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UNITED STATES
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 the fiscal year ended November 29, 1996
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 Identification Number)
of incorporation)
191 Spring Street, P.O. Box 9191, Lexington, Massachusetts 02173
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including are code: (617) 824-6000
Securities registered pursuant to Section 12(b) of the Act:
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.___
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---
/___/ 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 25, 1997, was $584,414,460
based on the closing price on that date on the New York Stock Exchange. As of
February 25, 1997, 49,202,513 shares of the registrant's Common Stock, $.25 par
value, were outstanding and 6,150,314 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 November 29, 1996 Part I and Part II
Portions of the Registrant's Proxy
Statement for 1997 Annual Meeting
of Stockholders Part III
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PART I
Item 1. Business
General
The Stride Rite Corporation is the leading marketer of high quality
children's footwear in the United States and a major marketer of athleisure 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), MUNCHKIN (TM), SPERRY(R) and STREET HOT(R) trademarks in medium to high
price ranges.
Sneakers and casual footwear for adults and children are marketed 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,
hand-sewn, 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.
Beginning in Spring 1997, dress casual, hand-sewn, sport casual, dress
and athleisure footwear for men and boys will be marketed using the TOMMY
HILFIGER(R) brand name under a license agreement with Tommy Hilfiger Licensing,
Inc. by the Company's wholly owned subsidiary, Tommy Hilfiger Footwear, Inc.
Sales and Distribution
During the 1996 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 7% of consolidated net
sales for the fiscal year ended November 29, 1996.
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The Company provides assistance to a limited number of qualified specialty
retailers to enable them to operate independent Stride Rite children's bootery
stores. Such assistance sometimes includes the sublease of a desirable retail
site by the Company to a dealer. There are approximately 32 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. The Company expects to
close the Boston facility in the fourth quarter of 1997 after transferring the
distribution function for the Stride Rite brand to a facility which has been
leased in Huntington, Indiana. 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" and Note 2 to the Consolidated Financial Statements 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. 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 1996, in addition to the United States, KEDS(R) brand products
were also sold in Austria, Belgium, France, Germany, Ireland and the United
Kingdom through a representative office operated by its French subsidiary.
KEDS(R) brand products were distributed through third parties in Brazil, Chile,
Cyprus, Denmark, Egypt, Greece, Hong Kong, Indonesia, Israel, Japan, Portugal,
Saudi Arabia, Singapore, South Africa, South Korea and Sweden, as well as in
several other countries in Latin America and Asia, using local distributors.
PRO-Keds(R) brand products are sold by a licensee in Japan under a trademark
license agreement. Further, KEDS(R) products are sold in Central America under a
distribution agreement. In 1996 the Company entered into licensing agreements
covering the sale of KEDS(R) footwear in Australia, the Philippines and New
Zealand.
In fiscal 1996, in addition to the United States, the Company sells SPERRY
TOP-SIDER(R) products in Belgium, France, Germany, Ireland, the Netherlands and
the United Kingdom through its French subsidiary. The Company distributed its
SPERRY TOP-SIDER(R) brand products in Greece, Indonesia, Italy, Japan, Portugal,
Singapore and Sweden, as well as other countries in the Middle East, Central and
South America, Asia and Africa through local distributors. In 1996 the Company
entered into licensing agreements covering the sale of SPERRY TOP-SIDER(R)
footwear in Australia and New Zealand.
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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 16 stores are currently operating in Canada, Costa Rica,
El Salvador, 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.
The Company also distributes SPERRY TOP-SIDER(R), STRIDE RITE(R),
KEDS(R) and TOMMY HILFIGER(R) (beginning in Spring 1997) 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 86 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 1996, 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 with
independent offshore suppliers to approximately 95% in 1996. On February 19,
1997, the Company announced the closing of its two remaining domestic
manufacturing facilities in Missouri. The footwear produced at these facilities,
which are primarily STRIDE RITE(R) branded children's products, will be sourced
through independent suppliers in Mexico and the Far East. 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
primarily denominated in United States dollars, thereby reducing short term
risks attendant to foreign currency fluctuations.
