1 of 15 Pages
Exhibit Index
Appears on Page 13
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 3, 1995
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to .
Commission File Number: 1-4404
THE STRIDE RITE CORPORATION
(Exact name of registrant as specified in its charter)
Massachusetts 04-1399290
(State or other jurisdiction) (I.R.S. Employer Identified No.)
Five Cambridge Center, Cambridge, Massachusetts 02142
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 617-491-8800
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Common Stock, $.25 par value New York Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed
all reports required by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such
report), and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
As of April 4, 1995, 49,547,330 shares of the registrant's common
stock, $.25 par value, were outstanding and 6,193,416 of the
registrant's Preferred Stock Purchase Rights, which trade with
the registrant's common stock, were outstanding.<PAGE>
I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
THE STRIDE RITE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
<TABLE>
<CAPTION>
March 3, March 4,
1995 December 2, 1994
(Unaudited) 1994 (Unaudited)
Assets
Current assets:
<S> <C> <C> <C>
Cash and cash equivalents $ 13,431 $ 45,413 $ 9,160
Short-term investments 41,049 30,534 56,651
Accounts and notes
receivable, net 107,567 63,403 105,667
Inventories:
Finished goods 134,671 148,056 115,196
Work in process 2,336 2,416 2,179
Raw materials 4,461 3,148 3,712
141,468 153,620 121,087
Deferred income taxes
and prepaid expenses 39,307 37,973 31,096
Total current assets 342,822 330,943 323,661
Property and equipment, net 50,342 48,267 45,440
Other assets 23,060 17,410 22,858
Total assets $416,224 $396,620 $391,959
</TABLE>
The accompanying notes are an integral part of the
condensed consolidated financial statements.
2
<PAGE>
PART I - FINANCIAL INFORMATION (Continued)
THE STRIDE RITE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
(Dollars in Thousands)
<TABLE>
<CAPTION>
March 3, March 4,
1995 December 2, 1994
(Unaudited) 1994 (Unaudited)
Liabilities and Stockholders' Equity
Current Liabilities:
Current maturities of
<S> <C> <C> <C> <C> <C> <C>
long-term debt $ 833 $ 833 $ 833
Short-term debt 31,600 - -
Accounts payable 12,499 26,597 18,119
Income taxes payable 35,814 33,167 34,601
Accrued expenses and other
liabilities 32,786 33,718 29,781
Total current liabilities 113,532 94,315 83,334
Deferred income taxes 8,132 8,132 7,005
Long-term debt 1,667 1,667 2,500
Stockholder's Equity:
Preferred stock, $1 par value
Shares authorized - 1,000,000
Shares issued - None - - -
Common stock, $.25 par value
Shares authorized - 135,000,000
Shares issued - 56,946,544 14,237 14,237 14,237
Capital in excess of par value 23,445 23,665 23,588
Retained earnings 348,827 348,577 347,749
Less cost of 7,400,414 shares
of common stock held in
treasury (7,428,613 on
December 2, 1994 and
6,876,280 on March 4, 1994) (93,616) (93,973) (86,454)
Total stockholders' equity 292,893 292,506 299,120
Total liabilities and
stockholders' equity $416,224 $396,620 $391,959
</TABLE>
The accompanying notes are an integral part of the
condensed consolidated financial statements.
3<PAGE>
PART I - FINANCIAL INFORMATION (Continued)
THE STRIDE RITE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
For the periods ended March 3, 1995 and March 4, 1994
(In Thousands Except Per Share Data)
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Net sales $134,772 $122,058
Cost of sales 84,174 76,921
Selling and administrative expenses 42,374 36,989
Operating income 8,224 8,148
Other income (expense):
Interest income 904 510
Interest expense (287) (77)
Other, net (787) (556)
(170) (123)
Income before income taxes 8,054 8,025
Provision for income taxes 3,079 3,176
Net income $ 4,975 $ 4,849
Net income per common share $.10 $.10
Dividends per common share $.095 $.095
Average common shares and common
equivalents outstanding during
the period 49,848 50,419
</TABLE>
The accompanying notes are an integral part of the
condensed consolidated financial statements.
