1 of 16 Pages
Exhibit Index
Appears on page 13
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the quarterly period ended June 2, 1995
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to .
Commission File Number: 1-4404
THE STRIDE RITE CORPORATION
(Exact name of registrant as specified in its charter)
Massachusetts 04-1399290
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
Five Cambridge Center, Cambridge, Massachusetts 02142
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 617-491-8800
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Common Stock, $.25 par value New York Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all
reports required by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
As of July 7, 1995, 49,539,188 shares of the registrant's common stock,
$.25 par value, were outstanding and 6,192,398 of the registrant's
Preferred Stock Purchase Rights, which trade with the registrant's common
stock, were outstanding.
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
THE STRIDE RITE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
June 2, June 3,
1995 December 2, 1994
(Unaudited) 1994 (Unaudited)
Assets
Current Assets:
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 18,688 $ 45,413 $ 754
Short-term investments 32,511 30,534 47,421
Accounts and notes
receivable, net 94,047 63,403 127,350
Inventories:
Finished goods 122,908 148,056 107,756
Work in process 1,010 2,416 2,303
Raw materials 3,400 3,148 2,595
127,318 153,620 112,654
Deferred income taxes
and prepaid expenses 39,761 37,973 31,593
Total current assets 312,325 330,943 319,772
Property and equipment, net 51,665 48,267 45,610
Other assets 21,554 17,410 23,119
Total assets $385,544 $396,620 $388,501
</TABLE>
The accompanying notes are an integral part of the
condensed consolidated financial statements.
2
PART I - FINANCIAL INFORMATION (Continued)
THE STRIDE RITE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
(In Thousands)
<TABLE>
<CAPTION>
June 2, June 3,
1995 December 2, 1994
(Unaudited) 1994 (Unaudited)
Liabilities and Stockholders' Equity
Current Liabilities:
Current maturities of long-term
<S> <C> <C> <C> <C> <C> <C>
debt $ 833 $ 833 $ 833
Short-term debt 9,200 - 7,000
Accounts payable 12,958 26,597 12,660
Income taxes payable 31,589 33,167 32,125
Accrued expenses and other
liabilities 29,072 33,718 29,976
Total current liabilities 83,652 94,315 82,594
Deferred income taxes 8,132 8,132 7,005
Long-term debt 1,667 1,667 2,500
Stockholders' Equity:
Preferred stock, $1 par value
Shares authorized - 1,000,000
Shares issued - None - - -
Common stock, $.25 par value
Shares authorized - 135,000,000
Shares issued - 56,946,544 14,237 14,237 14,237
Capital in excess of par value 23,419 23,665 23,397
Retained earnings 348,138 348,577 350,711
Less cost of 7,409,841 shares of
common stock held in treasury
(7,428,613 on December 2, 1994
and 7,274,429 on June 3, 1994) (93,701) (93,973) (91,943)
Total stockholders' equity 292,093 292,506 296,402
Total liabilities and
stockholders' equity $385,544 $396,620 $388,501
</TABLE>
The accompanying notes are an integral part of the
condensed consolidated financial statements.
3
PART I - FINANCIAL INFORMATION (Continued)
THE STRIDE RITE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
For the periods ended June 2, 1995 and June 3, 1994
(In Thousands Except Per Share Data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 2, 1995 June 3, 1994 June 2, 1995 June 3, 1994
<S> <C> <C> <C> <C>
Net sales $144,386 $161,720 $279,158 $283,778
Cost of sales 92,542 101,119 176,716 178,040
Selling and administrative
expenses 44,904 47,386 87,278 84,375
Operating income 6,940 13,215 15,164 21,363
Other income (expense):
Interest income 721 807 1,625 1,317
Interest expense (424) (98) (711) (175)
Other, net (620) (805) (1,407) (1,361)
(323) (96) (493) (219)
Income before income taxes 6,617 13,119 14,671 21,144
Provision for income
taxes 2,616 5,439 5,695 8,615
Net income $ 4,001 $ 7,680 $ 8,976 $12,529
Net income per
common share $.08 $.15 $.18 $.25
Dividends per common share $.095 $.095 $.19 $.19
Average common shares
and common equivalents
outstanding during
the period 49,860 50,037 49,854 50,232
</TABLE>
The accompanying notes are an integral part of the
condensed consolidated financial statements.