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Retail Operations
As of November 29, 1996, the Company operated 129 Stride Rite Bootery
stores, 60 leased children's shoe departments in leading department stores, one
retail store for KEDS(R) brand products, four concept stores operated under the
name GREAT FEET(TM) and 19 manufacturers' outlet stores for STRIDE RITE(R),
KEDS(R) and SPERRY TOP-SIDER(R) brand products. The product and merchandising
formats of the Stride Rite Bootery stores are utilized in the 60 leased
children's shoe departments which the Company operates in certain divisions of
Federated Department Stores, including Macy's, 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
TOMMY HILFIGER(R) boys' line will be sold in these stores beginning in the Fall
1997 season. The Keds store carries 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. Beginning in 1997, TOMMY HILFIGER(R) footwear products will also be
sold in the GREAT FEET(TM) stores. The Company's stores are located primarily in
larger regional shopping malls, clustered generally in the major marketing areas
of the United States. Most of the Company's manufacturers' outlet stores are
located in malls consisting only of outlet stores.
During the 1996 fiscal year, the Company opened four leased
departments, one manufacturers' outlet store and one GREAT FEET(TM) store. In
addition during fiscal 1996, the Company commenced operating four Stride Rite
booteries, one of which was purchased from an independent dealer. During 1996,
the Company also closed 51 retail stores in an effort to improve the
profitability of the Retail division. The Company currently plans to open
approximately ten retail stores in fiscal 1997. In 1997, the Company will
continue its efforts to close or sell underperforming retail locations and
expects to cease operations in 10 to 15 stores during the year. 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
20% of consolidated net sales for the fiscal year ended November 29, 1996.
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) trademarks for
distribution in the United States and Canada. It has a license agreement under
which underwear, day wear and related sleepwear for women and girls is marketed
under the KEDS(R) and PRO-KEDS(R) trademarks for distribution in the United
States and Canada. It has license agreements under which apparel, using the
KEDS(R) and SPERRY TOP-SIDER(R) trademarks, 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)
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trademark in the United States. License royalties accounted for less than 1% of
the Company's sales in fiscal year 1996. 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 November 29, 1996 and December 1, 1995, the Company had a backlog of
orders amounting to approximately $168,600,000 and $150,500,000, 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 canceled during the first two quarters of
the next fiscal year.
In all of the Company's wholesale businesses, reorders from retail
customers are an important source of revenue to supplement the orders taken in
advance of the season. Over the years, the importance of reorder activity to a
season's success has grown as customers, especially larger retailers, have
placed increased reliance on orders transmitted via electronic data interchange
(EDI) programs.
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.
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Employees
As of November 29, 1996, the Company employed approximately 3,500 full-time
and part-time employees, approximately 370 of whom were represented by
collective bargaining units. Management believes that its relations with its
employees are good.
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 its
business as presently conducted.
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 material.
Executive Officers of the Registrant
The information with respect to the executive officers of the Company listed
below is as of February 25, 1997.
Executive Officers of the Registrant
Name Position with Company Age
Robert C. Siegel Chairman of the Board of Directors, 60
President and Chief Executive Officer
of the Company since joining the
Company in 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.
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Executive Officers of the Registrant
Name Position with Company Age
John R. Ranelli Executive Vice President of the Company 50
since joining the Company in September
1996. Prior to joining the Company,
Mr. Ranelli was the Chief Operating
Officer of Deckers Outdoor Corporation
from January 1995 to September 1995,
Executive Vice President and Chief
Financial Officer of TLC Beatrice
from June 1994 to December 1994, and General
Manager - International and Europe of The
Timberland Company from May 1991 to May 1994.
Joanna M. Jacobson President, The Keds Corporation since 36
joining the Company in April 1996.
Prior to joining the Company, Ms. Jacobson
was a partner of Core Strategy Group from
January 1995 to April 1996 and prior to
that was Senior Vice President of Marketing
of Converse Inc. from November 1991 to
September 1994. Ms. Jacobson was previously
employed by the Company as Vice President of
Marketing of Sperry Top-Sider, Inc. from
October 1990 to June 1991.
Diane M. Sullivan President, Wholesale division, Stride Rite 41
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.
Robert B. Moore, Jr. President, Sperry Top-Sider, Inc. since 46
joining the Company in 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.
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Executive Officers of the Registrant
Name Position with Company Age
Howard B. Collins, Jr. President, Stride Rite Sourcing 50
International, Inc., since joining the
Company in September 1996. Prior to
joining the Company, Mr. Collins was
Vice President of Sourcing for The
Timberland Company from July 1991 to
September 1996.
