1 of 66 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 1, 1995
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
_____
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to .
Commission File Number: 1-4404
THE STRIDE RITE CORPORATION
(Exact name of registrant as specified in its charter)
Massachusetts 04-1399290
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
191 Spring Street, P.O. Box 9191, 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
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 9, 1996, was $414,391,243.50 based on the closing price
on that date on the New York Stock Exchange. As of February 9,
1996, 49,571,263 shares of the registrant's Common Stock, $.25
par value, were outstanding and 6,196,408 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 1, 1995 Part I and Part II
Portions of the Registrant's Proxy
Statement for 1996 Annual Meeting
of Stockholders Part III
2<PAGE>
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, references to the
"Company" and "The Stride Rite Corporation" in this document are
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), SPERRY(R), STREET HOT(R) and TODDLER
UNIVERSITY(R) trademarks in medium to high price ranges. 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 also markets sneakers and casual footwear for
adults and children under the KEDS(R), ahh...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) and
SPERRY(R) trademarks. Products sold under the SPERRY
TOP-SIDER(R) label also include sneakers and sandals for men and
women.
Sales and Distribution
During the 1995 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, Keds concept
stores, concept stores called Great Feet(TM), and children's
footwear departments in department stores. The Company's largest
single customer accounted for less than 8% of consolidated net
sales for the fiscal year ended December 1, 1995. In 1995, the
Company entered into a licensing agreement to produce and market
a line of premium dress casual, sport casual, dress and
athleisure men's footwear under the TOMMY HILFIGER(R) trademark.
The Company expects to introduce this line in Spring 1997.
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
3<PAGE>
of a desirable retail site by the Company to a dealer. There are
approximately 50 independent dealers who currently sublease store
locations from the Company.
The Company owns an automated distribution center located in
Louisville, Kentucky providing 520,000 square feet of space and a
warehouse in Boston, Massachusetts, providing 565,000 square feet
of space. 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
regarding these facilities.
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 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 1995, in addition to the United States, KEDS(R)
brand products were distributed through third parties in Brazil,
Chile, Denmark, France, Germany, Greece, Hong Kong, Indonesia,
Israel, Italy, Japan, Portugal, Singapore, Sweden and Turkey, as
well as in several other countries in Latin America and Asia,
using local distributors. PRO-Keds(R) brand products are sold
by a distributor in Japan, under a trademark 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. Keds(R) products were also sold in
the United Kingdom through a representative office and in 1996
will be sold through subsidiaries in France, Mexico and the
United Kingdom. The Company is also a party to foreign license
agreements in which independent companies operate Keds retail
stores outside the United States. An aggregate of six stores are
currently operating in Asia and the Eastern Mediterranean
pursuant to such agreements.
In fiscal 1995, in addition to the United States, the
Company distributed its SPERRY TOP-SIDER(R) brand products in
Italy, Japan, Portugal, Singapore and the United Kingdom, as well
as other countries in Europe, South America and Asia, through
local distributors. Further, the Company distributes SPERRY
TOP-SIDER(R) products in Belgium, France, Germany and the
Netherlands, through a subsidiary. The Company is also a party
to foreign license agreements in which independent companies
operate joint Sperry Top-Sider/Keds retail stores outside the
United States. An aggregate of two stores are currently
operating in Asia and the Eastern Mediterranean.
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 18 stores are
currently operating in Canada, Costa Rica, Guatemala, Honduras,
Mexico and Peru pursuant to such agreements. In addition, the
Company also distributes STRIDE RITE(R) brand products to several
retailers in the Caribbean, Latin America, Israel and South
Korea.
4<PAGE>
The Company also distributes SPERRY TOP-SIDER(R), STRIDE
RITE(R) and KEDS(R) products in Canada through its Canadian
subsidiary.
International Sourcing
The Company purchases a significant portion of its product
line overseas. It maintains a staff of approximately 114
professional and technical personnel in South Korea, Taiwan,
Thailand and mainland China, 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 1995, approximately 12% of the
Company's total production requirements for footwear were
fulfilled by the Thai facility. In addition, the Company uses
the services of buying agents to source merchandise.
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 to approximately 90% in 1995. 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. 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 1, 1995, the Company operated 149 Stride Rite
Bootery stores, 80 leased children's shoe departments in leading
department stores, two retail stores for KEDS(R) brand products,
three concept stores operated under the name GREAT FEET(TM) and
20 manufacturers' outlet stores for STRIDE RITE(R), KEDS(R),
SPERRY TOP-SIDER(R) and TODDLER UNIVERSITY(R) brand products.
The product and merchandising formats of the Stride Rite Bootery
stores are utilized in the 80 leased children's shoe departments
which the Company operates in certain divisions of Federated
Department Stores, including Macy's, Jordan Marsh, Rich's and
Lazarus department stores. The Stride Rite Bootery stores carry
a significant portion of the lines of the Company's STRIDE
RITE(R), SPERRY TOP-SIDER(R) and STREET HOT(R) children's
footwear and a portion of the KEDS(R) children's product line.
The two Keds stores carry a complete line of KEDS(R) products.
The GREAT FEET(TM) stores carry a full line of products for
children aged 0 to 12, including STRIDE RITE(R), KEDS(R), SPERRY
TOP-SIDER(R) and STREET HOT(R) brand products. The Company's
stores are located primarily in larger regional shopping malls,
clustered generally in the major marketing
5<PAGE>
areas of the United States. Most of the Company's manufacturers'
outlet stores are located in malls consisting only of outlet
stores.
During the 1995 fiscal year, the Company opened 10 leased
departments, nine manufacturers' outlet stores, two GREAT
FEET(TM) stores and one Keds(R) concept store. In addition
during fiscal 1995, the Company commenced operating 18 Stride
Rite booteries, 13 of which were purchased from independent
dealers. During 1995, the Company also closed five booteries.
The Company currently plans to open approximately four Stride
Rite Booteries and to convert one existing Stride Rite Bootery to
a Great Feet(TM) concept store during fiscal 1996 and close or
sell approximately 48 Stride Rite retail stores during fiscal
1996. For more information on the proposed closure of such
stores, 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".
Sales through the Company's retail operations accounted for
approximately 18% of consolidated net sales for the fiscal year
ended December 1, 1995.
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 and a license agreement under which apparel, using the
KEDS(R) trademark, is marketed in Japan. The Company terminated,
in the first quarter of fiscal 1996, a license agreement under
which handbags for women were 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 1995.
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 1, 1995 and December 2, 1994, the Company had a
backlog of orders amounting to approximately $150,500,000 and
$184,000,000, 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 or cancelled during the first
two quarters of the next fiscal year. Approximately two-thirds
of the backlog reduction in 1995 is related to a lower level of
advance orders for Keds products. The Spring 1996 sales policies
of the Keds subsidiary encouraged national retailers to place
greater reliance on the quick-response capabilities of the
Company's Louisville, Kentucky distribution center. The change
in sales policies is expected to result in increased reorders on
Keds basic products for the Spring 1996 season, thus offsetting a
portion of the order backlog decrease. The increased reliance on
reorders is expected to change Keds' normal shipping pattern by
shifting sales from the first quarter to the second quarter of
fiscal 1996. This change is also expected to result in reduced
retailer inventories and
6<PAGE>
improved profitability of the Keds brand for major retailers.
There can be no assurance that this will indeed occur.
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 1, 1995, the Company employed approximately
3,600 full-time and part-time employees, approximately 500 of
whom were represented by collective bargaining units. Management
believes that its relations with its employees are good.
Reference is hereby made to Footnote 2 to the Company's
Consolidated Financial Statements for a discussion of the
initiatives taken by the Company in the last quarter of fiscal
1995 to reduce future operating costs and to realign certain
product lines and business units and the impact of such
initiatives on head count.
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 (not greater than $100,000) and that it will be
accorded de minimus status. 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
7<PAGE>
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).
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 9, 1996.
Executive Officers of the Registrant
Name Position with Company Age
Robert C. Siegel Chairman of the Board of Directors, 59
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, having been employed by
Levi Strauss & Co. since 1964.
Stephen R. DuMont Executive Vice President, of the 52
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.
Robert B. Moore, Jr. President, Sperry Top-Sider, Inc. since 45
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.
8<PAGE>
Executive Officers of the Registrant
Name Position with Company Age
Dennis Garro President, Retail division, Stride 48
Rite Children's Group, Inc. since
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.
Diane M. Sullivan President, Wholesale division, Stride Rite 40
Children's Group, Inc., since joining the
Company in April 1995. Prior to joining the
Company, Ms. Sullivan was Vice President,
Marketing of The Rockport Co., a division
of Reebok Ltd., a footwear company from
May 1993 to April 1995, the President of
The Comfort Food Co., a specialty foods
firm, from December 1991 to May 1993
and the Vice President, Marketing and
Operations of Bright Horizons Children's
Centers, Inc., a child care provider,
from April 1989 to December 1991. Ms.
