1 of 28 Pages
Exhibit Index
Appears on Page 15
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 1, 1996
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.)
191 Spring Street, Lexington, Massachusetts 02173
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 617-824-6000
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
<PAGE>
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, 1996, 49,572,233 shares of the registrant's common stock, $.25
par value, and the accompanying Preferred Stock Purchase Rights were
outstanding.
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
<TABLE>
THE STRIDE RITE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
<CAPTION>
March 1, March 3,
1996 December 1, 1995
(Unaudited) 1995 (Unaudited)
------------------------------------------
Assets
Current assets:
<S> <C> <C> <C>
Cash and cash equivalents $13,081 $28,130 $13,431
Short-term investments 37,765 26,211 41,049
Accounts and notes 92,921 48,066 107,567
receivable, net
Inventories:
Finished goods 121,700 141,914 134,671
Work in process 815 863 2,336
Raw materials 3,627 2,721 4,461
-------- ------- -------
126,142 145,498 141,468
Deferred income taxes and
prepaid expenses 43,751 44,458 39,307
-------- ------- -------
Total current assets 313,660 292,363 342,822
Property and equipment, net 59,286 60,434 50,342
Other assets 12,779 13,819 23,060
-------- -------- --------
Total assets $385,725 $366,616 $416,224
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
<PAGE>
PART I - FINANCIAL INFORMATION (Continued)
<TABLE>
THE STRIDE RITE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
(Dollars in Thousands)
<CAPTION>
March 1, March 3,
1996 December 1, 1995
(Unaudited) 1995 (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 30,100 - 31,600
Accounts payable 10,317 22,963 12,499
Income taxes payable 24,628 19,492 35,814
Accrued expenses and other
liabilities 41,909 44,290 32,786
-------- ------ -------
Total current liabilities 107,787 87,578 113,532
Deferred income taxes 10,749 10,749 8,132
Long-term debt 833 833 1,667
Stockholders' Equity:
Preferred stock, $1 par value
Shares authorized - 1,000,000
Shares issued - None - - -
Common stock, $.25 par value
Share authorized - 135,000,000
Shares issued - 56,946,544 14,237 14,237 14,237
Capital in excess of par
value 23,006 23,006 23,445
Retained earnings 322,466 323,566 348,827
Less cost of 7,416,037 shares
of common stock held in
treasury (7,416,037 on
December 1, 1995 and
7,400,414 on March 3, 1995) (93,353) (93,353) (93,616)
--------- --------- ---------
Total stockholders' equity 266,356 267,456 292,893
--------- --------- ---------
Total liabilities and
stockholders' equity $385,725 $366,616 $416,224
========= ========= =========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
<PAGE>
PART I - FINANCIAL INFORMATION (Continued)
<TABLE>
THE STRIDE RITE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
For the periods ended March 1, 1996 and March 3, 1995
(In Thousands Except Per Share Data)
<CAPTION>
1996 1995
----------------------------------------------------
<S> <C> <C>
Net sales $118,899 $134,772
Cost of sales 79,146 84,174
Selling and administrative expenses 37,396 42,374
--------- --------
Operating income 2,357 8,224
Other income (expense):
Interest income 762 904
Interest expense (315) (287)
Other, net (783) (787)
-------- -------
(336) (170)
-------- -------
Income before income taxes 2,021 8,054
Provision for income taxes 643 3,079
--------- -------
Net income $1,378 $4,975
======== =======
Net income per common share $.03 $.10
==== ====
Dividends per common share $.05 $.095
==== =====
Average common shares and common
equivalents outstanding during the period 49,781 49,848
====== ======
</TABLE>
The accompanying notes are an integral part of the
condensed consolidated financial statements
<PAGE>
PART I - FINANCIAL INFORMATION (Continued)
<TABLE>
THE STRIDE RITE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the three months ended March 1, 1996 and March 3, 1995
(Dollars in Thousands)
<CAPTION>
1996 1995
---------------------
Cash was provided from (used for) Operations:
<S> <C> <C>
Net income $1,378 4,975
Adjustments to reconcile to net cash
provided from (used for)operations:
Depreciation and amortization 2,518 2,493
Deferred income taxes, net 179 -
Equity in loss (earnings) of affiliate 123 (318)
Loss on disposal of property and equipment 458 16
Changes in:
Accounts and notes receivable (44,855) (4,164)
Inventories 19,356 5,360
Prepaid expenses 528 (1,334)
Accounts payable, income taxes, accrued
expenses and other current liabilities (9,892) (12,274)
-------- -------
Net cash used for operations (30,207) (35,246)
------- -------
Investments:
Short-term investments (11,554) (10,515)
Additions to property and equipment (1,197) (3,965)
Distributions and dividends from long-term
investments 2,359 -
Acquisition of business - (5,308)
Increase in other assets (2,074) (3,851)
-------- ------
Net cash used for investments (12,466) (23,639)
-------- ------
Financing:
Proceeds from sale of stock under stock plans - 7
Cash dividends paid (2,476) (4,704)
Short-term borrowings 30,100 31,600
-------- ------
Net cash provided from financing 27,624 26,903
-------- ------
Net decrease in cash and cash equivalents (15,049) (31,982)
Cash and cash equivalents at beginning of
the period 28,130 45,413
------- -------
Cash and cash equivalents at end of the period $13,081 $13,431
======= =======
</TABLE>
The accompanying notes are an integral part of the
condensed consolidated financial statements
<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 1, 1996 and March 3,
1995 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 1, 1996 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 1995
condensed consolidated financial statements to conform to the fiscal 1996
presentation.