Dennis Garro President, Retail division, Stride 49
Rite Children's Group, Inc. since joining
the Company in April 1994. Prior to
joining the Company, Mr. Garro served as
Senior Vice President and General
Merchandise Manager for Mervyns division
of Dayton Hudson Corp. from May 1992 to
September 1993 and as Senior Vice
President and General Merchandise Manager
DFS Group, Ltd. from November 1989 to
April 1992.
C. Madison Riley III Vice President and General Manager, 38
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.
John M. Kelliher Vice President, Finance, Treasurer and 45
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.
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Executive Officers of the Registrant
Name Position with Company Age
Joseph T. Barrell Vice President of Global Logistics since 45
joining the Company in January 1995.
Prior to joining the Company, Mr. Barrell
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.
Gerrald B. Silverman Senior Vice President of Sales, The Keds 38
Corporation since January 1996, and prior
to that President of Stride Rite
International Corp. since joining the
Company in April 1994. Prior to joining
the Company, Mr. Silverman served as the
national sales manager of the Dockers
division of Levi Strauss & Co. from
October 1992 to April 1994, as West Coast
regional manager of the Dockers division
of Levi Strauss & Co. from April 1991 to
October 1992, and as East Coast district
manager of the Dockers division of Levi
Strauss & Co. from May 1990 to April 1991.
Lorie M. Karnath Vice President Licensing, Strategic 37
Planning, Mergers and Acquisitions, and
Corporate Communications since joining
the Company in March 1996. Prior to
joining the Company, Ms. Karnath was a
consultant with E.M.C. Group from 1991
1996, and an associate with Kidder,
Peabody & Co., Inc. from 1987 to 1991.
Karen K. Crider General Counsel of the Company since 51
joining the Company in 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.
These executive officers are generally elected at the Board of Directors'
meeting held in conjunction with the Company's Annual Meeting and serve at the
pleasure of the Board.
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Item 2. Properties
During fiscal 1996, the Company manufactured 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. On February 19, 1997,
the Company announced the closure of the two remaining manufacturing facilities
in Missouri. Management expects that manufacturing activities at these
facilities will cease during the third quarter of fiscal 1997. The Company also
manufactures footwear and footwear components at a 47,000 square foot facility
in the Dominican Republic. In addition, the Company owns a facility with
approximately 20,000 square feet of space in Woburn, Massachusetts.
Present manufacturing space totals approximately 129,000 square feet.
Approximately 82,000 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. In January 1997, the
Company entered into a lease for a 263,000 square foot distribution facility in
Huntington, Indiana. The move of the Stride Rite children's business, the last
division remaining in the Company's Boston, Massachusetts facility, is planned
for the fourth quarter of fiscal 1997 following the peak back-to-school shipping
season. Reference is hereby made to the section of the Registrant's annual
report to stockholders entitled "Management's Discussion and Analysis of
Financial Condition and Results of Operations" 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 November 29, 1996, the Company operated 129 retail stores throughout
the country on leased premises which, in the aggregate, covered approximately
205,000 square feet of space. The Company also operates 60 children's footwear
departments in certain divisions of Federated Department Stores. In addition,
the Company is the lessee of 32 retail locations totaling approximately 37,000
square feet which are subleased to independent Stride Rite dealers and other
tenants.
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For further information concerning the Company's lease obligations, see Note 8
to the Company's consolidated financial statements, which are contained in the
annual report to stockholders and are incorporated by reference herein.
Management believes that, except as stated above, all properties and facilities
of the Company are suitable, adequate and fit for their intended purposes.
Item 3. Legal Proceedings
On September 27, 1993, the Company announced that The Keds Corporation, a
wholly owned subsidiary of the Company, entered into settlement agreements with
the Attorneys General of all 50 states, the Corporation Counsel of the District
of Columbia and the Federal Trade Commission, to resolve various investigations
into Keds' adoption and enforcement of its suggested retail pricing policy. In
entering into these settlements, Keds, without admitting any liability, fully
settled suits brought by the Attorneys General in the United States District
Court for the Southern District of New York, in their parens patriae capacity,
on behalf of all consumers who purchased certain KEDS(R) shoes during the
relevant period. The settlements required Keds to pay $5.7 million to several
charities nationwide, as well as $1.5 million to provide nationwide notice to
potential class members and other administrative expenses. Keds has agreed to
the imposition of certain injunctive relief for a period of five years ending
August 31, 1998. Following preliminary Court approval on September 27, 1993,
Keds paid the administrative costs and part of the settlement amount. Following
final court approval on March 28, 1994, Keds made the remaining payments.