Sullivan was previously employed by the
Company as Vice President, Marketing of
Stride Rite Children's Group, Inc. from
October 1985 to April 1989.
C. Madison Riley III Vice President and General Manager, 37
Stride Rite International Corp. since
January 1996. Previous to this position,
Mr. Riley served as Vice President of
Stride Rite International Corp. from
November 1995 to January 1996, as Vice
President and General Manager, Boston
Footwear Group, Inc. from November 1994
to November 1995, as Vice President,
Strategic Planning of the Company from
January 1994 to November 1994, as
Vice President, Strategic Planning of
The Keds Corporation from September 1993
to January 1994 and as Director, Strategic
Planning of the Company from June 1993 to
September 1993. Prior to joining the
Company, Mr. Riley served as a partner
and regional director of Kurt Salmon
Associates, a consulting firm, from
July 1985 to June 1993.
9<PAGE>
Executive Officers of the Registrant
Name Position with Company Age
Joseph T. Barrell Vice President of Global Logistics since 44
January 1995. Prior to joining the
Company, Mr. Barrell was Vice President,
Distribution of The Timberland Company, a
footwear company from June 1991 to January
1995 and the Director, Logistics of Thom
McAn Shoe Co., a footwear retailer, from
January 1976 to June 1991.
Karen K. Crider General Counsel of the Company since 50
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.
John M. Kelliher Vice President, Finance, Treasurer and 44
Controller of the Company since
February 1993. Mr. Kelliher has been
Corporate Controller of the Company
since March 1982, having joined the
Company in June 1981.
Susan M. McCuaig Vice President of Human Resources since 38
August 1995. Prior to joining the
Company, Ms. McCuaig served as Vice
President, Professional Development,
from 1992 to 1995, Vice President, MIS-
Professional Services from 1991 to 1992
and Director, MIS, User Services, Quality
Assurance and Quick Response from 1989 to
1991, each of Mast Industries, Inc., a
wholly owned subsidiary of The Limited, Inc.,
an apparel manufacturer and wholesale
distributor.
Roger W. Monks Vice President and General Manager of 52
Stride Rite Sourcing International, Inc.
since April 1995. Prior to this position,
Mr. Monks served as Senior Vice President,
Operations of The Keds Corporation from
April 1994 to March 1995 and as Senior
Vice President, Operations and Domestic
Manufacturing of Stride Rite Children's
Group, Inc. from January 1989 to March
1994, having joined the Company in
December 1981.
10<PAGE>
Executive Officers of the Registrant
Name Position with Company Age
Wollaston B. Morin Vice President, Information Systems since 53
July 1993. Prior to joining the Company,
Mr. Morin served as Vice President,
Information Systems for Marshalls, Inc., a
subsidiary of Melville Corporation from
April 1989 to June 1993.
Gerrald B. Silverman Senior Vice President of Sales, The Keds 37
Corporation since January 1996. Prior to
this position, Mr. Silverman served as
President of Stride Rite International
Corp. from April 1994 to January 1996.
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.
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
two manufacturing and warehouse facilities it owns in Missouri,
having closed one leased facility in Fulton, Missouri during
February 1996. The Missouri facilities contain approximately
62,400 square feet of manufacturing and approximately 31,600
square feet of warehouse space. The Company also manufactures
footwear and footwear components at a 30,000 square foot facility
in the Dominican Republic. In addition, the Company owns a
facility with approximately 20,000 square feet of space for a
technical center in Woburn, Massachusetts, which replaced a
leased 17,000 square foot technical center in Lawrence,
Massachusetts during the fourth quarter of fiscal 1995.
Present manufacturing space totals approximately 124,000
square feet. Approximately 94,000 square feet is owned by the
Company and the balance is leased. Management believes that all
leases are at commercially reasonable rates and terms.
The Company owns an automated distribution center located in
Louisville, Kentucky providing 520,000 square feet of space and a
warehouse in Boston, Massachusetts, which provides 565,000 square
feet of space. Reference is hereby made to the section of the
Registrant's annual report to stockholders entitled "Management's
Discussion and Analysis of Financial
11<PAGE>
Condition and Results of Operations - Results of Operations" for
additional information concerning these facilities. The
Company's Canadian subsidiary leases approximately 28,000 square
feet for warehousing in Mississauga, Ontario.
The Company leases approximately 163,000 square feet for its
headquarters and administrative offices in Lexington,
Massachusetts in a single tenant, leased office building. The
Company leases 5,000 square feet of space for sales offices and
showrooms in New York City, New York; Dallas, Texas and St.
Louis, Missouri and leases 15,000 square feet of space in
Richmond, Indiana for its order processing and telemarketing
functions. In addition, the Company leases approximately 1,700
square feet of office space in Paris, France for its Stride Rite
Europe distribution subsidiary and 22,300 square feet of space
for its liaison offices in Korea, mainland China, Taiwan and
Thailand.
At December 1, 1995, the Company operated 174 retail stores
throughout the country on leased premises which, in the
aggregate, covered approximately 246,000 square feet of space.
The Company also operates 80 children's footwear departments in
certain divisions of Federated Department Stores. In addition,
the Company is the lessee of 50 retail locations totaling
approximately 56,000 square feet which are subleased to
independent Stride Rite dealers and other tenants.
For further information concerning the Company's lease
obligations, see Note 9 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.
Reference is hereby made to the discussion under Business -
Environmental Matters set forth in Item 1 of this Annual Report
on Form
10-K.
12<PAGE>
The Company is a party to various litigations 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
litigations 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
13<PAGE>
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
The information required by this item is included in the
Registrant's 1995 Annual Report to Stockholders on pages 1, 29
and 36 and is incorporated herein by reference.
Item 6. Selected Financial Data
The information required by this item is included in the
Registrant's 1995 Annual Report to Stockholders on pages 1, 15
and 29 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 1995 Annual Report to Stockholders on pages 3
through 9 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 1995 Annual Report to Stockholders on pages 10
through 29 and is incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
None.
14<PAGE>
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 1996 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 1, 1995, 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 1996 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 1, 1995,
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 1996 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 1, 1995, 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 1996
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 1, 1995, which information is
incorporated herein by reference.
15<PAGE>
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 1, 1995
and December 2, 1994 *
Consolidated Statements of Income for the years ended
December 1, 1995, December 2, 1994 and
December 3, 1993 *
Consolidated Statements of Cash Flows for the years
ended December 1, 1995, December 2, 1994 and
December 3, 1993 *
Consolidated Statements of Changes in Stockholders'
Equity for the years ended December 1, 1995,
December 2, 1994 and December 3, 1993 *
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 1, 1995, December 2, 1994 and
December 3, 1993:
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
14 of this Annual Report on Form 10-K.
16<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.
17<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)* 1995 Long-Term Growth Incentive Plan of the Registrant -- Such
document was filed as Exhibit 10(vi) to the Registrant's Form
10-K for the year ended December 2, 1994 and is incorporated
herein by reference.
(vi)* Annual Executive Incentive Compensation Plan (dated as of
December 4, 1994) -- Such document was filed as Exhibit
10(vii) to the Registrant's Form 10-K for the year ended
December 2, 1994 and is incorporated herein by reference.
(vii)* Form of executive termination agreement, as amended and
restated on February 17, 1995. -- Such document was filed as
Exhibit (10(viii) to the Registrant's Form 10-K for the year
ended December 2, 1994 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(vii) attached hereto.
*Denotes a management contract or compensatory plan or arrangement.
18<PAGE>
Exhibit No. Description of Exhibit
(viii)* 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.
(ix) 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.
(x)* 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(x) attached hereto.
11 Calculation of Net Income Per Share
13 Selected Portions of Registrant's 1995 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.
19<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 9, 1996 Date: February 9, 1996
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 9, 1996 Date: February 9, 1996
/s/ Margaret A. McKenna /s/ Myles J. Slosberg
___________________________________ _________________________________
Margaret A. McKenna, Director Myles J. Slosberg, Director
Date: February 9, 1996 Date: February 9, 1996
/s/ W. Paul Tippett, Jr. /s/ Robert Seelert
___________________________________ _________________________________
W. Paul Tippett, Director Robert Seelert, Director
Date: February 9, 1996 Date: February 9, 1996
/s/ Jeanette S. Wagner /s/ Theodore Levitt
___________________________________ _________________________________
Jeanette S. Wagner, Director Theodore Levitt, Director
Date: February 9, 1996 Date: February 9, 1996
20<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 1995 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 5, 1996
F-1<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
Fiscal year ended
December 3, 1993:
Deducted from assets:
Allowance for doubt-
<S> <C> <C> <C> <C>
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
Fiscal year ended
December 1, 1995:
Deducted from assets:
Allowance for doubt-
ful accounts $5,861 $1,899 $3,418(a) $4,342
Allowance for sales
discounts 2,770 2,428 2,401(b) 2,797
$8,631 $4,327 $5,819 $7,139
</TABLE>
(a) Amounts written off as uncollectible.