NOTE 2
During the first three months of fiscal 1996, interest payments amounted to
$249,000 ($210,000 in 1995). For the first quarter of 1996, the Company received
a net refund of income taxes amounting to $6,477,000. In the first three months
of fiscal 1995, payments for income taxes totaled $431,000.
<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. 1995 Results:
First Quarter
Net sales (11.8%)
Gross profit (21.4%)
Selling and administrative expenses (11.7%)
Operating income (71.3%)
Income before income taxes (74.9%)
Net income (72.3%)
Operating Ratios as a Percent to Net Sales:
<TABLE>
First Quarter
<CAPTION>
-------------------------------
1996 1995
-------------------------------
<S> <C> <C>
Gross profit 33.4% 37.5%
Selling and administrative expenses 31.5% 31.4%
Operating income 2.0% 6.1%
Income before income taxes 1.7% 6.0%
Net income 1.2% 3.7%
</TABLE>
Net sales in the first quarter of fiscal 1996 decreased $15.9 million
(11.8%) from the sales level achieved in the comparable period of fiscal 1995. A
14.8% decline in revenues related to the Company's wholesale divisions during
the first quarter of 1996 was partially offset by increased retail sales in the
latest period. With respect to the wholesale divisions of the Company, unit
shipments of current line merchandise during the first quarter were down 18%
from the 1995 first quarter shipment total. Higher sales of discontinued
products and a slight increase in average selling price offset a portion of the
unit
<PAGE>
PART I - FINANCIAL INFORMATION (Continued)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Results of Operations (cont'd)
shipment decline. Excluding the impact of product mix changes, net sales in the
first quarter of 1996 increased by approximately $0.6 million due to selling
price inflation.
The sales decline in the Company's wholesale businesses during the
first quarter of 1996 was caused by a 24% decrease in revenues of the Keds
division. All of the other business units of the Company posted higher net sales
in the first three months of 1996. Entering fiscal 1996, the backlog of advance
orders for Keds products, calling for shipment in the first quarter of 1996, was
below last year as the Spring 1996 sales policies for Keds basic products
emphasized the division's quick-response reorder capabilities. This policy
change is intended to shift product deliveries closer to the retail selling
season resulting in lower retailer inventories and improved profitability,
although there can be no assurance that this will occur. In fiscal 1996, due to
this policy change, Keds' success in the Spring season will depend, more heavily
than in past years, on retail sell-through performance and the resulting reorder
activity in the second quarter. During the first quarter of 1996, sales of the
Stride Rite Children's Group to independent dealers, family shoe stores and
department stores increased 5% from the revenue total achieved in the 1995 first
quarter. The Sperry Top-Sider and International divisions also generated higher
revenues in the first quarter of fiscal 1996, with sales above 1995 by 6% and
10%, respectively.
For the first quarter of fiscal 1996, 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(TM)
and Keds retail concepts, increased 9% from 1995 as a more productive store mix
offset a 1.2% decline in sales at comparable stores. During the first three
months of 1996, the Retail division operated an average of 246 stores, down 4%
from the total of 256 stores operated during the comparable period of 1995.