Reference is hereby made to the discussion under Business Environmental
Matters set forth in Item 1 of this Annual Report on Form 10-K.
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
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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 1996
Annual Report to Stockholders on pages 1, 26 and 33 and is incorporated herein
by reference.
Item 6. Selected Financial Data
The information required by this item is included in the Registrant's 1996
Annual Report to Stockholders on pages 1, 13 and 26 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 1996
Annual Report to Stockholders on pages 2 through 8 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 1996
Annual Report to Stockholders on pages 9 through 26 and is incorporated herein
by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
None.
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PART III
Item 10. Directors and Executive Officers of the Registrant
Reference is made to the information set forth under the caption "Executive
Officers of the Registrant" in Item 1 of Part I of this report and to
information under the captions "Information as to Directors and Nominees for
Director", "Meetings of the Board of Directors and Committees" and "Compliance
with Section 16(a) of the Securities and Exchange Act of 1934" in the
Registrant's definitive proxy statement relating to its 1997 Annual Meeting of
Stockholders, which will be filed with the Commission within 120 days after the
close of the Registrant's fiscal year ended November 29, 1996, 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 1997 Annual Meeting of Stockholders
under the caption "Executive Compensation" 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
November 29, 1996, 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 1997 Annual Meeting of Stockholders, which will be filed with the Commission
within 120 days after the close of the Registrant's fiscal year ended November
29, 1996, 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 1997 Annual Meeting of Stockholders, which will be filed with
the Commission within 120 days after the close of the Registrant's fiscal year
ended November 29, 1996, which information is incorporated herein by reference.
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<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 November 29, 1996
and December 1, 1995 *
Consolidated Statements of Income for the fiscal years
ended November 29, 1996, December 1, 1995 and
December 2, 1994 *
Consolidated Statements of Cash Flows for the fiscal
years ended November 29, 1996, December 1, 1995 and
December 2, 1994 *
Consolidated Statements of Changes in Stockholders'
Equity for the fiscal years ended November 29, 1996,
December 1, 1995 and December 2, 1994 *
Notes to Consolidated Financial Statements *
Report of Independent Accountants *
Report of Independent Accountants on Financial
Statement Schedules F-1
Financial Statement Schedule for the fiscal years ended November 29, 1996,
December 1, 1995 and December 2, 1994:
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 25, 1996, 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)* 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.
(v)* 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.
(vi)* 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(vi) attached hereto.
*Denotes a management contract or compensatory plan or arrangement.
18
<PAGE>
Exhibit No. Description of Exhibit
(vii) 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.
(viii)* 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(viii) attached hereto.
(ix)* Employment Agreement between the Registrant and Robert C.
Siegel dated as of December 11, 1996.
11 Calculation of Net Income Per Share
13 Selected Portions of Registrant's 1996 Annual Report to
Stockholders
21 Subsidiaries of the Registrant
23 Consent of Independent Accountants
27 Financial Data Schedules
(b) Reports on Form 8-K
There were no reports filed on Form 8-K during the fourth
quarter of fiscal 1996.
*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 7, 1997 Date: February 7, 1997
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 7, 1997 Date: February 7, 1997
/s/ Margaret A. McKenna /s/ Frank R. Mori
- ----------------------------------- ---------------------------------
Margaret A. McKenna, Director Frank R. Mori, Director
Date: February 7, 1997 Date: February 7, 1997
/s/ Robert L. Seelert /s/ Myles J. Slosberg
- ----------------------------------- ---------------------------------
Robert L. Seelert, Director Myles J. Slosberg, Director
Date: February 7, 1997 Date: February 7, 1997
/s/ W. Paul Tippett, Jr. /s/ Jeanette S. Wagner
- ----------------------------------- ---------------------------------
W. Paul Tippett, Jr., Director Jeanette S. Wagner, Director
Date: February 7, 1997 Date: February 7, 1997
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 1996 Annual Report to Stockholders of The Stride Rite Corporation
and appears on page 28 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 16 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 7, 1997
F-1
<PAGE>
THE STRIDE RITE CORPORATION
Schedule II - VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
<TABLE>
<CAPTION>
Additions
Balance at Charged to Balance at
Beginning Costs and End of
Description Period Expenses Deductions Period
----------- ---------- ---------- --------
Fiscal year ended December 2, 1994: Deducted from assets:
<S> <C> <C> <C> <C> <C> <C>
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
======== ======== ======== ========
Fiscal year ended November 29, 1996: Deducted from assets:
Allowance for doubt-
ful accounts 4,342 1,214 2,108(a) 3,448
Allowance for sales
discounts 2,797 2,667 1,740(b) 3,724
======== ======== ======== ========
$7,139 $3,881 $3,848 $7,172
======== ======== ======== ========
</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 (vi)* 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(vi)
attached hereto.