(b) Amounts charged against the reserve.
F-2<PAGE>
THE STRIDE RITE CORPORATION
ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 1, 1995
Index to Exhibits
Exhibit No. Description of Exhibit Page No.
10 (vii)* Form of executive termination agreement, as 24
amended and restated on February 17, 1995.
Such document was filed as Exhibit 10(viii)
to the Registrant's Form 10-K for the fiscal
year ended December 2, 1994 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(vii)
attached hereto.
(x)* Form of severance agreement dated February 22, 25
1995. All executive officers with whom the
Registrant entered into such an agreement are
listed on Addendum 10(x) attached hereto.
11 Calculation of Net Income Per Share 26
13 Selected portions of Registrant's 1995
Annual Report to Stockholders 27
21 Subsidiaries of the Registrant 63
23 Consent of Independent Accountants 64
27 Financial Data Schedules 65
*Denotes a management contract or compensatory plan or arrangement.
THE STRIDE RITE CORPORATION
FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 1, 1995
Addendum 10(vii)
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
Dennis Garro March 21, 1994
Gerrald B. Silverman March 21, 1994
Stephen R. DuMont October 1, 1994
C. Madison Riley III February 10, 1995
Diane M. Sullivan April 24, 1995
*Mr. Caplan's agreement terminated upon his resignation as
President, The Keds Corporation, effective January 2, 1996.
THE STRIDE RITE CORPORATION
FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 1, 1995
Addendum 10(x)
Robert C. Siegel
Jonathan D. Caplan*
Karen K. Crider
Stephen R. DuMont
Dennis Garro
John M. Kelliher
Robert B. Moore, Jr.
C. Madison Riley III
Gerrald B. Silverman
Diane M. Sullivan
* Mr. Caplan's agreement terminated upon his resignation as
President, The Keds Corporation, effective January 2, 1996.
EXHIBIT 11
THE STRIDE RITE CORPORATION
CALCULATION OF NET INCOME PER SHARE
FOR THE FIVE FISCAL YEARS ENDED DECEMBER 1, 1995
<TABLE>
<CAPTION>
Nov. 29, Nov. 27, Dec. 3, Dec. 2, Dec. 1,
1991 1992 1993 1994 1995
Calculation of
shares:
Weighted average
number of
common shares
<S> <C> <C> <C> <C> <C>
outstanding 51,086,310 51,259,960 50,619,238 49,811,244 49,482,000
Common shares
attributable
to assumed
exercise of
dilutive stock
options and
stock purchase
rights using
the treasury
stock method 570,562 295,717 192,551 92,964 298,000
Average common
shares and
common equivalent
shares
outstanding 51,656,872 51,555,677 50,811,489 49,904,208 49,780,000
Net income
(loss)
available for
common stock $65,960,000 $61,506,0001 $58,291,0002 $19,798,000 ($8,430,000)3
Primary and
fully diluted
net income
(loss) per
share $1.28 $1.191 $1.152 $.40 ($.17)3
</TABLE>
1. 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).
2. 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.
3. Net income (loss) and net income (loss) per common share in 1995
included nonrecurring charges of $16,573,000 ($9,972,000, net of income
taxes, or $.20 per share).
THE STRIDE RITE CORPORATION
Exhibit 13
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995
OPERATING RESULTS(1)
<S> <C> <C> <C> <C> <C>
Net sales $574,379 $585,926 $582,868 $523,877 $496,432
Income (loss) before
cumulative effect of
change in accounting
principle(2,3) 65,960 61,506 60,325 19,798 (8,430)
Net income (loss) 365,960 61,506 58,291 19,798 (8,430)
Common stock
dividends 13,050 15,872 17,686 18,898 16,580
Per common share:
Income (loss) before
cumulative effect
of change in
accounting
principle(2,3) 1.28 1.19 1.19 .40 (.17)
Net income (loss)(3) 1.28 1.19 1.15 .40 (.17)
Cash dividends .255 .31 .35 .38 .335
FINANCIAL POSITION(1)
Working capital 217,665 241,310 243,249 236,628 204,785
Total assets 332,090 383,524 412,449 396,620 366,616
Long-term debt 4,167 3,333 2,500 1,667 833
Stockholders'
equity 240,427 271,535 302,473 292,506 267,456
Book value per
common share 4.67 5.33 6.02 5.91 5.40
STATISTICS(1)
Return on average
equity(2,3) 31.3% 23.6% 20.2% 6.6% (2.9)%
Return on sales(2,3) 11.5% 10.5% 10.0% 3.8% (1.7)%
Common shares
outstanding at
end of year 51,481 50,908 50,280 49,518 49,531
Number of employees
at end of year 3,600 3,100 3,600 3,700 3,600
Number of share-
holders 2,900 4,100 4,800 5,100 5,000
</TABLE>
1. Financial data is in thousands, except for per share
information.
<PAGE>
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 $16,573,000 ($9,972,000,
net of income taxes, or $.20 per share) in 1995, $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
The table below and the paragraphs which follow summarize
the Company's performance in the last three fiscal years:
<TABLE>
<CAPTION>
Percent Change
1995 vs. 1994 1994 vs. 1993
Increase (decrease)
<S> <C> <C>
Net sales (5.2)% (10.1)%
Gross profit (16.7)% (18.9)%
Selling and administrative expenses (0.7)% 15.8%
Operating income (loss) (151.5)% (65.9)%
Income (loss) before income taxes and
change in accounting principle (155.5)% (66.8)%
Income (loss) before change in
accounting principle (142.6)% (67.2)%
Net income (loss) (142.6)% (66.0)%
Before nonrecurring charges:
Operating income (99.5)% (68.3)%
Income before change in
accounting principle (92.2)% (69.4)%
</TABLE>
<TABLE>
<CAPTION>
Percent to Net Sales
1995 1994 1993
<S> <C> <C> <C>
Gross profit 33.1% 37.6% 41.7%
Selling and administrative expenses 33.1% 31.5% 24.5%
Operating income (loss) (3.3)% 6.1% 16.0%
Income (loss) before income taxes and
change in accounting principle (3.6)% 6.2% 16.8%
Income (loss) before change in
accounting principle (1.7)% 3.8% 10.3%
Net income (loss) (1.7)% 3.8% 10.0%
Before nonrecurring charges:
Operating income - 6.1% 17.3%
Income before change in
accounting principle 0.3% 3.8% 11.1%
</TABLE>
NET SALES
During fiscal 1995, net sales decreased $27.5 million or
5.2% from the sales level achieved in fiscal 1994. An 8.9%
decline in revenues related to the Company's wholesale divisions
was partially offset by higher retail sales. Unit shipments of
current line merchandise decreased 8.3% in fiscal 1995 and
selling price deflation reduced sales by approximately $11
million from the 1994 total.
3<PAGE>
The sales decline at the Company's wholesale businesses in
fiscal 1995 was primarily caused by the weak results of the Keds
division, as revenues fell 15% from the sales level achieved in
fiscal 1994. Keds product delivery performance in 1995 improved
significantly from fiscal 1994 when start-up difficulties at the
Company's new distribution center in Kentucky had interrupted
customer service. However, the continued shift in women's
fashions away from Keds' basic look and soft retail selling
conditions during 1995 resulted in a 20% decrease in sales of
Keds women's products. The lower sales in Keds' women's category
was primarily caused by a 25% decrease in sales of the basic Keds
Champion(R) silhouette. Keds' children's product sales also
declined in 1995, down 14% from the total achieved in fiscal
1994. Sales of the Stride Rite Children's Group to independent
dealers, family shoe stores and department stores decreased 6% in
1995 due to generally soft conditions at the retail level and the
purchase, during the past two years, of 23 independent stores by
the Company's Retail division. The Sperry Top-Sider division
continued to make steady progress in fiscal 1995 as sales were up
10% from 1994. The leather boat shoe and casual footwear
category showed a 4% sales increase in 1995, and the expanded
salt-washed canvas product line posted a 42% increase from 1994.
Sales of the Company's International division totaled $26.2
million in 1995, up $5.3 million or 26% from last year, with
higher sales of Keds and Sperry products in the Far East, Canada
and the Middle East contributing to the gain.