Average store sales volumes
<PAGE>
PART I - FINANCIAL INFORMATION (Continued)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Results of Operations (cont'd)
improved during the first quarter of 1996 as the division closed 28 lower volume
leased departments during the fourth quarter of fiscal 1995 and eliminated
during the first quarter 18 of the Company's 48 underperforming retail
operations which were targeted for closing in 1996 as part of the Company's
restructuring plan.
During the first quarter, gross profit decreased 21.4%
compared to the sales decline of 11.8%. The consolidated gross profit percent in
the three months decreased to 33.4% in 1996 from the 37.5% rate recorded in the
first quarter of 1995. The LIFO provision reduced gross profit by $1.1 million
(0.9% of net sales) in the 1996 period compared to a provision of $0.7 million
(0.6% of net sales) in the first quarter of 1995. The reduced importance of Keds
sales, especially in the higher margin, Champion(R) canvas product category, to
the consolidated total negatively impacted gross profit percent comparisons
between the 1996 and 1995 quarterly periods. Gross profit performance in 1996
was also hurt by increased inventory obsolescence charges and retail markdowns
and by the cost of special promotions to help the retail sell-through of Keds
products during the Spring and early Summer selling periods. Higher unfavorable
variances related to domestic manufacturing operations, which included the
phaseout of a children's facility in Missouri, also reduced gross profit in the
first quarter of 1996. The consolidated gross profit percent was favorably
impacted in 1996 by the increased significance of Retail division, the portion
of the Company with the highest gross profit percentage, as retail sales
accounted for 15.6% of consolidated net sales in 1996 compared to 12.6% of sales
in the first quarter of 1995.
Selling and administrative expenses in the first quarter of fiscal 1996
decreased $5 million or 11.7% from the spending level incurred in 1995. As a
percentage of sales, these expenses represented 31.5% of net sales in 1996,
similar to the spending rate experienced in the first quarter of 1995. Lower
advertising spending accounted for just over half of the expense reduction.
Advertising expenses in the first quarter of 1996 totaled $6.8
<PAGE>
PART I - FINANCIAL INFORMATION (Continued)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Results of Operations (cont'd)
million (5.7% of sales), down $2.8 million from the spending level of $9.6
million (7.1% of sales) in the 1995 period. While distribution costs decreased
$0.2 million or 3% from the first quarter of 1995, these costs represented 4.6%
of sales in 1996 compared to 4.2% in 1995. Retail store expenses in the first
quarter of 1996 increased $0.5 million with all of the increased costs
related to new stores opened in fiscal 1995. Other selling and administrative
costs in the first quarter of 1996 decreased $2.7 million or 14% due to the
lower sales level experienced in the wholesale divisions and the actions
initiated in the second half of 1995 to consolidate certain administrative
functions and to reduce overall spending.
Other income (expense) decreased pre-tax income by $0.3 million in 1996
compared to an decrease of $0.2 million in the first quarter of 1995. Interest
income during the first quarter of 1996 was below last year by $0.1 million due
to decreased short-term investment yields. Interest expense in 1996, was similar
to the 1995 expense level as lower interest rates offset the impact of higher
short-term borrowings. Other expenses, which are primarily related to the costs
of a company-owned life insurance program, were also similar to the comparable
period of fiscal 1995. The provision for income taxes in the first quarter of
1996 was below the 1995 expense level primarily due to the lower pre-tax income.
The 1996 effective income tax rate of 31.8% was below the 1995 rate of 38.2%
because of the increased impact of tax savings related to the company-owned life
insurance program and lower state income taxes.
Net income decreased $3.6 million or 72.3% during the first quarter of
1996 because of the sales decline and lower gross profit performance described
above.
Liquidity and Capital Resources
At March 1, 1996, the Company's balance sheet reflects a current ratio
of 2.9 to 1 and a debt-to-equity relationship of
<PAGE>
PART I - FINANCIAL INFORMATION (Continued)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Liquidity and Capital Resources (Cont'd)
0.3%. The Company's cash and short-term investments totaled $50.8 million at the
end of the latest quarter, down from the year-end 1995 level of $54.3 million
and below the cash and investments balance of $54.5 million as of March 3, 1995.
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 1996, the Company used $30.2 million of cash to fund operating needs.
This negative cash flow amount was lower than the $35.2 million use of cash to
fund operations during the first quarter of fiscal 1995.