4
<PAGE>
PART I - FINANCIAL INFORMATION (Continued)
THE STRIDE RITE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the three months ended March 3, 1995 and March 4, 1994
(Dollars in Thousands)
<TABLE>
<CAPTION>
1995 1994
Cash was provided from (used for)
Operations:
<S> <C> <C>
Net income $ 4,975 $ 4,849
Adjustments to reconcile to net cash
provided from (used for) operations:
Depreciation and amortization 2,493 2,047
Equity in earnings of affiliate (318) (264)
Loss on disposal of property and equipment 16 1,404
Changes in:
Accounts and notes receivable (44,164) (30,483)
Inventories 15,360 11,638
Prepaid expenses (1,334) 306
Accounts payable, income taxes, accrued
expenses and other current liabilities (12,274) (16,984)
Net cash used for operations (35,246) (27,487)
Investments:
Short-term investments (10,515) 8,994
Additions to property and equipment (3,965) (544)
Acquisition of business (5,308) -
Increase in other assets (3,851) (2,211)
Net cash provided from (used for)
investments (23,639) 6,239
Financing:
Proceeds from sale of stock under stock plans 7 5
Cash dividends paid (4,704) (4,776)
Repurchase of common stock - (3,584)
Short-term borrowings 31,600 -
Net cash provided from (used for)
financing 26,903 (8,355)
Net decrease in cash and cash equivalents (31,982) (29,603)
Cash and cash equivalents at beginning
of the period 45,413 38,763
Cash and cash equivalents at end of
the period $ 13,431 $ 38,763
</TABLE>
The accompanying notes are an integral part of the
condensed consolidated financial statements
5<PAGE>
PART I - FINANCIAL INFORMATION (Continued)
THE STRIDE RITE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1
The financial information included in this Form 10-Q of The Stride
Rite Corporation (the "Company") for the periods ended March 3, 1995 and
March 4, 1994 is unaudited and subject to year-end audit adjustments.
However, such information includes all adjustments (including all normal
recurring adjustments) which, in the opinion of management, are considered
necessary for a fair presentation of the consolidated results for those
periods. The results of operations for the period ended March 3, 1995 are
not necessarily indicative of the results of operations that may be
expected for the complete fiscal year. The year-end condensed balance
sheet data was derived from audited financial statements, but does not
include all disclosures required by generally accepted accounting
principles. Certain reclassifications have been made to the 1994 condensed
consolidated financial statements to conform to the fiscal 1995
presentation.
NOTE 2
During the first three months of fiscal 1995, interest payments
amounted to $210,000 ($4,000 in 1994). For the first quarter of 1995,
payments for income taxes totaled $ 431,000 ($275,000 in 1994).
NOTE 3
On January 11, 1995, the Company, through its newly formed subsidiary,
Boston Footwear Group, Inc., purchased certain assets, including inventory,
trademarks, patents and other intangible assets, associated with the
University Brands division of Genesco, Inc. for $5,308,000. University
Brands sold children's footwear under the Toddler University , Kids
University and Street Hot brands.
The acquisition has been recorded using the purchase method of
accounting. Accordingly, the purchase price was allocated to assets based
on their estimated fair values as of the date of acquisition. Operating
results associated with the acquired brands were not significant during the
three months ended March 3, 1995. Proforma financial information for the
first quarter of fiscal 1994 has not been presented because the amounts
were immaterial to the 1994 consolidated results of operations.
6
<PAGE>
PART I - FINANCIAL INFORMATION (Continued)
THE STRIDE RITE CORPORATION
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
The following table summarizes the Company's performance for the first
quarter:
Increase (Decrease) Percent vs. 1994 Results:
<TABLE>
<CAPTION>
First Quarter
<S> <C>
Net sales 10.4%
Gross profit 12.1%
Selling and administrative expenses 14.6%
Operating income 0.9%
Income before income taxes 0.4%
Net income 2.6%
</TABLE>
Operating Ratios as a Percent to Net Sales:
First Quarter
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Gross profit 37.5% 37.0%
Selling and administrative expenses 31.4% 30.3%
Operating income 6.1% 6.7%
Income before income taxes 6.0% 6.6%
Net income 3.7% 4.0%
</TABLE>
Net sales in the first quarter of fiscal 1995 increased $12.7 million
(10.4%) above the sales level achieved in the comparable period of fiscal
1994. The Company's results in 1994 had been negatively impacted by
shipping delays related to start-up difficulties at a new Keds distribution
center in Louisville, Kentucky. During the first quarter, a 4.5% increase
in the unit shipments of current line merchandise, higher sales of
discontinued products and increased retail sales offset the impact of a
slight decline in average selling prices. Excluding the impact of product
mix changes, net sales in the first quarter of 1995 was reduced by
approximately $1.6 million due to selling price deflation.