4
PART I - FINANCIAL INFORMATION (Continued)
THE STRIDE RITE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the six months ended June 2, 1995 and June 3, 1994
(In Thousands)
<TABLE>
<CAPTION>
June 2, 1995 June 3, 1994
Cash was provided from (used for)
Operations:
<S> <C> <C>
Net income $ 8,976 $12,529
Adjustments to reconcile to net cash
provided from (used for) operations:
Depreciation and amortization 5,084 4,052
Equity in earnings of affiliate (329) (690)
Loss on disposal of property and equipment - 1,583
Changes in:
Accounts and notes receivable (30,644) (52,166)
Inventories 29,510 20,071
Prepaid expenses (1,788) (190)
Accounts payable, income taxes, accrued
expenses and other current liabilities (19,632) (24,578)
Net cash used for operations (8,823) (39,389)
Investments:
Short-term investments (1,977) 18,224
Additions to property and equipment (7,182) (2,282)
Proceeds from sales of property and equipment - 6
Acquisition of business (5,308) -
Increase in other assets (3,015) (2,668)
Net cash provided from (used for) investments (17,482) 13,280
Financing:
Proceeds from sale of stock under stock plans 10 11
Cash dividends paid (9,411) (9,532)
Repurchase of common stock (219) (9,379)
Short-term debt 9,200 7,000
Net cash used for financing (420) (11,900)
Net decrease in cash and cash
equivalents (26,725) (38,009)
Cash and cash equivalents at beginning of
the period 45,413 38,763
Cash and cash equivalents at end of
the period $ 18,688 $ 754
</TABLE>
The accompanying notes are an integral part of the
condensed consolidated financial statements.
5
PART I - FINANCIAL INFORMATION (Continued)
THE STRIDE RITE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1
The financial information included in this Form 10-Q of The Stride Rite
Corporation (the "Company") for the periods ended June 2, 1995 and June 3,
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 June 2, 1995 are not necessarily
indicative of the results of operations that may be expected for the complete
fiscal year. The year-end condensed balance sheet data was derived from the
audited financial statements, but does not include all disclosures required
by generally accepted accounting principles. Certain reclassifications have
been made to the 1994 condensed consolidated financial statements to conform
to the fiscal 1995 presentation.
NOTE 2
During the first six months of fiscal 1995, interest payments amounted
to $704,000 ($162,000 in 1994). For the first six months of 1995, payments
for income taxes totaled $7,349,000 ($8,192,000 in 1994).
NOTE 3
On January 11, 1995, the Company, through its newly formed subsidiary,
Boston Footwear Group, Inc., purchased certain assets, including inventory,
trademarks, patents and other intangible assets, associated with the
University Brands division of Genesco, Inc. for $5,308,000. University
Brands sold children's footwear under the Toddler University , Kids
University and Street Hot brands.
The acquisition has been recorded using the purchase method of
accounting. Accordingly, the purchase price was allocated to assets based on
their estimated fair value as of the date of acquisition. Operating results
associated with the acquired brands were not significant during the six
months ended June 2, 1995. Pro forma financial information for the first
half of fiscal 1994 has not been presented because the amounts were
immaterial to the 1994 consolidated results of operations.