At March 1, 1996, inventory and receivable levels totaled $219.1
million, down $29.9 million or 12% from the $249 million amount at the end of
the first quarter of 1995. Inventory levels at March 1, 1996 were down $15.3
million or 10.8% from the 1995 total as Keds and Sperry Top-Sider inventories
were reduced from excessive levels maintained in the first quarter of 1995.
Receivables were also lower, with the decrease from 1995 caused by the lower
sales level experienced in the first quarter of 1996.
The Company uses bank lines of credit to fund seasonal working capital
needs. Short-term debt at March 1, 1996 amounted to $30.1 million as compared to
borrowings of $31.6 million at the end of the first quarter of 1995. Average
outstanding borrowings under these lines of credit during the first quarter of
fiscal 1996 amounted to $18.6 million compared to $14.7 million in the similar
period of fiscal 1995.
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. The following Exhibits are contained in
this report:
Exhibit No. Description of Exhibit
10* Employment Agreement between the
Registrant and Stephen R.
DuMont dated March 11, 1996
11 Computation of Per Share Earnings
27 Financial Data Schedule
99 Statement on Important Factors
Regarding Forward-looking
Information
*Denotes a management contract or compensatory plan or
arrangement.
(b) Reports on Form 8-K
There were no reports filed on Form 8-K during the most recent
quarterly period.
<PAGE>
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 11, 1996 By: /S/ John M. Kelliher
-------------------------
John M. Kelliher
Vice President, Finance,
Treasurer and Corporate
Controller
<PAGE>
THE STRIDE RITE CORPORATION
INDEX TO EXHIBITS
Exhibit
No. Sequential Page No.
10 Employment Agreement Between the
Registrant and Stephen R.
DuMont dated March 11, 1996 16 through 24 of 28
11 Computation of Per Share Earnings 25 of 28
27 Financial Data Schedule 26 of 28
99 Statement on Important Factors
Regarding Forward-Looking
Information 27 through 28 of 28
Exhibit 10
EMPLOYMENT AGREEMENT
This Contract of Employment (the "Agreement") is entered into as of
this 11th day of March, 1996 by and between The Stride Rite Corporation (the
"Company") and Stephen R. DuMont (the "Executive").
WHEREAS, the Company desires to promote and enter into a two year
employment agreement with the Executive to serve in the capacities of Executive
Vice President and Chief Operating Officer of the Company, and
WHEREAS, the Executive desires to enter into an Employment Agreement
with the Company to serve in the capacities of Executive Vice President and
Chief Operating Officer,
NOW, THEREFORE, the Company and Executive, each in consideration of the
promises of the other hereinafter contained, agree as follows:
1. Employment. The Company hereby agrees to and does hereby promote and
employ the Executive, and the Executive hereby agrees to and does hereby agree
to be employed by the Company for the period set forth in Section 2 below (the
"Employment Period") in the positions and with the duties and responsibilities
set forth in Section 3 below, and upon the terms and conditions set forth in
this Agreement.
2. Employment Period. The Employment Period of two years shall commence
on March 31, 1996 and except as otherwise expressly provided hereinbelow, shall
continue until the close of business on March 31, 1998 (the "Term"). If there is
no subsequent employment agreement the parties shall revert to the Letter to the
Executive dated August 12, 1994.
3. Positions. It is contemplated that during the
Employment Period, the Executive shall serve as an officer of the
Company with the offices and titles of Executive Vice President
and Chief Operating Officer, reporting directly to the Chairman,
Chief Executive Officer and President of the Company. With
respect to those offices, the Executive shall have powers and
<PAGE>
duties as he may be given from time to time during the Employment
Period.
At some future date the Board will consider electing the Executive to
serve as a Director of the Company.
4. Performance. Throughout the Employment Period, the Executive agrees
to devote his full time and undivided attention to the business and affairs of
the Company, and in particular to the performance of all of the duties and
responsibilities of the Chief Operating Officer of the Company, except for
reasonable vacation and except for temporary illness or incapacity. The
Executive shall be entitled to up to four (4) weeks of vacation per year.
The Executive shall serve the Company and each of its subsidiaries
loyally, diligently and effectively and at all times exert his best efforts to
promote the success of their respective activities. The Executive shall
discharge his duties and responsibilities in an efficient, trustworthy and
businesslike manner and shall do nothing which will in any way impair or
prejudice the name or reputation of the Company or any of its subsidiaries.