In fiscal 1995, 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, achieved a 17% sales
increase as the impact of the new stores offset a 2.1% sales
decline at comparable stores (stores open for a full year in each
fiscal year). The Retail division operated an average of 267
stores during fiscal 1995, up 33% from the average of 201 stores
operated during fiscal 1994. However, 65% of the increased
average store count represented leased departments with lower
than average sales volumes. The division ended the fiscal year
with 254 stores, after closing 28 leased departments during the
fourth quarter of 1995 which had not achieved minimum sales
targets. The division expects to close or sell an additional 48
retail locations in the first half of fiscal 1996, in an effort
to concentrate on more productive stores and to improve
profitability.
In fiscal 1994, consolidated net sales decreased $59 million
or 10.1% from the total achieved in fiscal 1993. Sales of the
Company's wholesale businesses decreased 12.9% in fiscal 1994
with the decline more than offsetting an 11.3% increase in retail
sales. A 13.7% decrease in unit shipments of current line
merchandise and selling price deflation of approximately $10
million contributed to the consolidated sales decrease
4<PAGE>
experienced in fiscal 1994. Approximately 62% of the retail
sales increase in 1994 was due to new stores as the Retail
division operated an average of 201 stores during 1994 compared
to 177 stores in 1993. After adjusting for the 53rd week in
fiscal 1993, sales at comparable stores were up 4.9% in 1994.
Keds division revenues decreased 17% in fiscal 1994 as service
disruptions associated with start-up difficulties at the
Company's new distribution center negatively impacted sales
performance. As a result of the shipping delays in the first
half of 1994, the Keds division experienced order cancellations
which were more than double the 1993 total. During fiscal 1994,
sales of Keds women's products decreased 19% from 1993 because of
the service problems and the fashion changes which continued into
fiscal 1995. Sales of the Keds Champion(R) style in 1994 were 22%
below the 1993 sales level. Sales of the Stride Rite Children's
Group to independent stores decreased 4% during fiscal 1994. The
Sperry Top-Sider division's sales were 12% higher in fiscal 1994
than in 1993 as a 27% increase in the sales of current line
merchandise offset sharply lower sales of discontinued styles.
During fiscal 1994, International division revenues decreased
$5.6 million or 21% from the sales level achieved in 1993 as the
Company evaluated its then existing international strategies.
GROSS PROFIT
Gross profit in fiscal 1995 totaled $164.3 million, a
decrease of $32.9 million or 16.7% from fiscal 1994. This rate
of change compares to the 1995 consolidated net sales decrease of
5.2%. In fiscal 1995, the Company's consolidated gross profit
rate of 33.1% finished 4.5% lower than the 37.6% rate achieved in
fiscal 1994. Changes in the LIFO adjustment in the two years
accounted for 0.6 percentage points of the gross profit rate
decrease as LIFO reduced gross profit by $1.3 million (0.3% of
net sales) in fiscal 1995 as compared to a favorable impact of
$1.5 million (0.3% of net sales) in fiscal 1994. Increased
inventory obsolescence charges and retail markdowns accounted for
an additional 1.7 percentage points of the gross profit percent
decline as these costs reduced the consolidated gross profit rate
by 6.3% in 1995. Approximately $2.1 million of the increased
retail markdowns provided for during fiscal 1995 are connected
with inventory writedowns for the 48 stores being closed in the
first half of fiscal 1996. Inefficiencies in domestic
manufacturing operations and the reduced profitability of the
Company's joint venture manufacturing facility in Thailand
accounted for another 1.6 percentage points of the gross profit
rate difference between 1995 and 1994. The Company has announced
that it will close its Fulton, Missouri manufacturing facility in
February 1996 in order to improve profitability by adjusting
available production capacity to more effectively meet current
demand for domestically made children's products. The changing
sales mix within the Keds division also had an unfavorable impact
on fiscal 1995's gross profit performance as the margins on new
5<PAGE>
women's styles were generally lower than those of the basic
Champion(R) canvas style. Gross profit performance in 1995 was
helped by the increased significance of the Retail division, the
portion of the Company with the highest gross profit percentage,
as retail sales accounted for 17.7% of consolidated sales in 1995
compared to 14.4% in 1994.
In fiscal 1994, gross profit decreased $46.1 million or 18.9%
from 1993 compared to the net sales decrease of 10.1%. The
Company's 1994 gross profit rate decreased 4.1% from the 41.7%
rate achieved in fiscal 1993. The distribution center start-up
difficulties in 1994 caused higher warehousing costs and also
contributed to increased obsolescence charges as the cancellation
of customer orders resulted in excess inventories of Keds
seasonal products. The higher obsolescence expense reduced
1994's gross profit percent by 4.3%, more than double the
obsolescence impact of 1.9% experienced in 1993. As in fiscal
1995, the product mix shift away from basic styles in the Keds
women's business also had a negative impact on gross profit
comparisons. The increased significance of retail sales (14.4%
of consolidated sales in 1994 compared to 11.6% in 1993)
favorably impacted gross profit performance.
OPERATING COSTS
Selling and administrative expenses in fiscal 1995 decreased
$1.2 million or 0.7% below the expense level incurred in fiscal
1994. As a percent to net sales, selling and administrative
costs increased by 1.6%, 33.1% in 1995 compared to 31.5% in 1994.
Advertising and sales promotion expenses in fiscal 1995 were down
$0.8 million or 2.6% from the total expenditures in fiscal 1994.
Advertising expense represented 6.5% of net sales in 1995
compared to 6.3% of sales in 1994. Retail store expenses
increased 19.2% in 1995 as additional spending of $8.1 million
related to the higher number of retail stores operated during the
year offset a 3.6% reduction in expenses for comparable stores.
The increased significance of retail sales, where selling
expenses are high relative to the Company's wholesale businesses,
resulted in an increase of 1.8% in the selling expense to sales
ratio in 1995. Distribution costs, which included $2.9 million
in 1995 and $6.8 million in 1994 of relocation and start-up
expenses not anticipated in the nonrecurring charge accrued in
fiscal 1992, decreased $2.3 million or 12.1% in fiscal 1995.
Total distribution costs represented 3.3% of net sales in 1995
compared to 3.5% of sales in 1994.
In August 1995, the Company transferred the distribution function
for the Sperry Top-Sider brand to the Kentucky facility.
Presently, the Company is continuing to operate its distribution
facility in Boston, Massachusetts. Plans for the move of the
Stride Rite children's business from the Massachusetts facility
are expected to be completed during fiscal 1996.
6<PAGE>
Expenses in fiscal 1995 included $16.6 million of
nonrecurring charges related to several initiatives to reduce
future operating costs and to realign certain product and
business units. The actions, which should be completed during
the first half of fiscal 1996, include the closing of a
children's shoe manufacturing facility in Missouri, the closure
of 48 underperforming retail locations and the elimination of
certain administrative positions. When fully implemented, these
actions should result in annual cost savings of approximately $20
million. The nonrecurring charges include the cost of severing
approximately 600 company associates, estimated lease termination
costs and reserves to adjust the carrying values of associated
assets to estimated realizable values.
In fiscal 1994, selling and administrative costs increased
$22.6 million or 15.8% from fiscal 1993. Advertising costs were
slightly higher, increasing $0.3 million from 1993. Despite the
lower sales volume in 1994, distribution costs increased $9.9
million from 1993 due to inefficiencies and computer software
problems at the new Kentucky facility, the delay in closing the
Company's Boston distribution facility and $6.8 million of
additional costs related to the relocation and start-up of the
Kentucky distribution center. Increased retail store expenses,
up $4.2 million or 12.6% from 1993, also contributed to the
higher selling and administrative spending in fiscal 1994.
Expense comparisons in 1994 were favorably impacted by the
absence of nonrecurring charges as fiscal 1993's costs included
$7.2 million of expenses to settle an investigation of Keds'
suggested retail pricing policy.
OTHER INCOME AND TAXES
Non-operating income (expense) decreased pre-tax earnings by
$1.7 million in fiscal 1995 compared to increases of $0.7 million
in 1994 and $4.6 million in 1993. Investment income increased
$0.3 million in 1995 as higher yields on short-term investments
offset a 21% decrease in the funds available for investment
during the year. In fiscal 1994, investment income decreased
slightly with improved investment yields offsetting a 27%
decrease in available funds. Interest expense in fiscal 1995
increased $0.5 million due to higher borrowings under the
Company's available lines of credit in 1995. Average interest
rates were also higher during fiscal 1995, 6.3% compared to 4.6%
in 1994. Other income and expense items reduced pre-tax income
by $4 million in fiscal 1995 compared to a decrease of $1.9
million in 1994 and a net increase of $1.9 million in 1993.