6
PART I - FINANCIAL INFORMATION (Continued)
THE STRIDE RITE CORPORATION
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
The following table summarizes the Company's performance for the second
quarter and six-month period:
Percent Increase (Decrease) vs. 1994 Results for Comparative Periods:
<TABLE>
<CAPTION>
Second Quarter Six Months
<S> <C> <C>
Net sales (10.7%) (1.6%)
Gross profit (14.5%) (3.1%)
Selling and administrative
expenses (5.2%) 3.4%
Operating income (47.5%) (29.0%)
Income before income taxes (49.6%) (30.6%)
Net income (47.9%) (28.4%)
</TABLE>
Operating Ratios as a Percentage of Net Sales:
<TABLE>
<CAPTION>
Second Quarter Six Months
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Gross Profit 35.9% 37.5% 36.7% 37.3%
Selling and administrative
expenses 31.1% 29.3% 31.3% 29.7%
Operating income 4.8% 8.2% 5.4% 7.5%
Income before income taxes 4.6% 8.1% 5.3% 7.5%
Net income 2.8% 4.7% 3.2% 4.4%
</TABLE>
7
PART I - FINANCIAL INFORMATION (Continued)
THE STRIDE RITE CORPORATION
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations (Continued)
Net sales decreased $17.3 million (10.7%) in the second quarter of
fiscal 1995 as compared to the comparable period of fiscal 1994. This
performance offset the sales increase achieved in the first quarter of 1995
and resulted in first half sales decreasing $4.6 million or 1.6% below last
year's level. In the first quarter of fiscal 1994, the Company's results
had been negatively impacted by shipping delays related to start-up
difficulties at its Kentucky distribution center. During the first six
months of fiscal 1995, increased retail sales and higher sales of
discontinued products partially offset an 8.8% decrease in the unit
shipments of current line merchandise. Excluding the impact of product mix
changes, net sales in the first half of 1995 were reduced by approximately
$4.9 million due to selling price deflation.
Sales of the Company's Retail division, which includes the Stride Rite
children's booteries and leased departments, manufacturers' outlets and the
initial stores of the Great Feet and Keds retail concepts, increased 15%
during the first six months of 1995. In the first half of fiscal 1995,
sales of new stores offset a 1.5% decline at comparable stores. Sales at
comparable stores in the second quarter of 1995 were below last year by
0.4%, an improvement from the first quarter 1995 performance when sales
were off 2.8%. The Retail division operated an average of 264 stores
during the first half of 1995, up 39% 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 4% below the
sales total for the first six months of 1994. Keds division sales were
down 10% in the first half of 1995 as the favorable impact of lower order
cancellations due to this year's more timely processing of customer orders
at the Kentucky facility was insufficient to offset Keds' lower advance
bookings and slow reorders during the Spring season. Sales of Sperry Top-
Sider products during the first six months of 1995 increased 16% 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 2% during the first half of 1995 due to generally soft
conditions at the retail level and the purchase over the last year of
independent stores by the Company's Retail division. The Company's
International division posted higher revenues during the first half of
1995, up $3 million or 24% from 1994. Boston Footwear Group, a business
unit organized to market Grasshoppers and other branded footwear, achieved
a 7% sales increase during the first six months of 1995.
8
PART I - FINANCIAL INFORMATION (Continued)
THE STRIDE RITE CORPORATION
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations (Continued)
During the first half of 1995, gross profit declined 3.1% from the
comparable period of 1994 compared to the sales decrease of 1.6%. Gross
profit was also lower in the second quarter of 1995, showing a decline of
14.5% compared to the sales decrease of 10.7%. The consolidated gross
profit percent in the first six months decreased to 36.7% in 1995 from the
37.3% rate recorded in the first half of 1994. The gross profit rate for
the second quarter of 1995 was also below last year, 35.9% in 1995 compared
to 37.5% in 1994. The LIFO provision in the first half reduced gross
profit by $2 million (0.7% of net sales) in 1995 compared to a provision of
$0.1 million (less than 0.1% of net sales) in 1994. The consolidated gross
profit percent was also negatively impacted by changes in product mix as
sales of Keds basic canvas styles, the division's highest margin product,
decreased from last year's sales level.
Selling and administrative expenses in the second quarter of 1995
decreased $2.5 million or 5.2% from the spending level of the comparable
period in fiscal 1994. Expenses for the six month period of 1995 increased
$2.9 million or 3.4% above last year's total. As a percent to sales, these
expenses represented 31.3% of net sales in the first half of 1995 compared
to 29.7% in 1994. Expenses in the second quarter of 1995 included $1
million of severance accruals under a voluntary termination program which
will produce cost savings in the second half of fiscal 1995. The growth of
retail operations, where selling and administrative expenses are high as a
percentage of sales, also contributed to the higher spending as store
expenses in the first half of 1995 increased 18.9% from 1994.
