eligible employees. Pension costs are determined actuarially and are funded
to the extent that deductions are allowable under the United States Internal
Revenue Code. Salaried, management, sales and non-production hourly employees
accrue pension benefits based on the employee's service and compensation.
Production employees accrue 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.
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) 1994 1993 1992
------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost-benefit
earned during the
period $ 1,423 $ 1,151 $ 1,107
Interest cost on
benefit obligations 2,143 2,036 1,867
Actual return on plan
assets (1,127) (3,369) (5,516)
Amortization and
deferral, net (1,659) 505 3,191
------- ------- -------
$ 780 $ 323 $ 649
======= ======= =======
</TABLE>
19
<PAGE>
The prepaid pension cost in the Company's consolidated balance sheets at
December 2, 1994 and December 3, 1993 includes the following:
<TABLE>
<CAPTION>
(in thousands) 1994 1993
-------------------------------------------------------------
<S> <C> <C>
Fair market value of
plan assets $30,088 $30,686
Projected benefit
obligations 26,933 28,078
------- -------
Excess assets 3,155 2,608
Unrecognized prior service
cost 420 504
Unrecognized net gain (1,590) (167)
Unrecognized net asset (1,728) (2,029)
------- -------
$ 257 $ 916
======= =======
</TABLE>
At December 2, 1994, the accumulated benefit obligation, which represents
the actuarial present value of the Company's pension obligation if the plans
were to be discontinued, totaled $23,751,000, including a vested benefit
obligation of $22,596,000. The accumulated benefit obligation at December 3,
1993 was $24,134,000, including a vested benefit obligation of $23,216,000.
Discount rates of 8.5% in 1994 and 7.5% in 1993 and an annual compensation
increase at the rate of 5% in 1994 and 4% in 1993 were assumed to determine
these liabilities.
During fiscal 1994 and 1993, approximately 65% of the plan assets were
invested in equity investments with the remaining 35% in fixed income
securities. The expected long-term rate of return, net of related expenses,
on plan assets is 9% for both 1994 and 1993.
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 1994, 1993 and 1992, this contribution
amounted to $607,000, $471,000 and $437,000, respectively.
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. Funds are
currently being withheld from 691 participating employees during a payment
period ending October 31, 1995. As of December 2, 1994, $1,415,000 has been
withheld from employees' earnings and, if all participating employees had been
allowed to exercise their stock purchase rights, approximately 141,642 shares
could have been purchased at a price of $9.99 per share. At December
20
<PAGE>
2, 1994, 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 fiscal 1994, 98 employees were eligible to participate in
the Plan and 91 employees held outstanding rights under the Plan.
For most options granted 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 third, fourth and fifth
anniversaries of the date of grant. The Company charges to compensation
expense over a five-year period the difference between the fair market value
at the date of grant and the purchase price.
It is expected that this Plan, which expires on December 31, 1995, will
be terminated early and will be replaced by The Stride Rite Corporation 1995
Long-Term Growth Incentive Plan, subject to shareholder approval in April,
1995. Under the new incentive Plan, options to purchase and stock awards of
up to an aggregate of 2,400,000 shares of the Company's common stock may be
granted to officers and other key employees. The option price of the shares
may not be less than the fair market value of the Company's common stock at
the date of grant. Options under the Plan will generally vest over a three-
year period and the rights to purchase common shares expire ten years
following the date of grant. Stock awards, which are limited to 200,000
shares in the new Plan, vest over a five-year period in a manner similar to
the 1975 Plan.
Prior to fiscal 1994, the purchase price for all rights granted under the
1975 Plan was at par value as of the date of grant. Options granted in fiscal
1994 contain purchase prices ranging from $.25 to $15.88. The activity in
stock rights for the three years in the period ended December 2, 1994 was as
follows:
<TABLE>
<CAPTION>
1994 1993 1992
------------------------------------------------------------------------
<S> <C> <C> <C>
Outstanding at beginning
of year 408,323 537,238 789,034
Granted 545,150 157,015 138,230
Cancelled (108,206) (200,051) (39,484)
Exercised (45,271) (85,879) (350,542)
-------- -------- --------
Outstanding at end of year 799,996 408,323 537,238
======== ======== ========
</TABLE>
The purchase price for all options exercised during the three years ended
December 2, 1994 was $.25 per share. Options to purchase 579,996 and 408,323
shares were exercisable as of December 2, 1994 and December 3, 1993,
respectively. At December 2, 1994, options to purchase a total of 4,254,402
shares had been granted under the 1975 Plan and rights to purchase an
21
<PAGE>
additional 1,345,598 shares (1,782,542 shares at December 3, 1993) 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 charges to compensation expense the costs associated with the Plan.