Increased expenses associated with a company-owned life insurance
program and losses on the sale of assets in connection with the
move of the Company's corporate headquarters caused much of the
variance from 1994. The comparison between 1994 and 1993 was
impacted by a $2.5 million reduction in gains from a limited
partnership investment.
7<PAGE>
Income taxes resulted in a benefit of $9.6 million in fiscal
1995 due to the nonrecurring charges described above and tax
savings associated with the company-owned life insurance program.
In fiscal 1994, the provision for income taxes was below 1993 by
$24.9 million because of lower pre-tax earnings. The Company's
effective tax expense (benefit) rate was (53.3)% in fiscal 1995
compared to 39.2% in 1994 and 38.4% in 1993.
NET INCOME (LOSS)
The Company incurred a net loss of $8.4 million in fiscal
1995 compared to net income of $19.8 million in 1994. Before
nonrecurring charges, net income in fiscal 1995 was $1.5 million,
a decrease of $18.3 million or 92.2% from the earnings level
achieved in fiscal 1994. The decreased earnings were caused by
the lower sales level and reduced gross profit performance
experienced during fiscal 1995. In fiscal 1994, net income
decreased $38.5 million or 66% from the net income recorded in
fiscal 1993 due to lower sales, 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 in 1994.
LIQUIDITY AND CAPITAL RESOURCES
As of the end of fiscal 1995, the Company's balance sheet
reflects a current ratio of 3.3 to 1 and a debt-to-equity
relationship of 0.3%. The Company's cash and short-term
investments totaled $54.3 million at December 1, 1995, down $21.6
million from the total of $75.9 million at the end of fiscal
1994. Higher levels of capital expenditures, continued dividend
payments and a business acquisition combined to offset the 1995
operating cash flow and resulted in the lower asset balances.
Despite the profitability problems experienced in fiscal 1995,
the Company's operations generated $25.6 million of cash during
the year. This performance reflected an improvement over fiscal
1994's results when only $8.4 million of cash was generated, but
fell far short of fiscal 1993's operating cash flow of $67.3
million. The elements of working capital, other than cash and
short-term investments, decreased $10.2 million during fiscal
1995, with the investment in receivables and inventories down
$23.5 million or 10.8% from the 1994 total. Inventories at the
end of fiscal 1995 were below last year by $8.1 million or 5.3%
as inventories of Keds products were reduced from the relatively
high level at the end of 1994.
Additions to property and equipment totaled $22.3 million in
fiscal 1995, compared with capital expenditures of $8.5 million
in 1994 and $33.9 million in 1993. The 1995 total included $6.6
million related to the Company's continuing "Total Customer
Service" (TCS) initiative, which is intended to streamline
8<PAGE>
business processes and upgrade computer systems, and $4.6 million
for furniture and equipment at a new corporate headquarters
leased by the Company. Capital expenditures related to new
retail stores totaled $4.6 million in fiscal 1995 as the Company
opened 39 stores during the year. The Company also closed 37
stores during fiscal 1995, with most of the closings being leased
departments with below average sales volumes. The 1995 retail
capital expenditure total compares to retail additions of $2.7
million in 1994 and $2 million in 1993. The Company expects a
reduced level of capital expenditures in fiscal 1996 as the
retail store openings will be minimal, given the current retail
climate. The Company plans to sell or close 48 underperforming
retail stores during the first half of fiscal 1996 in order to
improve overall profitability and to free up additional capital
for more productive investments. Funding for capital
expenditures generally is expected to be provided from internal
sources.
In January 1995, the Company used $5.3 million of cash to
acquire certain assets, including inventory, tradenames and other
intangible assets, associated with the Toddler University(R),
Kids University(R) and Street Hot(R) children's footwear brands.
Operating results associated with the acquired brands were not
significant during fiscal 1995.
The Board of Directors has authorized a 16 million share
stock repurchase program. In fiscal 1995, the Company expended
$2 million to repurchase 195,000 shares under this program.
Adjusted for the stock splits in 1987, 1989 and 1991, the 1995
transactions brought the shares repurchased under the Board
authorization to 13,957,500 shares or 87% of the authorized
total. Through fiscal 1995, the aggregate expenditures under the
repurchase program totaled $120 million since the program was
initiated in the fourth quarter of 1987. The aggregate shares
repurchased under the program represent 23% of the total shares
outstanding prior to the Board's authorization. Funds for these
repurchases were provided from internal sources.
The Company has paid a dividend to shareholders each quarter
since it became a public company in 1960. Given current
conditions, the Board of Directors elected to reduce the
quarterly dividend from $.095 per share to $.05 per share
beginning with the dividend paid on December 15, 1995. The prior
quarterly dividend amount had been in effect since December 1993.
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. During fiscal 1995, the
Company's borrowings averaged $10.6 million compared to the
average borrowing of $1.4 million in 1994. No short-term
borrowings were outstanding at the end of 1995 or 1994.
9<PAGE>
CONSOLIDATED BALANCE SHEETS
(In Thousands, except for share data)
<TABLE>
<CAPTION>
1995 1994
ASSETS
Current Assets:
<S> <C> <C>
Cash and cash equivalents $ 28,130 $ 45,413
Short-term investments 26,211 30,534
Accounts and notes receivable,
less allowances of $7,139
in 1995 and $8,631 in 1994 48,066 63,403
Inventories 145,498 153,620
Deferred income taxes 39,277 33,246
Prepaid expenses 5,181 4,727
Total current assets 292,363 330,943
Property and equipment, net 60,434 48,267
Other assets, net 12,485 15,982
Goodwill, net 1,334 1,428
Total assets $366,616 $396,620
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt 833 833
Accounts payable 22,963 26,597
Income taxes payable 19,492 33,167
Accrued expenses and
other liabilities 44,290 33,718
Total current liabilities 87,578 94,315
Deferred income taxes 10,749 8,132
Long-term debt 833 1,667
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 23,006 23,665
Retained earnings 323,566 348,577
360,809 386,479
Less cost of 7,416,037 shares
of common stock held in
treasury (7,428,613 in 1994) (93,353) (93,973)
Total stockholders' equity 267,456 292,506
Total liabilities and
stockholders' equity $366,616 $396,620
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
10<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except for per share data)
<TABLE>
<CAPTION>
Years Ended
1995 1994 1993
<S> <C> <C> <C>
Net sales $496,432 $523,877 $582,868
Cost of sales 332,102 326,643 339,523
Selling and administrative
expenses 164,165 165,350 142,739
Nonrecurring charges 16,573 - 7,200
Operating income (loss) (16,408) 31,884 93,406
Investment income 3,363 3,074 3,126
Interest expense (1,034) (538) (445)
Other income(expense), net (3,986) (1,878) 1,878
Income (loss) before income
taxes and cumulative effect
of change in accounting
principle (18,065) 32,542 97,965
Provision for (benefit
from) income taxes (9,635) 12,744 37,640
Income (loss) before cumu-
lative effect of change
in accounting principle (8,430) 19,798 60,325
Cumulative effect of change
in accounting principle - - (2,034)
Net income (loss) $ (8,430) $ 19,798 $ 58,291
Per share of common stock:
Income (loss) before cumu-
lative effect of change
in accounting principle $(.17) $.40 $1.19
Cumulative effect of
change in accounting
principle - - (.04)
Net income (loss) $(.17) $ .40 $1.15
Average common shares and
common equivalents
outstanding 49,780 49,904 50,811
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
11<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Years Ended
1995 1994 1993
CASH WAS PROVIDED FROM (USED FOR)
OPERATIONS:
<S> <C> <C> <C>
Net income (loss) $(8,430) $19,798 $58,291
Adjustments to reconcile to
net cash provided from operations:
Depreciation and amortization 10,860 8,486 6,264
Impairment of acquired trademarks 1,972 - -
Deferred income taxes (3,414) (4,825) 1,136
Equity in earnings of affiliate (150) (1,226) (1,043)
Loss (gain) related to long-term
investments 2 (516) (3,004)
Loss on disposal of property and
equipment 1,797 1,981 149
Cumulative effect of change in
accounting principle - - 2,034
Changes in:
Accounts and notes receivable 15,337 11,781 8,401
Inventories 11,330 (20,895) (1,907)
Prepaid expenses (454) (618) (411)
Long-term notes receivable 915 157 (16)
Accounts payable, income taxes,
accrued expenses and other
current liabilities (4,146) (5,756) (2,561)
Net cash provided from operations 25,619 8,367 67,333
INVESTMENTS:
Short-term investments 4,323 35,111 (22,467)
Additions to property and
equipment (22,301) (8,522) (33,938)
Proceeds from sales of property
and equipment 87 6 154
Distributions and dividends
from long-term investments 261 2,700 3,255
Acquisition of business (5,308) - -
Decrease (increase) in other assets 82 (14) (1,891)
Net cash provided from (used for)
investments (22,856) 29,281 (54,887)
12<PAGE>
FINANCING:
Long-term debt payments (833) (833) (833)
Proceeds from sale of stock
under stock plans 1,525 12 2,492
Tax benefit in connection
with stock plans 75 276 284
Repurchase of common stock (2,006) (11,482) (13,415)
Cash dividends paid (18,807) (18,971) (17,237)
Net cash used for financing (20,046) (30,998) (28,709)
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (17,283) 6,650 (16,263)
Cash and cash equivalents
at beginning of year 45,413 38,763 55,026
Cash and cash equivalents
at end of year $28,130 $ 45,413 $38,763
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
13<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(in thousands, except for share data)
<TABLE>
<CAPTION>
Capital in
Common Excess of Retained Treasury
Stock Par Value Earnings Stock
<S> <C> <C> <C> <C>
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)
Net income (loss) (8,430)
Issuance of 54,576 common shares
under executive stock plans (310) 690
Issuance of 153,000 common shares
under employee stock plan (424) 1,936
Tax benefit in connection with
stock plans 75
Repurchase of 195,000 shares
of common stock (2,006)
Cash dividends on common stock,
$.335 per share (16,581)
Balance, December 1, 1995 $14,237 $23,006 $323,566 $(93,353)
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
14<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 1995
presentation.