(viii)* 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(viii) attached hereto.
(ix)* Employment Agreement between the Registrant 26
and Robert C. Siegel, dated as of December 11,
1996
11 Calculation of Net Income Per Share 34
13 Selected portions of Registrant's 1996
Annual Report to Stockholders 35
21 Subsidiaries of the Registrant 68
23 Consent of Independent Accountants 69
27 Financial Data Schedules 70
*Denotes a management contract or compensatory plan or arrangement.
<PAGE>
THE STRIDE RITE CORPORATION
FORM 10-K FOR THE FISCAL YEAR ENDED NOVEMBER 29, 1996
Addendum 10(vi)
Robert C. Siegel October 21, 1993
John M. Kelliher January 29, 1990
Karen K. Crider October 1, 1992
Robert B. Moore, Jr. October 5, 1992
Dennis Garro March 21, 1994
Gerrald B. Silverman March 21, 1994
C. Madison Riley III February 10, 1995
Diane M. Sullivan April 24, 1995
Joanna M. Jacobson April 18, 1996
John R. Ranelli September 1, 1996
<PAGE>
THE STRIDE RITE CORPORATION
FORM 10-K FOR THE FISCAL YEAR ENDED NOVEMBER 29, 1996
Addendum 10(viii)
Robert C. Siegel
Karen K. Crider
Dennis Garro
John M. Kelliher
Robert B. Moore, Jr.
C. Madison Riley III
Gerrald B. Silverman
Diane M. Sullivan
Joanna M. Jacobson
John R. Ranelli
Howard B. Collins, Jr.
<PAGE>
Employment Agreement
This contract of employment (the "Agreement") is entered into as of this 11th
day of December, 1996 by and between The Stride Rite Corporation (the "Company")
and Robert C. Siegel ("Executive").
The Company desires to employ Executive in the capacities of Chairman, Chief
Executive Officer and President of the Company, and
Executive desires to be employed by the Company in the capacities of Chairman,
Chief Executive Officer and President,
The Company and Executive agree as follows:
1. Employment. The Company hereby agrees to and does hereby employ Executive,
and Executive hereby agrees to and does hereby enter the employ of the Company
for the period set forth in Section 2 below in the positions and with the duties
and responsibilities set forth in Section 3 below, and upon the terms and
conditions set forth in this Agreement.
2. Employment Period. The Employment Period shall commence on signature of this
Agreement and unless sooner terminated as expressly provided below, shall
continue until the close of business on December 15, 1997 (the "Employment
Period").
3. Positions. It is contemplated that during the Employment Period, Executive
shall serve as a principal officer of the Company with the offices and titles of
Chairman, Chief Executive Officer and President, reporting directly to the Board
of Directors. With respect to those offices, Executive shall have powers and
duties as provided in the Company's Bylaws in effect as of the date and as those
may be amended from time to time during the Employment Period.
The Board of Directors of the Company agrees to nominate Executive for election
as a director of the Company at its April 1997 Annual Meeting of Shareholders.
In the event that Executive is not elected by the shareholders to serve as a
director of the Company, his employment with the Company shall be terminated by
the Company subject to the terms of Section 9 of this Agreement.
4. Performance. Throughout the Employment Period, Executive agrees to devote his
full time and undivided attention to the business and affairs of the Company,
and in particular to the performance of all of the duties and responsibilities
of the Chairman, Chief Executive Officer and President of the Company, and as a
director of each of its subsidiaries, except for reasonable vacation and except
for temporary illness or incapacity. Executive shall be entitled to up to four
(4) weeks of vacation per year.
Executive shall serve the Company and each of its subsidiaries loyally,
diligently and effectively and at all times exert his best efforts to promote
the success of their respective activities. Executive shall discharge his duties
and responsibilities in an efficient, trustworthy and businesslike manner and
shall do nothing which will in any way impair or prejudice the name or
reputation of the Company or any of its subsidiaries.