The Company issued 3,706 shares to two individuals in 1994, 16,878 shares to
eight individuals in 1993 and 55,830 shares to nine individuals in 1992 as a
result of performance against the goals for the cycles which ended in 1993,
1992 and 1991. No payments will be made with respect to performance against
the goal established for the cycle which ended in 1994. It is expected that
this plan will also be terminated and replaced, pending shareholder approval,
by the 1995 Long-Term Growth Incentive Plan described above.
Under the 1994 Non-employee Director Stock Ownership Plan, awards of
common stock and options to purchase common stock up to an aggregate of
100,000 shares may be granted to any director who is not an employee of the
Company. Options to purchase common stock are granted at a price equal to the
closing price of the Company's common stock on the date the option is granted.
Each non-employee director is granted an option to purchase 5,000 shares of
common stock upon their appointment or election to the Board and an annual
award of 500 shares of common stock. Options have a term of ten years and are
non-transferable. Under the Plan, options become exercisable over a three-
year period and must be paid for in full at the time of exercise. During
fiscal 1994, 3,500 shares of common stock were awarded and options to purchase
35,000 shares of common stock at $12.88 per share were granted to seven non-
employee directors. No options were exercised during the year. At December
2, 1994, options to purchase 23,200 shares were exercisable and stock awards
or options aggregating an additional 61,500 shares could be granted under 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.
22
<PAGE>
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 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 2, 1994, December 3, 1993 and
November 27, 1992 totaled 6,189,741, 6,284,982 and 6,363,488, 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 1994 and 1993 is computed under SFAS
No. 109, consists of the following for the three years in the period ended
December 2, 1994:
<TABLE>
<CAPTION>
(in thousands) 1994 1993 1992
----------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $12,094 $28,792 $ 38,928
State 5,211 7,712 10,695
------- ------- --------
17,305 36,504 49,623
------- ------- --------
Deferred:
Federal (3,711) 236 (8,376)
State (850) 900 (2,528)
------- ------- --------
(4,561) 1,136 (10,904)
------- ------- --------
$12,744 $37,640 $ 38,719
======= ======= ========
</TABLE>
23
<PAGE>
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
were reduced by $2,034,000, the cumulative effect of the change in accounting
principle. Net deferred tax assets as of December 2, 1994 and December 3,
1993, have the following significant components:
<TABLE>
<CAPTION>
(in thousands) 1994 1993
------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Inventory valuation reserves $ 7,447 $ 3,583
Distribution center relocation cost accrual 3,844 4,520
Accounts receivable allowances 4,004 2,281
Compensation accruals 2,272 2,121
Other accounting reserves and accruals 15,679 14,789
------- -------
33,246 27,294
------- -------
Deferred tax liabilities:
Undistributed earnings of foreign affiliates 1,730 1,711
Depreciation and amortization 4,825 2,632
Other items 1,577 2,662
------- -------
8,132 7,005
------- -------
Net deferred tax assets $25,114 $20,289
======= =======
</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 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 effective income tax rate differs from the statutory federal income
tax rate as follows:
<TABLE>
<CAPTION>
1994 1993 1992
----------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory federal tax rate 35.0% 34.9% 34.0%
State income taxes, net of
federal income tax benefit 8.7 5.7 5.4
Tax benefit from manufacturing
operations in Puerto Rico (1.1) (0.3) (0.1)
Tax benefit related to company-
owned life insurance program (4.3) (0.6) -
Other 0.9 (1.3) (0.7)
----- ----- -----
Effective income tax rate 39.2% 38.4% 38.6%
===== ===== =====
</TABLE>
Payments of income taxes amounted to $22,115,000, $40,224,000 and $39,265,000
in 1994, 1993 and 1992, respectively.