Nothing in this Agreement shall preclude the Executive from devoting
reasonable periods required for:
a. serving as director, trustee or member of a committee of
any organization involving no conflict of interest with the
interests of the Company;
b. engaging in charitable and community activities; and
c. managing his personal investments;
provided that such activities do not, individually or collectively, interfere
with the regular performance of the Executive's duties and responsibilities
under this Agreement.
5. Salary and Incentive Compensation. During the
Employment Period, as long as the Executive is employed by the
Company, the Executive shall be entitled to compensation from the
Company as follows:
<PAGE>
a. For all services to be rendered by the Executive to the Company
during the Employment Period, including, without limitation, services as an
executive, officer, director (in the event elected), employee of the Company or
its subsidiaries, divisions, business units or affiliates, the Executive shall
be paid compensation in the form of a base or fixed salary, payable not less
often than once each month, at the annual rate of Three Hundred Thousand Dollars
($300,000), with the opportunity for periodic annual reviews and increases in
such rate as shall be determined in the sole discretion of the Board of
Directors.
b. The Executive shall be paid additional compensation in
the form of incentive compensation as follows:
i. The Executive shall be an "Eligible Employee" as that term
is defined in the Company's Annual Plan (the "Annual Plan") and may receive
incentive compensation as provided by the terms of such Plan. Pursuant to the
Annual Plan, the Executive's "Bonus Percentage" (as defined therein) will be
35%. At the meeting approving this Agreement, the Board will consider an
increase to 40%. The Executive's participation in the Annual Plan is subject to
the terms and conditions of the Annual Plan, or any amended version of the
Annual Plan or any successor or other annual incentive compensation plan which
may be adopted and become legally effective during the Employment Period.
ii. Pursuant to the 1995 Long-Term Growth Incentive Plan the
Executive shall be eligible to receive Stock Options as the Board of Directors
deems appropriate.
6. Perquisites. During the Employment Period, the
Executive shall be entitled to the perquisites as follows:
a. The Executive shall be provided with an appropriate
office and secretarial and clerical staff.
b. The Company's lease of an automobile, (the "Vehicle"), shall be
provided by the Company for the Executive's use, pursuant to the Company's
leased car policy as currently in effect. Under the Company's leased car policy,
an amount of up to 4% of the Executive's base salary (as provided in Section 5a
of this Agreement) will be paid by the Company toward the lease payments.
Payment of the current lease of 4% of base salary will continue until the
current lease expires. Upon termination of current Vehicle lease a $7000 cap
will be imposed on the Vehicle
<PAGE>
lease payment by the Company. In addition, the Company will pay for insurance
and maintenance costs of the Vehicle. Should such costs for the Vehicle exceed
the allowance, the Executive will be responsible for payment of any
differential. The Executive shall be responsible for the cost of fuel consumed
in the use of the Vehicle. Pursuant to the Company's current automobile policy,
the Company will pay the Executive a mileage allowance as reimbursement for the
use of the Vehicle in conducting the Company's business.
c. The Company shall reimburse the Executive for up to
$5,000.00 per year for the Executive's use of personal financial
planning services.
The Executive shall be entitled to participate in all of the various
employee benefit plans which the Company maintains and/or adopts during the
Employment Period, including a defined benefit Retirement Plan and various
elective programs, including, without limitation, a life insurance policy, a
dental insurance plan (effective as of the beginning of the Employment Period),
Employee Stock Purchase Plan and Employee Savings and Investment Plan (pursuant
to Section 401K of the Internal Revenue Code of 1986, as amended), subject to
their respective terms and requirements, including, without limitation, their
eligibility and vesting requirements. The Executive is currently enrolled in all
of these plans.
Nothing in this Agreement shall preclude the Company from amending or
terminating any employee benefit plan or practice, but it is the intent of the
parties that the Executive shall continue to be entitled during the Employment
Period to benefits at least equal in the aggregate to those attached to his
position as of the date of this Agreement.
7. Residence Requirement. The Executive agrees that by June 30, 1996
the Executive will establish residence for himself and his family in the greater
Boston (Massachusetts) area and that the Executive shall maintain such residence
throughout his continued employment by the Company.