Approximately $2.9 million of the increased retail costs were related to
new stores. Advertising expenses in the first six months of 1995 totaled
$20.2 million (7.2% of sales), up slightly from the spending level of $20.1
million (7.1% of sales) in the 1994 period. Distribution costs represented
4.1% of net sales in the first half of 1995 compared to 5% of net sales in
1994 as last year's total included start-up inefficiencies at the new
facility in Kentucky which were resolved in 1995.
Other income (expense) decreased pre-tax income by $0.5 million in
1995 compared to a decrease of $0.2 million in the first six months of
1994. Interest income during the first half of 1995 was above last year by
$0.3 million due to increased short-term investment yields. Interest
expense increased $0.5 million in 1995 as compared to 1994 due to higher
short-term borrowings to fund working capital needs. 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 six months
of 1995 was below the 1994 amount due to the reduced pre-tax income earned
in 1995. The 1995 effective income tax rate of 38.8% was below the 1994
rate of 40.7% because of increased tax savings related to a company-owned
life insurance program.
9
PART I - FINANCIAL INFORMATION (Continued)
THE STRIDE RITE CORPORATION
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations (Continued)
During the first six months of 1995, net income decreased $3.6 million
(28.4%) from the earnings level achieved in 1994 due to the reduced sales,
unfavorable gross profit performance and increased selling and
administrative expenses described above. Going into the second half of
fiscal 1995, order backlog is below last year by 14% due to lower bookings
of the Keds Fall line. Given the current retail weakness in the women's
apparel and the lower bookings, the Company believes it will be difficult
to recover the first half sales and earnings shortfalls during the last six
months of 1995.
Liquidity and Capital Resources
At June 2, 1995, the Company's balance sheet continues to reflect
favorable trends with a current ratio of 3.7 to 1 and a debt-to-equity
relationship of 0.6%. The Company's cash and short-term investments
totaled $51.2 million at the end of the latest quarter, down from the year-
end 1994 level of $75.9 million, but above the cash and investments balance
of $48.2 million as of June 3, 1994. The Company's normal seasonal
shipping and cash flow patterns generally require the use of funds in the
first six months of the fiscal year. During the first half of 1995, the
Company used $8.8 million of cash to fund operating needs. This negative
cash flow amount was substantially below the $39.4 million use of cash to
fund operations during the first six months of fiscal 1994.
At June 2, 1995, receivable and inventory levels totaled $221.4
million, down 7.8% from $240 million at the end of the first half of 1994.
Inventories at June 2, 1995 were above the 1994 level by $14.7 million or
13% due to the increased number of retail stores (278 in 1995 compared to
193 in 1994) and higher inventories of basic Sperry Top-Sider products.
Keds inventory levels, which were high at year end 1994, were reduced
during the first half of fiscal 1995 through the sourcing of lower
quantities of basic styles and by selling discontinued seasonal
merchandise. The accounts receivable element of working capital at the end
of the second quarter of 1995 decreased $33.3 million or 26.2% from the
1994 receivable amount. The higher level of accounts receivable in 1994
was principally caused by the shipping difficulties at the Kentucky
distribution center.
The Company uses bank lines of credit to fund seasonal working capital
needs. Average outstanding borrowings under these lines of credit during
the first six months of fiscal 1995 amounted to $18.8 million compared to
$0.7 million in the similar period of fiscal 1994.
In January 1995, the Company used $5.3 million of cash to acquire
certain assets of the University Brands division of Genesco, Inc. Capital
expenditures of $7.2 million in the first six months of 1995 were above the
1994 level of $2.3 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
II - OTHER INFORMATION
THE STRIDE RITE CORPORATION
ITEM 4. Submission of Matters to a Vote of Security Holders
The annual meeting of the Company's shareholders was held during the
second quarter, on April 12, 1995. The three Directors nominated by
management were elected by the vote set forth below.