7
<PAGE>
PART I - FINANCIAL INFORMATION (Continued)
THE STRIDE RITE CORPORATION
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
Results of Operations (continued)
Sales of the Company's Retail division which includes the Stride Rite
children's booteries and leased departments, manufacturers' outlets and the
initial stores of the Great Feet and Keds retail concepts, increased 8%
during the first quarter of 1995. Sales of new stores during the three-
month period offset a 3% decline at comparable stores. The Retail division
operated an average of 256 stores during the first quarter of 1995, up 35%
from the 190 stores operated during the comparable period of fiscal 1994.
The 1995 store count includes 48 lower volume leased departments opened in
October 1994.
Sales of the Company's wholesale divisions in 1995 were 11% higher
than the sales total for the first quarter of 1994. Keds division sales
were up 10% in 1995 as more timely processing of customer orders at the
Kentucky facility offset the impact of lower advance bookings for the
Spring 1995 season. Sales of Sperry Top-Sider products during the first
quarter of 1995 increased 39% from the 1994 level as the division's results
benefited from increased demand for both leather boat shoes and canvas
footwear. Sales of the Stride Rite Children's Group to independent
dealers, family shoe stores and department stores decreased 9% during the
first quarter of 1995 due to generally soft conditions at retail, the
purchase over the last year of independent stores by the Company's Retail
division and a later Easter in fiscal 1995. The Company's International
division posted higher revenues during the first quarter of 1995, up $1.1
million or 18% from 1994. Boston Footwear Group, a newly formed business
unit organized to market Grasshoppers and other branded footwear,
contributed $2.9 million to the first quarter sales increase.
During the first quarter, gross profit increased 12.1% compared to the
sales gain of 10.4%. The consolidated gross profit percent in the three
months improved to 37.5% from the 37% rate recorded in the first quarter of
fiscal 1994. The 1995 gross profit percent was favorably impacted by a
reduced obsolescence provision as markdowns returned to more normal levels.
Gross profit performance in the first quarter of 1994 was affected by the
accrual of markdowns on excess seasonal merchandise due to the shipping
problems at Keds. The LIFO provision reduced gross profit by $0.7 million
(0.6% of net sales) in 1995 compared to a provision of $0.1 million (0.1%
of net sales) in the first quarter of 1994. A change in product mix at
Keds during the first quarter of 1995 also tended to reduce gross margins
as the 1994 period included heavy shipments of higher margin, women's
canvas products to major customers because of the new distribution center's
inability to process smaller orders.
8<PAGE>
PART I - FINANCIAL INFORMATION (Continued)
THE STRIDE RITE CORPORATION
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
Results of Operations (continued)
Selling and administrative expenses in the first quarter of fiscal
1995 increased $5.4 million or 14.6% from the spending level incurred in
1994. As a percent to sales, these expenses represented 31.4% of net sales
in 1995, up from 30.3% in the first quarter of 1994. Distribution costs
represented 4.2% of net sales in the first quarter of 1995, up from 2.7% in
the comparable period of fiscal 1994 due to additional staffing at the new
distribution facility. The growth of retail operations, where selling and
administrative are high as a percentage of sales, also contributed to this
increase as store expenses in 1995 increased 18.2% from 1994.
Approximately $1.5 million of the increased retail costs were related to
new stores. Advertising expenses in the first quarter of 1995 totaled $9.6
million (7.1% of sales) compared to the spending level of $8.9 million
(7.3% of sales) in the 1994 period.
Other income (expense) decreased pre-tax income by $0.2 million in
1995 compared to a decrease of $0.1 million in the first quarter of 1994.
Interest income during the first quarter of 1994 was above last year by
$0.4 million due to increased short-term investment yields. Interest
expense increased $0.2 million in 1995 as compared to 1994 due to higher
short-term borrowings to fund working capital needs. Other expenses were
higher in 1995 primarily due to costs related to a company-owned life
insurance program. The provision for income taxes in the first quarter of
1995 was slightly below the 1994 expense level. The 1995 effective income
tax rate of 38.2% was below the 1994 rate of 39.6% because of increased tax
savings related to a company-owned life insurance program and lower state
income taxes.
Net income increased $0.1 million or 2.6% during the first quarter of
1995 because of the sales gains, improved gross profit performance and
lower effective tax rate described above.
Liquidity and Capital Resources
At March 3, 1995, the Company's balance sheet continues to reflect
favorable trends with a current ratio of 3 to 1 and a debt-to-equity
relationship of 0.6%. The Company's cash and short-term investments
totaled $54.5 million at the end of the latest quarter, down from the year-
end 1994 level of $75.9 million and below the cash and investments balance
of $65.8 million as of March 4, 1994. The Company's normal seasonal
shipping and cash flow patterns generally require the use of funds in the
first quarter of the fiscal year. During the first quarter of 1995, the
Company used $35.2 million of cash to fund operating needs. This negative
cash flow amount was up from the $27.5 million use of cash to fund
operations during the first quarter of fiscal 1994.