Fiscal Year-The Company's fiscal year ends on the Friday
closest to November 30 in each year. As a result, fiscal 1995
and 1994 comprised 52 weeks, while the 1993 fiscal year included
53 weeks. Fiscal years 1995, 1994 and 1993 ended on December 1,
1995, December 2, 1994 and December 3, 1993, 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 its banks. 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, due to their
short-term nature, 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,
15<PAGE>
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.
Property and Equipment - Property and equipment are stated
at cost. The cost of equipment includes the capitalization of
certain associated computer software costs. 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. If there is a permanent
impairment in the carrying value of goodwill, trademarks or other
intangible assets, the amount of such impairment is computed by
comparing the anticipated discounted future operating income of
the acquired business or trademark to the carrying value of the
assets. In performing this analysis, the Company considers
current results and trends, future prospects and other economic
factors.
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.
Accounting Pronouncements - The Company is required to
implement Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-lived Assets and for
Long-lived Assets to be Disposed Of" in fiscal 1997. As the
Company continually evaluates the realizability of long-lived
assets, including goodwill, tradenames and other intangible
16<PAGE>
assets, the adoption of SFAS No. 121 is not anticipated to have a
material effect on the Company's financial statements.
Net Income (Loss) Per Common Share - Net income (loss) per
common share is computed by dividing net income (loss) 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 November 16, 1995, the Company announced several
initiatives to reduce future operating costs and to realign
certain product lines and business units. The actions, which
should be completed during the first half of fiscal 1996, include
the closing of a children's shoe manufacturing facility in
Missouri, the closure of 48 underperforming retail locations and
the elimination of certain administrative positions. In
connection with these initiatives, the Company recorded pretax
nonrecurring charges of $16,573,000 ($9,972,000, net of tax
benefits, or $.20 per share). The nonrecurring charges include
$3,680,000 related to the cost of severing approximately 600
associates, $5,946,000 in estimated termination costs related to
leases and reserves to adjust the carrying values of associated
assets to estimated realizable values. Accrued expenses and
other current liabilities at December 1, 1995 includes $2,645,000
of severance accruals, $5,946,000 in lease obligations and
$4,429,000 of liabilities related to the other elements of the
nonrecurring charges recorded in fiscal 1995.
In 1993, the Company's 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. All amounts related to
this charge were disbursed during 1993 and 1994. 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 settlement cost
of $7,200,000 ($4,274,000 net of income taxes or $.08 per share)
was included in nonrecurring charges 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
17<PAGE>
nonrecurring charges which were primarily related to the decision
to consolidate and relocate 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 facility in December 1993 and began shipping Keds
products from the new distribution center in January 1994, after
closing its New Bedford, Massachusetts warehouse. In August
1995, the Company began distributing Sperry Top-Sider products
from the Kentucky facility. The Company has delayed the complete
closing of its Boston, Massachusetts facility, which currently
distributes Stride Rite products. Certain unanticipated
relocation and start-up expenses totaling $2,902,000 in 1995 and
$6,811,000 in 1994 are included in selling and administrative
expenses in the 1995 and 1994 consolidated statements of income.
The following table summarizes activity during the three
years ended December 1, 1995 with respect to the nonrecurring
charge established in fiscal 1992:
<TABLE>
<CAPTION>
(in thousands) 1995 1994 1993
<S> <C> <C> <C>
Balance at beginning of year $7,416 $15,276 $18,319
Unanticipated start-up expenses 2,902 6,811 -
Amounts charged against accrual (6,081) (14,671) (3,043)
Balance at end of year $4,237 $ 7,416 $15,276
</TABLE>
The balance of $4,237,000, which remains in accrued expenses as
of December 1, 1995, relates to the costs of severing Boston
facility associates, relocating Stride Rite children's products
to a new facility and adjusting the carrying value of property
and equipment to net realizable value.
3. ACQUISITION
On January 11, 1995, the Company, through its newly formed
subsidiary Boston Footwear Group, Inc., purchased for $5,308,000
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. 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 1995. Proforma
financial information for fiscal 1994 has not been presented
because the amounts were immaterial to the 1994 consolidated
results of operations.
18<PAGE>
As part of the business realignments described in Note 2 to
the consolidated financial statements, the acquired trademarks
were transferred to the Company's wholly-owned subsidiary, Stride
Rite Children's Group, Inc., and the carrying value of the
tradenames and other intangible assets resulting from the
acquisition, amounting to $1,972,000, was expensed as a
nonrecurring charge due to the limited success of selling efforts
associated with the acquired brands and impaired value of the
assets.
4. INVENTORIES
The cost of inventories at December 1, 1995 and December 2,
1994 was determined primarily on a last-in, first-out (LIFO)
basis. A summary of inventory values is as follows:
<TABLE>
<CAPTION>
(in thousands) 1995 1994
<S> <C> <C>
Finished goods $141,914 $148,056
Work in process 863 2,416
Raw materials 2,721 3,148
$145,498 $153,620
</TABLE>
During 1995, the LIFO reserve increased by $1,339,000 to
$22,728,000 at December 1, 1995. If all inventories had been
valued on a FIFO basis, net income would have been higher by
$806,000 ($.02 per share) in 1995. During 1994 and 1993, the
LIFO reserve decreased by $1,539,000 and $183,000, respectively.
If all inventories had been valued on a FIFO basis, net income
would have been lower in both years - $906,000 ($.02 per share)
in 1994 and $108,000 (less than $.01 per share) in 1993.
During 1995 and 1993, 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
increased by $491,000 in 1995 ($.01 per share) and was decreased
in 1993 by $444,000 ($.01 per share).
5. PROPERTY AND EQUIPMENT
The components of property and equipment at December 1, 1995
and December 2, 1994 and the range of asset lives used in
depreciation calculations for each asset category are as follows:
19<PAGE>
<TABLE>
<CAPTION>
Range of
(in thousands) Useful Lives 1995 1994
<S> <C> <C> <C>
Land and improvements 10 years $ 3,632 $ 3,267
Buildings and improvements 12 to 45 years 17,321 15,164
Machinery, equipment, computer
software and fixtures 3 to 15 years 49,207 42,880
Leaseholds and leasehold
improvements 5 to 15 years 17,753 11,536
87,913 72,847
Less accumulated depreciation
and amortization (27,479) (24,580)
$60,434 $48,267
</TABLE>
6. OTHER ASSETS
As of December 1, 1995 and December 2, 1994, other assets
include $7,365,000 and $7,579,000, respectively, related to
long-term investments. In 1986, the Company agreed to invest
$5,000,000 in a limited partnership which is authorized to make
investments in assets and securities of all kinds. Cash
distributions are made to the limited partners as investments are
sold. In fiscal 1995, 1994 and 1993, the Company recognized
gains of $78,000, $516,000 and $3,004,000, respectively, due to
the sale of certain investments by the limited partnership. In
1995, the Company also recorded a loss of $80,000 due to the
decline in the market value of certain assets and securities held
by the limited partnership. The Company's investment in this
limited partnership, which is accounted for under the cost
method, amounted to $1,071,000 at December 1, 1995 and $1,334,000
at December 2, 1994. The fair value of this investment as of
September 30, 1995, the latest valuation as determined by the
General Partner, totaled approximately $1,572,000.