8. Relocation Expenses. The Company agrees to pay for (i)
the broker's commission and closing costs incurred by the
Executive with respect to the sale of his principal residence at
7000 North 47th Street, Scottsdale, Arizona to the extent the
amount of such fees and costs are customary in such community and
<PAGE>
are customarily borne by the Seller. The Company shall obtain three appraisals,
by appraisors who will be selected by the Company, of the value of his current
residence during the month of March, 1996. If the executive sells such residence
before June 30, 1996 for a price less than the average of such three appraised
values, the Company shall immediately pay to the Executive in cash the amount of
such shortfall. If the Executive does not sell his residence before June 30,
1996, and the Executive notifies the Company that he is unable to sell his
residence, the Company shall purchase the residence itself at a price equal to
the average of the values determined by the three independent real estate
appraisers selected by the Company. In addition, the Company shall pay the
Executive's reasonable expenses incurred to move the Executive's personal
property and family from Scottsdale to the permanent residence to be purchased
by the Executive in the Boston area. The Company will also reimburse the
Executive for expenses for deposits or "switch on" fees for utilities at the new
residence and fees to install any major appliances which are incurred as part of
the move to the Boston area. The Company will provide the Executive an allowance
of $5000 to cover any other costs associated with the relocation.
From the date of this Agreement until the earlier of (i) the time the
Executive establishes a permanent residence in the Boston area, or (ii) July 1,
1996, the Company agrees to reimburse the Executive up to $4,000 per month for
reasonable living expenses incurred in connection with the rental of a furnished
apartment or hotel and related out of pocket expenses for the Executive's use in
the Boston area, in addition to reimbursement of reasonable expenses incurred by
the Executive for parking, telephones, cable television and utilities. The
Company, furthermore, agrees to reimburse the Executive for the cost of a
round-trip airfare for travel between Boston and the Executive's present
residence in Scottsdale up to four (4) times per month by the Executive until
the earlier of (i) the establishment of the Executive's permanent residence in
the Boston area or (ii) July 1, 1996.
9. Termination of Employment during Employment Period. The Executive
hereby acknowledges and agrees that the Company by entering into this Agreement
shall not be deemed to have waived any of its rights during the Employment
Period or thereafter, including, without limitation, the right to terminate the
Executive's employment for any reason.
<PAGE>
In the event that the Company terminates the Executive's employment
during the Employment Period for any reason other than for Cause (as defined
below), the Company shall pay the Executive a severance allowance consisting of
either (i) a lump sum payment equal to the present value (using as a discount
rate the prime rate charged by the Bank of Boston on the date of the Executive's
termination) of the base or fixed salary payable pursuant to Section 5a of the
Agreement for the remainder of the Employment Period, or (ii) if the termination
occurs during the last year of this Agreement a monthly severance allowance
payable in accordance with one year severance Agreement between the Company and
the Executive dated March 30, 1995.
In the event that the Executive's employment is terminated during the
Employment Period for Cause, then the Executive shall not be entitled to receive
any severance allowance or compensation of any kind (except (i) incentive
compensation which may have been fully earned pursuant to the terms and
conditions of the Annual Plan and (ii) the rights of the Executive or his legal
representative to exercise the vested portion of the stock purchase rights
granted to the Executive) nor continue to be entitled to any of the Company's
employee benefits, including any benefits provided in this Agreement or under
the company's medical, dental, health and life insurance plans (except to the
extent the same may be required by law, or to perquisites of any kind, from and
after the date upon which the Executive's employment is terminated.) For the
purposes of this section and any other provision of this Agreement, termination
of the Executive's employment shall be deemed to have been for Cause only if:
a. termination of his employment shall have been so deemed by the Board
of Directors of the Company by virtue of (i) and act or acts of dishonesty, (ii)
commission of a felony or act of moral turpitude, (iii) a wrongful act or acts
resulting or intended to result directly or indirectly in gain or personal
enrichment at the expense of the Company, (iv) a willful act or acts which
constitute a material violation or violations of the federal securities laws, or
(v) a willful act or acts which constitute material insubordination or a
material violation of the Company's Conflict of Interest policy or any of its
other policies communicated to the Executive in writing; or
b. there has been a breach by the Executive during the
Employment Period of any of the material provisions of this
<PAGE>
Agreement, and, with respect to any alleged breach, that the Executive shall
have failed to remedy such alleged breach within thirty (30) days from his
receipt of written notice from the Clerk of the Company pursuant to the
resolution duly adopted by the Board of Directors of the Company after notice to
the Executive and an opportunity to be heard demanding that the Executive remedy
such alleged breach.