9<PAGE>
PART I - FINANCIAL INFORMATION (Continued)
THE STRIDE RITE CORPORATION
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
Liquidity and Capital Resources (continued)
At March 3, 1995, receivable and inventory levels totaled $249
million, up 9.8% from the $226.8 million amount at the end of the first
quarter of 1994. Inventories at March 3, 1995 were above the 1994 level by
$20.4 million or 16.8% due to the increased number of retail stores (260 in
1995 compared to 189 in 1994) and higher inventories of Keds products.
Keds inventory levels, which were high at year end 1994, will be further
reduced during the second quarter of fiscal 1995 through the sourcing of
lower quantities of basic styles and by selling discontinued seasonal
merchandise.
The Company uses bank lines of credit to fund seasonal working capital
needs. Short-term debt at March 3, 1995 amounted to $31.6 million. No
short-term borrowings were outstanding at the end of the first quarter of
1994. Average outstanding borrowings under these lines of credit during
the first quarter of fiscal 1995 amounted to $14.7 million compared to $0.1
million in the similar period of fiscal 1994.
During the first quarter of 1995, the Company used $5.3 million of
cash to acquire certain assets of the University Brands division of
Genesco, Inc. Capital expenditures of $4 million in the first quarter of
1995 were above the 1994 level of $0.5 million. The higher level of
expenditures was related to new retail stores and spending on the Company's
program to upgrade computer system capabilities.
10
<PAGE>
PART II - OTHER INFORMATION
THE STRIDE RITE CORPORATION
ITEM 6. Exhibit and Reports on Form 8-K
(a) Exhibits. The following Exhibits are contained in this
report:
Exhibit No. Description of Exhibit
11 Computation of Per Share
Earnings
27 Financial Data Schedule
(b) Reports on Form 8-K None
11
<PAGE>
II - OTHER INFORMATION (Continued)
THE STRIDE RITE CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned duly authorized.
THE STRIDE RITE CORPORATION
(Registrant)
Date: April 14, 1995 By: /s/ John M. Kelliher
John M. Kelliher
Vice President, Finance,
Treasurer and Corporate
Controller
12
<PAGE>
THE STRIDE RITE CORPORATION
INDEX TO EXHIBITS
Exhibit No. Sequential
Page No.
11 Computation of Per Share Earnings 14 of 15
27 Financial Data Schedule 15 of 15
13
EXHIBIT 11
THE STRIDE RITE CORPORATION
COMPUTATION OF PER SHARE EARNINGS
(In Thousands except Per Share Data)
<TABLE>
<CAPTION>
Three Months Ended
March 3, 1995 March 4, 1994
<S> <C> <C>
Net income applicable to common shares $ 4,975 $ 4,849
Calculation of shares:
Weighted average number of common
shares outstanding 49,528 50,242
Common shares attributable to
assumed exercise of dilutive
stock options and stock purchase
rights using the treasury stock
method 320 177
Average common shares and common
equivalents outstanding during
the period 49,848 50,419
Net income per common share $.10 $.10
</TABLE>
14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The notes to the condensed consolidated financial statements are an
integral part of such statements and the condensed consolidated
financial information in this schedule.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-01-1995
<PERIOD-END> MAR-03-1995
<CASH> 13,431
<SECURITIES> 41,049
<RECEIVABLES> 115,935
<ALLOWANCES> 8,368
<INVENTORY> 141,468
<CURRENT-ASSETS> 342,822
<PP&E> 76,780
<DEPRECIATION> 26,438
<TOTAL-ASSETS> 416,224
<CURRENT-LIABILITIES> 113,532
<BONDS> 0
<COMMON> 14,237
0
0
<OTHER-SE> 278,656
<TOTAL-LIABILITY-AND-EQUITY> 416,224
<SALES> 134,772
<TOTAL-REVENUES> 134,772
<CGS> 84,174
<TOTAL-COSTS> 84,174
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 695
<INTEREST-EXPENSE> 287
<INCOME-PRETAX> 8,054
<INCOME-TAX> 3,079
<INCOME-CONTINUING> 4,975
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,975
<EPS-PRIMARY> .10
<EPS-DILUTED> .10
</TABLE>