Other assets 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 $150,000 in
1995, $1,226,000 in 1994 and $1,043,000 in 1993, representing the
Company's share of the joint venture's operating results in those
years. The joint venture paid a cash dividend to shareholders
of $1,275,000 in 1994, which reduced the carrying value of the
Company's investment. The Company's investment in the affiliate
amounted to $5,859,000 at December 1, 1995 and $5,709,000 at
December 2, 1994.
Other assets and goodwill also include $4,208,000 at
December 1, 1995 and $6,676,000 at December 2, 1994, related to
20<PAGE>
trademark rights and other intangible assets. These other assets
are presented net of accumulated amortization of $9,880,000 at
December 1, 1995 and $7,398,000 at December 2, 1994. 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 ending April 30, 1996, the remaining term
of the terminated license agreements.
7. 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 1995, 1994, and 1993, borrowings
under these lines averaged $10,622,000, $1,402,000 and $17,000,
respectively, with a maximum amount outstanding of $34,800,000 in
1995, $17,400,000 in 1994 and $4,300,000 in 1993. The weighted
average interest rate paid on these borrowings during the year
was 6.3% in 1995, 4.6% in 1994 and 3.6% in 1993. No short-term
borrowings were outstanding on December 1, 1995 or December 2,
1994.
Long-term debt at December 1, 1995 and December 2, 1994
($833,000 and $1,667,000, respectively) represents loans due to
several institutional lenders in connection with the Company's
8.45% Senior Notes. The final required mandatory prepayment
under the Senior Notes is due in November 1997. 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.
Interest payments amounted to $896,000, $354,000 and $373,000
in fiscal 1995, 1994 and 1993, respectively.
8. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities at December
1, 1995 and December 2, 1994 consist of the following:
21<PAGE>
<TABLE>
<CAPTION>
(in thousands) 1995 1994
<S> <C> <C>
Salaries, wages and commissions $ 8,890 $12,283
Nonrecurring charges 17,257 7,416
Advertising 4,335 3,349
Deferred U.S. Customs duties 3,972 -
Dividends 2,476 4,704
Other liabilities 7,360 5,966
$44,290 $33,718
</TABLE>
9. LEASES
The Company leases office space, 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 1, 1995 was as follows:
<TABLE>
<CAPTION>
(in thousands) 1995 1994 1993
<S> <C> <C> <C>
Base rent $15,983 $14,230 $14,383
Additional rent 1,750 1,537 1,387
Less rental from subleases (2,119) (2,488) (2,960)
$15,614 $13,279 $12,810
</TABLE>
The future minimum rental payments for all non-cancellable
operating leases and the amounts due from tenants on related
subleases at December 1, 1995 are as follows:
1996 $10,392
1997 9,510
1998 8,324
1999 6,890
2000 5,801
Later years 25,171
Total minimum rental payments 66,088
Less rental due from subleases (5,756)
$60,332
10. BENEFIT PLANS
The Company has two non-contributory defined benefit pension
plans covering eligible associates. Pension costs are determined
actuarially and are funded to the extent that deductions are
22<PAGE>
allowable under the United States Internal Revenue Code.
Salaried, management, sales and non-production hourly associates
accrue pension benefits based on the associate's service and
compensation. Production associates accrue pension benefits at a
fixed unit rate based on service.
Pension expense, including amortization of prior service
costs over the remaining service periods of associates and the
remaining lives of vested and retired associates, consists of the
following:
<TABLE>
<CAPTION>
(in thousands) 1995 1994 1993
Service cost-benefit
earned during the
<S> <C> <C> <C>
period $ 1,274 $ 1,423 $ 1,151
Interest cost on
benefit obligations 2,319 2,143 2,036
Actual return on plan
assets (7,532) (1,127) (3,369)
Amortization and
deferral, net 4,612 (1,659) 505
$ 673 $ 780 $ 323
</TABLE>
The prepaid (accrued) pension cost in the Company's
consolidated balance sheets at December 1, 1995 and December 2,
1994 includes the following:
<TABLE>
<CAPTION>
(in thousands) 1995 1994
Fair market value of
<S> <C> <C>
plan assets $36,132 $30,088
Projected benefit
obligations 35,240 26,933
Excess assets 892 3,155
Unrecognized prior service
cost 366 420
Unrecognized net gain (124) (1,590)
Unrecognized net asset (1,438) (1,728)
$ (304) $ 257
</TABLE>
At December 1, 1995, the accumulated benefit obligation,
which represents the actuarial present value of the Company's
pension obligation if the plans were to be discontinued, totaled
$29,677,000, including a vested benefit obligation of
$28,918,000. The accumulated benefit obligation at December 2,
1994 was $23,751,000, including a vested benefit obligation of
$22,596,000. A discount rate of 7% in 1995 and 8.5% in 1994 and
an annual compensation increase at the rate of 5% in each year
were assumed to determine these liabilities.
23<PAGE>
During fiscal 1995 and 1994, 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
1995 and 1994.
The Stride Rite Corporation Employee Savings and Investment
Plan, as amended, enables eligible associates 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 1995, 1994 and 1993, this contribution amounted to
$544,000, $607,000 and $471,000, respectively.
11. STOCK PURCHASE AND OPTION PLANS
An Employee Stock Purchase Plan, as amended, permits
eligible associates to elect to subscribe for an aggregate of
5,640,000 shares of common stock of the Company. Under the Plan,
participating associates 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, associates 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
1995, 153,000 shares were issued under the plan for an aggregate
amount of $1,512,000. Funds are currently being withheld from
690 participating associates during a payment period ending
October 31, 1997. As of December 1, 1995, $101,000 has been
withheld from associates' earnings and, if all participants had
been allowed to exercise their stock purchase rights,
approximately 10,676 shares could have been purchased at a price
of $9.46 per share. At December 1, 1995, a total of 4,945,281
shares had been purchased under the Plan and 694,719 shares are
available for purchase by participating associates.
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 his or her 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
1995 and 1994, 3,500 shares of common stock were awarded in each
year under the terms of the Plan.
24<PAGE>
In April 1995, the Company's shareholders approved The
Stride Rite Corporation 1995 Long-Term Growth Incentive Plan.
Under the Plan, options to purchase common stock 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 associates. 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 Plan, vest over a five-year period. In
fiscal 1995, 102 associates held outstanding rights under the
Plan.
The 1995 Incentive plan replaced two prior incentive plans.
The 1975 Executive Incentive Stock Purchase Plan was terminated
in April 1995. Under the Plan, rights to purchase shares of the
Company's common stock were granted to officers and other key
associates of the Company at a price determined by the Board of
Directors. This price may not be less than the then current par
value of the Company's common stock, which is $.25 per share.
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 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.
The Company's Key Executive Long-Term Incentive Plan was also
terminated in fiscal 1995. Under the Plan, income goals were
established for three-year cycles and a certain number of
performance shares, which are equivalent in value to the
Company's common stock, were granted to each participant.
Payments under the Plan were based on the income achieved by the
Company in relation to the goals established for each cycle.
Payments were 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 charged to compensation expense
the costs associated with the Plan. The Company issued 3,706
shares to two individuals in 1994 and 16,878 shares to eight
individuals in 1993, as a result of performance against the goals
for the cycles which ended in 1993 and 1992. No payments were
made with respect to performance against the goal established for
the cycle which ended in fiscal 1994.
25<PAGE>
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 1995 were at an average price
of $11.69, with prices ranging from $.25 to $14.50. The options
granted in fiscal 1994 had an average price of $8.26, with
purchase prices ranging from $.25 to $15.88. The activity in
stock rights with respect to all plans for the three years in the
period ended December 1, 1995 was as follows:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Outstanding at beginning of year 834,996 408,323 537,238
Granted 638,400 580,150 157,015
Cancelled (154,404) (108,206) (200,051)
Exercised (51,076) (45,271) (85,879)
Outstanding at end of year 1,267,916 834,996 408,323
</TABLE>
The purchase price for all options exercised during the
three years ended December 1, 1995 was $.25 per share. Options
to purchase 607,466 shares and 603,196 shares were exercisable as
of December 1, 1995 and December 2, 1994, respectively. At
December 1, 1995, options to purchase a total of 4,780,398 shares
had been granted under all plans and rights to purchase an
additional 1,964,350 shares (1,407,098 shares at December 2,
1994) could be granted.
12. 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.
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
26<PAGE>
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, if 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 if a
person or group acquires at least 30% of the Company's common
stock (with one exception), or if a person or group owning 20% or
more of the Company's common stock engages in certain
"self-dealing" transactions, or if 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 1,
1995, December 2, 1994 and December 3, 1993 totaled 6,191,313,
6,189,741 and 6,284,982, respectively.
13. 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.