In the event that the Executive's employment is terminated by his
voluntary resignation, the Executive shall not be entitled to payment of any
severance allowance, or compensation of any kind (except incentive compensation
which may have been fully earned pursuant to the terms and conditions of the
Annual Plan and the rights of the Executive to exercise the vested portion of
the stock rights granted to the Executive.)
In the event that the severance arrangements provided for in this
Section 10 are triggered, the Executive will be required, as a condition to
payment, to execute a release acknowledging full and final settlement of all
claims arising from his employment and agreeing to provide reasonable
cooperation to the Company.
10. Agreement Not to Compete. The Executive hereby covenants and agrees
that if a termination occurs within the two year term of this Agreement for a
period of one (1) year following termination of the Executive's employment with
the Company for any reason, the Executive will not, directly or indirectly,
within the United States (the same being the area in which the Company's
business is conducted), in any capacity, enter into or engage in the same or a
substantially similar business as that conducted and carried on by the Company
and being directly competitive with the Company or any of its business units or
subsidiaries, including, but not limited to, specialty retailing of infant's,
toddler's and children's footwear, the design, manufacture of footwear of any
type on the wholesale level, and any and all components of the foregoing,
whether as an individual for his own account, or as a partner, joint venturer,
employee, agent, consultant, officer or director for or with any person or
entity, or as a shareholder (greater than one percent (1%) of any corporation),
or otherwise.
11. Agreement of Confidentiality. With respect to any
secret, proprietary or confidential information obtained by the
Executive during his employment at the Company, except with the
prior written agreement of the Company, which consent shall be
<PAGE>
granted or withheld in the sole discretion of the Company, the Executive will
not, at any time, disclose or use for competitive purposes (other than the
Company's competitive purposes) any such information. For purposes hereof,
secret, proprietary or confidential information shall include, by way of example
but not by way of limitation, any information of a technical, financial,
commercial or other nature pertaining to the business of the Company or to that
of any of its clients, customers, consultants, licensees, business units,
subsidiaries or affiliates, including but not limited to, its and their
operations, plans, financial condition, product development, customers, sources
of supply, manufacturing techniques or procedures, marketing, sales, production
or other competitive information acquired by the Executive during the course of
his employment by the Company and all other information that the Company itself
does not disclose to the public.
12. Notice. For the purposes of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered personally or mailed by United
States registered or certified mail, return receipt requested, postage prepaid,
addressed to the Executive at 7000 North 47th Street, Scottsdale, AZ 85253 until
such time as the Executive establishes permanent residence in Boston and
thereafter at such address; and to the Company at 191 Spring Street, Lexington,
MA 02173-9191 (or at such other address to which it may relocate its
headquarters during the term of this Agreement), directed to the Board of
Directors with a copy to the Clerk of the Company.
13. Heirs and Successors Bound. This Agreement shall be
binding upon the heirs, administrators and executors of the
Executive and upon the successors or assigns of the Company.
14. Miscellaneous.
a. No provision of this Agreement may be modified, waived or
discharged, unless such waiver, modification or discharge is agreed to in
writing and signed by the Executive and such officer as may be specifically
designated by the Board of Directors. No waiver by either party hereto at any
time of any breach by the other party hereto of, or in compliance with any
condition or provision of this Agreement to be performed by the other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the time or at any prior or subsequent time.
<PAGE>
b. The Executive agrees that the remedy at law for any breach by the
Executive of the provisions of Sections 11 or 12 of this Agreement will be
inadequate and that the Company will also be entitled to injunctive relief
without bond against any such breach. Such injunctive relief will not be
exclusive but will be in addition to any other relief that the Company may have.
c. 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.
d. 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.
e. This Agreement may be executed in two counterparts, each of which
shall be deemed an original but all of which together will constitute one and
the same instrument.
f. The section headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
NOW THEREFORE, the parties set their hands and seals on this 11th day
of March, 1996.