<PAGE>
Nothing in this Agreement shall preclude Executive from devoting reasonable
periods required for:
a. serving as director, trustee or member of a committee of any
organization involving no conflict of interest with the interests
of the Company;
b. engaging in charitable and community activities; and
c. managing his personal investments;
provided that such activities do not, individually or collectively, interfere
with the regular performance of Executive's duties and responsibilities under
this Agreement.
5. Salary and Incentive Compensation. During the Employment Period Executive
shall be entitled to compensation from the Company as follows:
a. For all services to be rendered by Executive to the Company during the
Employment Period, including, without limitation, services as an executive,
officer, director, employee or member of any committee of the Company or its
subsidiaries, divisions, business units or affiliates, Executive shall be paid
compensation in the form of a base or fixed salary, payable not less often than
once each month, at the annual rate of Five Hundred Forty-Five Thousand Dollars
($545,000), with the opportunity for periodic annual reviews and increases in
such rate as shall be determined in the sole discretion of the Board of
Directors.
b. Executive shall be paid additional compensation in the form of incentive
compensation as follows:
i. Executive shall be an "Eligible Employee" as that term is defined in
the Company's Annual Incentive Compensation Plan (the "Annual Incentive
Plan") and may receive incentive compensation as provided by its terms.
Pursuant to the Annual Incentive Plan, Executive's "Bonus Percentage"
(as defined) will be 50%. Executive's participation in the Annual
Incentive Plan is subject to the terms and conditions of the Annual
Incentive Plan, or any amended version of the Annual Incentive Plan or
any successor or other annual incentive compensation plan which may be
adopted and become legally effective during the Employment Period.
ii. The Company acknowledges that in its agreement with Executive dated
October 21, 1993, in order to replace long term benefits forfeited by
Executive by leaving his prior employment and thereby to encourage
Executive to accept employment with the Company, it granted to
Executive rights to purchase 60,000 shares of the Company's common
stock at a purchase price of $.25 per share subject to all the terms
and conditions of the Company's 1975 Executive Incentive Purchase Plan,
as amended ("Incentive Stock Plan"), rights vesting according to the
following schedule: 20,000 shares on December 13, 1994, 20,000 shares
on December 13, 1995 and 20,000 shares on December 13, 1996. The
Company shall pay to Executive (or in the case of death, to Executive's
legal representative) a cash amount equal to the excess, if any, of (A)
$951,000 over (B) the aggregate fair market value of 60,000 shares of
<PAGE>
the Company's common stock, whether or not the shares have actually
been acquired or disposed of by Executive, plus the aggregate gain, if
any, realized by Executive on any of the shares acquired and resold
during the Employment Period at a price exceeding $15.85 per share,
less the aggregate purchase price paid or payable for such shares, upon
the occurrence of the first of the following events:
(1) if during the year from December 15, 1996 to
December 15, 1997 Executive's employment is terminated by the
Company;
(2) if on or before October 15, 1997 this Agreement
is not extended or replaced by a new agreement covering
Executive's employment beyond December 15, 1997; or
(3) following any renewal of Executive's employment,
if at any time after December 15, 1997 either Executive or the
Company terminates Executive's employment with the Company.
(4) upon the death of the Executive.
As used herein, "fair market value" shall mean the closing price for
the Company's common stock on the New York Stock Exchange - Composite
Index on the date written notice of any of the above events is given.
iii. The Company and Executive acknowledge that Executive has been
granted all stock options required by the terms of the Employment
Agreement dated 21st October 1993, and other stock options at the
discretion of the Board of Directors of the Company, and agree that
these options will be governed by the terms and conditions of their
respective grants (including but not limited to provisions regarding
vesting, expiration and termination) and by the terms of the Incentive
Stock Plan and the 1995 Long Term Growth Incentive Plan, as applicable.
c. In the event of the death of Executive during the Employment Period, the
legal representative of Executive shall be entitled to the base or fixed salary
provided for in Section 5(a) above for the month in which the death shall have
occurred, at the rate being paid at the time of death, and the Employment Period
shall be deemed to have ended as of the close of business on the last day of the
month in which the death shall have occurred, but without prejudice to any
payments otherwise due in respect of Executive's death, including any payment
under Section 5(b)(ii), or to any rights that Executive's legal representative
may have to exercise stock purchase rights granted to Executive.