<TABLE>
<CAPTION>
Votes
Name of Director For Withheld
<S> <C> <C>
Donald R. Gant 44,645,139 715,479
Robert C. Siegel 44,923,842 436,776
W. Paul Tippett, Jr. 44,951,196 409,422
</TABLE>
The Company's shareholders also adopted The Stride Rite Corporation
1995 Long-Term Growth Incentive Plan, by the vote set forth below:
<TABLE>
<CAPTION>
Votes
For Against Abstentions
<C> <C> <C>
39,681,640 4,503,330 1,175,648
</TABLE>
The Company's shareholders also ratified the Company's selection of
Coopers & Lybrand, L.L.P. as auditors of the Company for the 1995 fiscal
year, by the vote set forth below:
<TABLE>
<CAPTION>
Votes
For Against Abstentions
<C> <C> <C>
44,988,523 198,511 173,584
</TABLE>
The Company's shareholders also voted to approve a
precatory shareholder proposal, by the vote set forth below:
<TABLE>
<CAPTION>
Votes
For Against Abstentions
<C> <C> <C>
18,762,619 17,053,496 1,235,915
</TABLE>
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits. The following Exhibits are contained herein:
Exhibit No. Description of Exhibit
11 Computation of Per Share Earnings
27 Financial Data Schedule
(b) Reports on Form 8-K
The Company did not file any current reports on Form 8-K during the
second quarter of fiscal year 1995.
11
PART II OTHER INFORMATION (Continued)
THE STRIDE RITE CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
THE STRIDE RITE CORPORATION
(Registrant)
Date: July 13, 1995 By:/s/ John M. Kelliher
John M. Kelliher, Vice President,
Finance, Treasurer, and Corporate
Controller
12
THE STRIDE RITE CORPORATION
INDEX TO EXHIBITS
Exhibit No.
Sequential Page No.
11 Computation of Per Share Earnings Page 14 of 16
27 Financial Data Schedule Pages 15 and 16
of 16
13
THE STRIDE RITE CORPORATION
EXHIBIT 11 - COMPUTATION OF PER SHARE EARNINGS
(In Thousands except Per Share Data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 2, 1995 June 3, 1994 June 2, 1995 June 3, 1994
Net income applicable
<S> <C> <C> <C> <C>
to common shares $ 4,001 $ 7,680 $ 8,976 $12,529
Calculation of shares:
Weighted average num-
ber of common
shares outstanding 49,550 49,956 49,539 50,101
Common shares attri-
butable to assumed
exercise of dilu-
tive stock options
and stock purchase
rights using the
treasury stock
method 310 81 315 131
Average common shares
and common equiva-
lents outstanding
during the
period 49,860 50,037 49,854 50,232
Net income per common
share $.08 $.15 $.18 $.25
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The notes to the condensed consolidated financial statements are an integral
part of such statements and the condensed consolidated financial information
in this schedule. Figures below are in thousands, except per share data.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-01-1995 DEC-01-1995
<PERIOD-END> JUN-02-1995 JUN-02-1995
<CASH> 18,688 18,688
<SECURITIES> 32,511 32,511
<RECEIVABLES> 94,047 94,047
<ALLOWANCES> 8,489 8,489
<INVENTORY> 127,318 127,318
<CURRENT-ASSETS> 312,325 312,325
<PP&E> 80,029 80,029
<DEPRECIATION> 28,364 28,364
<TOTAL-ASSETS> 385,544 385,544
<CURRENT-LIABILITIES> 83,652 83,652
<BONDS> 0 0
<COMMON> 14,237 14,237
0 0
0 0
<OTHER-SE> 277,856 277,856
<TOTAL-LIABILITY-AND-EQUITY> 385,544 385,544
<SALES> 144,386 279,158
<TOTAL-REVENUES> 144,386 279,158
<CGS> 92,542 176,716
<TOTAL-COSTS> 92,542 176,716
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 405 1,100
<INTEREST-EXPENSE> 424 711
<INCOME-PRETAX> 6,617 14,671
<INCOME-TAX> 2,616 5,695
<INCOME-CONTINUING> 4,001 8,976
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 4,001 8,976
<EPS-PRIMARY> .08 .18
<EPS-DILUTED> .08 .18
</TABLE>