14. SUBSEQUENT EVENT
On January 11, 1995, the Company, through its newly formed subsidiary, Boston
Footwear Group, Inc., purchased for $5.3 million certain assets, including
inventory, tradenames, patents and other intangible assets, associated with
the University Brands division of Genesco, Inc. University Brands sold
children's footwear under the Toddler University(R), Kids University(R) and
Street Hot(R) brands.
24
<PAGE>
15. QUARTERLY DATA (UNAUDITED)
The following table provides quarterly data for the fiscal years ended December
2, 1994 and December 3, 1993.
<TABLE>
<CAPTION>
(in thousands, except
for per share data) First Second Third Fourth
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C>
1994
Net sales $122,058 $161,720 $154,962 $ 85,137
Gross profit 45,137 60,601 57,222 34,274
Net income (loss) 4,849 7,680 8,506 (1,237)
Per common share:
Net income (loss) .10 .15 .17 (.02)
Dividends .095 .095 .095 .095
- -----------------------------------------------------------------------
<CAPTION>
<S> <C> <C> <C> <C>
1993
Net sales $140,792 $164,524 $166,460 $111,092
Gross profit 59,351 70,388 67,647 45,959
Income before change in
accounting principle 15,181 19,356 18,370 7,418
Cumulative effect of
change in accounting
principle (2,034) - - -
Net income 13,147 19,356 18,370 7,418
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 .085 .085 .085 .095
</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.
25
<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 L.L.P. 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.
/s/ Robert C. Siegel /s/ Stephen R. DuMont /s/ John M. Kelliher
Robert C. Siegel Stephen R. DuMont John M. Kelliher,
Chairman of the Board Executive Vice President Vice President, Finance,
of Directors, President Treasurer and Controller
and Chief Executive
Officer
26
<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 2, 1994 and December 3, 1993, 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 2, 1994. 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 2, 1994 and December 3, 1993, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 2, 1994, in conformity with generally
accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
Boston, Massachusetts Coopers & Lybrand L.L.P.
January 19, 1995
27
<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 markets children's footwear under the trademarks STRIDE
RITE(R), KEDS(R) and TODDLER UNIVERSITY(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 manufactures products in its own facilities in the United States and
imports products from abroad.
The Company sells its products nationwide to independent retail shoe
stores, department stores, sporting goods stores, and marinas. The Company
also sells its products internationally through independent distributors and
directly to retailers in certain countries where subsidiary operations have
been established.
The Company also markets its products directly to consumers by selling
children's footwear through 136 of its own Stride Rite(R) Bootery stores, its
initial Great Feet(TM) concept store and 103 leased departments within leading
department stores. Products of the Company's brands are also sold directly to
consumers in 11 manufacturers' outlet stores and one Keds(R) retail concept
store.
BOARD OF DIRECTORS
Robert C. Siegel
Chairman of the Board of Directors,
President and Chief Executive Officer
Donald R. Gant
Limited Partner of The Goldman
Sachs Group, L.P.
Theodore Levitt
Edward W. Carter Professor
of Business Administration Emeritus
Harvard Business School
Margaret A. McKenna
President, Lesley College
Robert L. Seelert
Private Investor and Former Chief
Executive Officer of Kayser-Roth Corporation
Myles J. Slosberg
Attorney and Former Executive Vice
President of the Company
W. Paul Tippett, Jr.
Principal, Ann Arbor Partners
Jeanette S. Wagner
President
Estee Lauder International, Inc.
28
<PAGE>
COMMITTEES OF THE BOARD
AUDIT COMMITTEE INVESTMENT COMMITTEE
Donald R. Gant Myles J. Slosberg
Robert L. Seelert Robert L. Seelert
Myles J. Slosberg Robert C. Siegel
Jeanette S. Wagner
COMPENSATION COMMITTEE NOMINATING COMMITTEE
Margaret A. McKenna Theodore Levitt
Donald R. Gant Margaret A. McKenna
Theodore Levitt W. Paul Tippett, Jr.