6. Perquisites. During the Employment Period, Executive shall be entitled to
perquisites as follows:
a. Executive shall be provided with an appropriate office and secretarial and
clerical staff.
b. Reimbursement of Executive's lease of an automobile (the "Vehicle"), shall be
provided by the Company pursuant to the Company's leased car policy as currently
in effect. Under the Company's leased car policy, an amount of up to $10,000 per
year will be paid by the Company to Executive to reimburse lease payments,
<PAGE>
insurance and maintenance costs of the Vehicle. Should costs for the Vehicle
exceed that allowance, Executive will be responsible for payment of any
differential. Executive shall be responsible for the cost of fuel consumed in
the use of the Vehicle. Pursuant to the Company's current automobile policy, the
Company will pay Executive a mileage allowance as reimbursement for the use of
the Vehicle in conducting Company business.
c. The Company shall reimburse Executive for up to $5,000.00 per year for the
Executive's use of personal financial planning services.
7. Employment Benefits; Life Insurance. At the normal employee contribution rate
to Executive, the Company will provide Executive with medical coverage for
Executive and eligible members of Executive's family, insurance on his life
equal to One Million Dollars ($1,000,000) payable to a beneficiary designated by
Executive (in lieu of coverage available under the usual terms of the life
insurance policy which the Company offers) and long-term disability coverage.
Executive shall also be entitled to participate in all of the various employee
benefit plans which the Company maintains and/or adopts during the Employment
Period, including a defined benefit Retirement Plan and various elective
programs, including, without limitation, a dental insurance plan, Employee Stock
Purchase Plan, Deferred Compensation Plan and Employee Savings and Investment
Plan (pursuant to Section 401K of the Internal Revenue Code of 1986, as
amended), subject to their respective terms and requirements, including, without
limitation, their eligibility and vesting requirements.
Nothing in this Agreement shall preclude the Company from amending or
terminating any employee benefit plan or practice, but it is the intent of the
parties that Executive shall continue to be entitled during the Employment
Period to benefits at least equal in the aggregate to those attached to his
position as of the date of this Agreement.
8. Residence Requirement. Executive agrees that during his employment with the
Company his residence and that of his family will remain in the greater Boston
(Massachusetts) area.
9. Termination of Employment. Executive hereby acknowledges and agrees that the
Company by entering into this Agreement shall not be deemed to have waived any
of its rights during the Employment Period or thereafter, including, without
limitation, the right to terminate Executive's employment for any reason.
If by October 15, 1997 this Agreement is not further extended or replaced by a
new agreement regarding employment, the Employment Period will end and
Executive's employment as Chairman, Chief Executive Officer and President of the
Company and all of its subsidiaries deemed terminated on December 15, 1997
(provided that employment is not otherwise terminated for cause). Upon such
termination, or if the Company terminates Executive's employment during the
Employment Period for any reason other than for Cause (as defined below), the
Company shall pay Executive a monthly severance allowance payable at the end of
each month following termination of Executive's employment until the earliest of
(a) twelve months following the Company's termination of Executive's employment,
or (b) the date of Executive's death. Such monthly severance allowance shall be
<PAGE>
an amount equal to the monthly fixed or base salary paid to Executive pursuant
to Section 5(a) of the Agreement at the time of the termination of his
employment. In addition, until the earlier of (i) the Executive's reemployment
(other than self-employment or employment by an entity which does not provide
comparable medical benefits to employees), or (ii) the end of the Employment
Period, the Executive shall continue to be entitled to participate (without cost
to the Executive) in the Company's medical and dental insurance programs and the
Executive's life insurance benefit as provided by this Agreement shall be
continued. In addition, the Executive shall be entitled to any cash payments
provided by Section 5(b)(ii), any payments earned pursuant to the terms of the
Annual Incentive Plan and the Long-Term Plan, and any rights to exercise the
vested portion of stock options under Section 5(b)(iii).
If Executive's employment with the Company is terminated on account of
Executive's death or permanent disability, then except for (i) the cash payments
provided by Section 5(b)(ii) and 5(c) of this Agreement, (ii) any payments
earned pursuant to the terms of the Annual Incentive Plan and the Long-Term Plan
and (iii) the rights of Executive or his legal representative to exercise the
vested portion of stock options under Sections 5(b)(iii), payment to Executive
or Executive's estate will be made exclusively under the Company's applicable
death or disability plans or policies.