Signed: \s\ Stephen R. DuMont
---------------------------
Stephen R. DuMont
THE STRIDE RITE CORPORATION
Signed: \s\ Robert C. Siegel
---------------------------
Robert C. Siegel,
Chairman, President &
Chief Executive Officer
Exhibit 11
THE STRIDE RITE CORPORATION
COMPUTATION OF PER SHARE EARNINGS
(In Thousands except Per Share Data)
Three Months Ended
March 1, 1996 March 3, 1995
----------------------------------------
Net income applicable to common
shares $1,378 $4,975
====== ======
Calculation of shares:
Weighted average number of common
shares outstanding 49,546 49,528
Common shares attributable to
assumed exercise of dilutive
stock options and stock
purchase rights using the
treasury stock method 235 320
------ ------
Average common shares and common
equivalents outstanding during
the period 49,781 49,848
====== ======
Net income per common share $.03 $.10
==== ====
<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>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-29-1996
<PERIOD-END> MAR-01-1996
<CASH> 13,081
<SECURITIES> 37,765
<RECEIVABLES> 92,921
<ALLOWANCES> 6,949
<INVENTORY> 126,142
<CURRENT-ASSETS> 313,660
<PP&E> 85,839
<DEPRECIATION> 26,553
<TOTAL-ASSETS> 385,725
<CURRENT-LIABILITIES> 107,787
<BONDS> 0
0
0
<COMMON> 14,237
<OTHER-SE> 252,119
<TOTAL-LIABILITY-AND-EQUITY> 385,725
<SALES> 118,899
<TOTAL-REVENUES> 118,899
<CGS> 79,146
<TOTAL-COSTS> 79,146
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 644
<INTEREST-EXPENSE> 315
<INCOME-PRETAX> 2,021
<INCOME-TAX> 643
<INCOME-CONTINUING> 1,378
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,378
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
Exhibit 99
THE STRIDE RITE CORPORATION
STATEMENT ON IMPORTANT FACTORS
REGARDING FORWARD-LOOKING INFORMATION
These cautionary statements are being made pursuant to the provisions
of the Private Securities Litigation Reform Act of 1995 with the intention of
obtaining the benefits of the "safe harbor" provisions of such Act. The Company
cautions investors that any forward-looking statements presented in this report
and presented elsewhere by management from time to time are based on
management's beliefs and assumptions made by, and information currently
available to, management. When used, the words "anticipate," "estimate,"
"project," "should," "expect" and similar expressions are intended to identify
forward-looking statements. Such statements are subject to risks, uncertainties
and assumptions and are not guarantees of future performance, which may be
affected by various trends and factors that are beyond the Company's control.
Should one or more of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, actual results may vary materially from
those anticipated, estimated or projected. Accordingly, past results and trends
should not be used by investors to anticipate future results or trends. Some of
the key factors that may have a direct bearing on the Company's results are as
follows:
The footwear industry specifically, and the fashion industry generally,
are subject to rapid and substantial shifts and competitors are numerous. Many
of the Company's competitors have substantially greater financial resources and
production, marketing and development capabilities and experience than the
Company. The Company's operating results may be affected by the actions of
existing or future competitors, including actions relating to product
development, pricing, innovation and sourcing strategies. In addition, the
footwear industry in the United States experiences substantial foreign
competition, which is expected to continue.
The fashion industry and retail industry are also subject to sudden
changes in consumer trends and consumer spending, on which the Company's results
are, in part, dependent. The Company's results are subject to numerous
conditions which affect the buying patterns of the Company's customers and of
consumers, to
<PAGE>
THE STRIDE RITE CORPORATION
STATEMENT ON IMPORTANT FACTORS
REGARDING FORWARD-LOOKING INFORMATION (Cont'd)
changes in customer and consumer plans, of which the Company is not always
apprised, and to variable consumer awareness of the Company's brands.
The Company purchases a significant portion of its product line and raw
materials overseas and expects this trend to continue. 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, political instability and similar events, including trade
sanctions, loss of most favored nation trading status, export duties, import
controls, quotas 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. However, disruption of
such sources of supply could, particularly on a short-term basis, have a
material adverse impact on the Company's operations. Further, variations in the
production and pricing levels of important raw material, including leathers,
affect the Company's ability to compete.
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. No assurance can be given, however, that the
Company's intellectual property applications will issue as patents or trademarks
or that future patents and trademarks that may be issued will provide the
Company with adequate protection for the covered products. Further, variations
of different countries in the protection of intellectual property rights affects
the Company in the countries in which it sources and distributes product.
Additionally, there can be no assurance that the Company's activities will not
infringe on the proprietary rights of others. In the event the Company is
compelled to obtain or defend intellectual property or to defend intellectual
property claims made by others, the expenditure of substantial resources may be
necessary.