14. INCOME TAXES
The provision for (benefit from) income taxes, which is
computed under SFAS No. 109, consists of the following for the
three years in the period ended December 1, 1995:
27<PAGE>
<TABLE>
<CAPTION>
(in thousands) 1995 1994 1993
Current:
<S> <C> <C> <C>
Federal $(6,300) $12,094 $28,792
State 79 5,211 7,712
(6,221) 17,305 36,504
Deferred:
Federal (1,994) (3,711) 236
State (1,420) (850) 900
(3,414) (4,561) 1,136
$(9,635) $12,744 $37,640
</TABLE>
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 1, 1995 and December 2, 1994,
have the following significant components:
<TABLE>
<CAPTION>
(in thousands) 1995 1994
Deferred tax assets:
<S> <C> <C>
Inventory valuation reserves $ 9,520 $ 7,447
Nonrecurring charges 8,472 3,844
Accounts receivable allowances 3,196 4,004
Compensation accruals 3,477 2,272
Other accounting reserves and accruals 14,612 15,679
39,277 33,246
Deferred tax liabilities:
Undistributed earnings of foreign
affiliates 1,685 1,730
Depreciation and amortization 6,236 4,825
Other items 2,828 1,577
10,749 8,132
$28,528 $25,114
</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 effective income tax rate differs from the statutory
federal income tax rate as follows:
28<PAGE>
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Statutory federal tax rate (35.0)% 35.0% 34.9%
State income taxes, net of
federal tax benefit (4.8) 8.7 5.7
Tax benefit from manufacturing
operations in Puerto Rico - (1.1) (0.3)
Tax benefit related to company-
owned life insurance program (14.0) (4.3) (0.6)
Other 0.5 0.9 (1.3)
Effective income tax rate (53.3)% 39.2% 38.4%
</TABLE>
Payments of income taxes amounted to $13,565,000, $22,115,000 and
$40,224,000 in 1995, 1994 and 1993, respectively.
15. QUARTERLY DATA (UNAUDITED)
The following table provides quarterly data for the fiscal
years ended December 1, 1995 and December 2, 1994.
<TABLE>
<CAPTION>
(in thousands, except
for per share data) First Second Third Fourth
1995
<S> <C> <C> <C> <C>
Net sales $134,772 $144,386 $139,140 $78,134
Gross profit 50,598 51,844 47,972 13,916
Net income (loss) 4,975 4,001 3,487 (20,893)
Per common share:
Net income (loss) .10 .08 .07 (.42)
Dividends .095 .095 .095 .05
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
</TABLE>
Net income for the fourth quarter of 1995 includes a nonrecurring
charge of $16,573,000 ($9,972,000 net of income taxes or $.20 per
share) related to the product and business unit realignments
which are described in Note 2 to the consolidated financial
statements.
29<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.
Robert C. Siegel Stephen R. DuMont
Chairman of the Board of Executive Vice President
Directors, President and
Chief Executive Officer John M. Kelliher
Vice President, Finance
Treasurer and Controller
30<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 1, 1995 and
December 2, 1994, 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 1, 1995. 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
1, 1995 and December 2, 1994, and the consolidated results of its
operations and its cash flows for each of the three years in the
period ended December 1, 1995, in conformity with generally
accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
January 5, 1996
31<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), TODDLER UNIVERSITY(R) and STREET HOT(R).
Boating shoes and outdoor recreational and casual footwear are
marketed under the Company's SPERRY TOP-SIDER(R) trademark. In
addition, casual and athletic footwear are marketed under the
Company's KEDS(R), PRO-KEDS(R) and GRASSHOPPERS(R) trademarks.
Beginning in Spring 1997, a line of premium men's footwear will
be marketed through a licensing agreement with the Tommy
Hilfiger(R) Corporation.
The Company also markets its products directly to consumers
by selling children's footwear through 149 of its own Stride
Rite(R) Bootery stores, three Great Feet(TM) concept stores and
80 leased departments within leading department stores. Products
of the Company's brands are also sold directly to consumers in 20
manufacturers' outlet stores and two Keds(R) retail concept
stores.
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 manufactures products in its own
facilities in the United States and the Caribbean and imports
products from abroad.
32<PAGE>
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
Chief Executive Officer, Cordiant plc
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.
COMMITTEES OF THE BOARD
AUDIT COMMITTEE INVESTMENT COMMITTEE
Robert L. Seelert Myles J. Slosberg
Donald R. Gant Theodore Levitt
Myles J. Slosberg Robert L. Seelert
Jeanette S. Wagner W. Paul Tippett, Jr.
COMPENSATION COMMITTEE COMMITTEE ON THE BOARD
Margaret A. McKenna Donald R. Gant
Donald R. Gant Theodore Levitt
W. Paul Tippett, Jr. Margaret A. McKenna
Jeanette S. Wagner W. Paul Tippett, Jr.
33<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
Joseph T. Barrell
Vice President, Global Logistics
Karen K. Crider
General Counsel, Secretary and Clerk
Dennis Garro
President, Retail Division
Stride Rite Children's Group, Inc.
John M. Kelliher
Vice President, Finance,
Treasurer and Controller
Susan M. McCuaig
Vice President, Human Resources
Robert B. Moore, Jr.
President, Sperry Top-Sider, Inc.
Roger W. Monks
Vice President and General Manager
Stride Rite Sourcing International, Inc.
Wollaston B. Morin
Vice President, Information Services
C. Madison Riley III
Vice President and General Manager,
Stride Rite International Corp.
Gerrald B. Silverman
Senior Vice President, Sales
The Keds Corporation
Diane M. Sullivan
President, Wholesale Division
Stride Rite Children's Group, Inc.
34<PAGE>
EXECUTIVE OFFICES
191 Spring Street
P.O. Box 9191
Lexington, Massachusetts 02173-9191
(617) 824-6000
MAJOR SUBSIDIARIES
The Keds Corporation
Sperry Top-Sider, Inc.
Stride Rite Canada Limited
Stride Rite Children's Group, Inc.
Stride Rite Europe, S.A.R.L.
Stride Rite International Corp.
Stride Rite Sourcing International, Inc.
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.
ANNUAL MEETING
The 1996 Annual Meeting of Stockholders of The Stride Rite
Corporation is scheduled to be held on Tuesday, April 23, 1996 at
10:00 a.m. in the Long Lane Room, second floor, 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 02105-0644
The telephone number is (617) 575-3170.
35<PAGE>
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.
COMMON STOCK PRICES
<TABLE>
<CAPTION>
Fiscal 1995 1994
Quarter High Low High Low
<C> <C> <C> <C> <C>
1st 13 1/8 10 1/2 19 1/8 15 1/4
2nd 13 1/8 10 3/4 18 1/4 12
3rd 12 10 15 7/8 12 1/8
4th 12 8 1/2 15 7/8 11 3/4
</TABLE>
Based on closing prices on the New York Stock Exchange - Composite Tape.
36
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
Stride Rite Europe S.A.R.L. France
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, 33-54439 and 33-58567) of The Stride Rite
Corporation of our reports dated January 5, 1996 on our audits of
the consolidated financial statements and financial statement
schedules of The Stride Rite Corporation as of December 1, 1995
and December 2, 1994 and for the years ended December 1, 1995,
December 2, 1994 and December 3, 1993 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 27, 1996
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<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> YEAR 3-MOS
<FISCAL-YEAR-END> DEC-01-1995 DEC-01-1995
<PERIOD-END> DEC-01-1995 DEC-01-1995
<CASH> 28,130 28,130
<SECURITIES> 26,211 26,211
<RECEIVABLES> 55,205 55,205
<ALLOWANCES> 7,139 7,139
<INVENTORY> 145,498 145,498
<CURRENT-ASSETS> 292,363 292,363
<PP&E> 87,913 87,913
<DEPRECIATION> 27,479 27,479
<TOTAL-ASSETS> 366,616 366,616
<CURRENT-LIABILITIES> 87,578 87,578
<BONDS> 0 0
0 0
0 0
<COMMON> 14,237 14,237
<OTHER-SE> 253,219 253,219
<TOTAL-LIABILITY-AND-EQUITY> 366,616 366,616
<SALES> 492,796 77,203
<TOTAL-REVENUES> 496,432 78,134
<CGS> 332,102 64,218
<TOTAL-COSTS> 332,102 64,218
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 1,899 257
<INTEREST-EXPENSE> 1,304 233
<INCOME-PRETAX> (18,065) (38,428)
<INCOME-TAX> (9,635) (17,535)
<INCOME-CONTINUING> (8,430) (20,893)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (8,430) (20,893)
<EPS-PRIMARY> (.17) (.42)
<EPS-DILUTED> (.17) (.42)
</TABLE>