W. Paul Tippett, Jr. Jeanette S. Wagner
29
<PAGE>
CORPORATE DATA
EXECUTIVE OFFICERS
Robert C. Siegel
Chairman of the Board of Directors,
President and Chief Executive Officer
Stephen R. DuMont
Executive Vice President
Jonathan D. Caplan
President, The Keds Corporation
Karen K. Crider
General Counsel, Secretary and Clerk
Dennis Garro
President, Corporate Retail Division
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.
C. Madison Riley III
Vice President and General Manager,
Boston Footwear Group, Inc.
Gerrald B. Silverman
President, Stride Rite International Corp.
EXECUTIVE OFFICES
Five Cambridge Center
Cambridge, Massachusetts 02142
(617) 491-8800
MAJOR SUBSIDIARIES
Boston Footwear Group, Inc.
The Keds Corporation
Sperry Top-Sider, Inc.
Sperry Top-Sider Europe, S.A.R.L.
Stride Rite Canada Limited
Stride Rite Children's Group, Inc.
Stride Rite International Corp.
Stride Rite Sourcing International, Inc.
30
<PAGE>
AUDITORS
Coopers & Lybrand L.L.P.
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.
31
<PAGE>
ANNUAL MEETING
The 1995 Annual Meeting of Stockholders
of The Stride Rite Corporation is scheduled to be held
on Wednesday, April 12, 1995 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) 575-3170.
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.
32
<PAGE>
<TABLE>
<CAPTION>
COMMON STOCK PRICES
Fiscal 1994 1993
Quarter High Low High Low
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
1st 19 1/8 15 1/4 23 19 1/4
2nd 18 1/4 12 21 15
3rd 15 7/8 12 1/8 17 3/8 13 1/2
4th 15 7/8 11 3/4 19 12 1/4
</TABLE>
Based on closing prices on the New York Stock Exchange -Composite Tape.
33
<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:
Place of Incorporation
----------------------
Boston Footwear Group, Inc. Massachusetts
Stride Rite Children's Group, Inc. Massachusetts
Stride Rite de Mexico, S.A. de C.V. Mexico
Stride Rite International Corp. Massachusetts
Stride Rite Sourcing International, Inc. Massachusetts
Sperry Top-Sider, Inc. Massachusetts
The Keds Corporation Massachusetts
Stride Rite Investment Corporation 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, Limited 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
<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, 33-19562 and 33-54439) of The Stride
Rite Corporation of our reports dated January 19, 1995 on our audits of the
consolidated financial statements and financial statement schedules of The
Stride Rite Corporation as of December 2, 1994 and December 3, 1993 and for the
years ended December 2, 1994, December 3, 1993 and November 27, 1992 which
reports are included or incorporated by reference in this Annual Report on Form
10-K.
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
February 24, 1995
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> DEC-02-1994 DEC-02-1994
<PERIOD-START> DEC-04-1993 SEP-03-1994
<PERIOD-END> DEC-02-1994 DEC-02-1994
<CASH> 45,413 45,413
<SECURITIES> 30,534 30,534
<RECEIVABLES> 72,034 72,034
<ALLOWANCES> 8,631 8,631
<INVENTORY> 153,620 153,620
<CURRENT-ASSETS> 330,943 330,943
<PP&E> 72,847 72,847
<DEPRECIATION> 24,580 24,580
<TOTAL-ASSETS> 396,620 396,620
<CURRENT-LIABILITIES> 94,315 94,315
<BONDS> 0 0
<COMMON> 14,237 14,237
0 0
0 0
<OTHER-SE> 278,269 278,269
<TOTAL-LIABILITY-AND-EQUITY> 396,620 396,620
<SALES> 523,877 85,137
<TOTAL-REVENUES> 523,877 85,137
<CGS> 326,643 50,863
<TOTAL-COSTS> 326,643 50,863
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 3,117 1,141
<INTEREST-EXPENSE> 538 241
<INCOME-PRETAX> 32,542 (2,692)
<INCOME-TAX> 12,744 (1,455)
<INCOME-CONTINUING> 19,798 (1,237)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 19,798 (1,237)
<EPS-PRIMARY> .40 (.02)
<EPS-DILUTED> .40 (.02)
</TABLE>