If Executive's employment is terminated during the Employment Period for Cause,
then the Executive shall not be entitled to receive any severance allowance or
compensation of any kind except (i) incentive compensation which may have been
fully earned pursuant to the terms and conditions of the Annual Incentive Plan
and/or the Long-Term Plan; (ii) any cash payments provided by Section 5(b)(ii);
and (iii) any rights of the Executive not forfeited on account of such
termination to exercise the vested portion of the stock options under Section
5(b)(iii). Also upon such termination, Executive will not be entitled to
continue any of the Company's employee benefits, including any benefits provided
in this Agreement or under the Company's medical, dental, health and life
insurance plans (except to the extent the same may be required by law), or to
perquisites of any kind, from and after the date upon which Executive's
employment is terminated. For the purposes of this section and any other
provision of this Agreement, termination of Executive's employment shall be
deemed to have been for Cause only if:
a. termination of his employment shall have been so deemed by the Board
of Directors of the Company by virtue of (i) an act or acts of
dishonesty, (ii) commission of a felony or act of moral turpitude,
(iii) a wrongful act or acts resulting or intended to result directly
or indirectly in gain or personal enrichment at the expense of the
Company, (iv) a willful act or acts which constitute a material
violation or violations of the federal securities laws, or (v) a
willful act or acts which constitute material insubordination or a
material violation of the Company's Conflict of Interest policy or any
of its other policies communicated to Executive in writing; or
b. there has been a breach by Executive during the Employment Period of
any of the material provisions of this Agreement, and, with respect to
any alleged breach, that Executive shall have failed to remedy such
alleged breach within thirty (30) days from his receipt of written
<PAGE>
notice from the Clerk of the Company pursuant to the resolution duly
adopted by the Board of Directors of the Company after notice to
Executive and an opportunity to be heard demanding that Executive
remedy such alleged breach.
If Executive's employment is terminated by his voluntary resignation other than
"Good Reason" as defined in the Severance Agreement referred to in Section 14(c)
of this Agreement, Executive shall not be entitled to payment of any severance
allowance, or compensation of any kind except (i) incentive compensation which
may have been fully earned pursuant to the terms and conditions of the Annual
Incentive Plan and/or the Long-Term Plan; and (ii) any rights of Executive not
forfeited on account of such termination to exercise the vested portion of stock
options under Sections 5(b)(iii). Also in the event of such termination
Executive will not be entitled to the continuance of any of the Company's
employee benefits or perquisites of any kind.
On termination of Executive's employment with the Company for any reason the
Executive will be required as a condition precedent for payment under the
arrangements provided for in this Section 9 to submit his resignation as a
director of the Company and all of its subsidiaries to the Company's Board of
Directors, which resignation as a director will only be effective upon
acceptance by the Board of Directors, to execute a release acknowledging full
and final settlement of all claims arising from his employment and to provide
reasonable cooperation to the Company.
10. Agreement Not to Compete. Executive hereby covenants and agrees that for a
period of one (1) year following termination of Executive's employment with the
Company for any reason, Executive will not, directly or indirectly, within the
United States (being the area in which the Company's business is conducted), in
any capacity, enter into or engage in the same or a substantially similar
business as that conducted and carried on by the Company and being directly
competitive with the Company or any of its business units or subsidiaries,
including, but not limited to, specialty retailing of infant's, toddler's and
children's footwear, the design, manufacture of footwear of any type on the
wholesale level, and any and all components of the foregoing, whether as an
individual for his own account, or as a partner, joint venture, employee, agent,
consultant, officer or director for or with any person or entity, or as a
shareholder (greater than one percent (1%) of any corporation), or otherwise.
11. Agreement of Confidentiality. With respect to any secret, proprietary or
confidential information obtained by Executive during his employment at the
Company, except with the prior written agreement of the Company, which consent
shall be granted or withheld in the sole discretion of the Company, Executive
will not, at any time, disclose or use for competitive purposes (other than the
Company's competitive purposes) any such information. For purposes hereof,
secret, proprietary or confidential information shall include, by way of example
but not by way of limitation, any information of a technical, financial,
commercial or other nature pertaining to the business of the Company or to that
of any of its clients, customers, consultants, licensees, business units,
subsidiaries or affiliates, including but not limited to, its and their
operations, plans, financial condition, product development, customers, sources
of supply, manufacturing techniques or procedures, marketing, sales, production
<PAGE>
or other competitive information acquired by Executive during the course of his
employment by the Company and all other information that the Company itself does
not disclose to the public.
12. Notice. For the purposes of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered personally or mailed by United
States registered or certified mail, return receipt requested, postage prepaid,
addressed to Executive at 30 Hayden Road, Brookline, Massachusetts 02146; and to
the Company at 191 Spring Street, Lexington, Massachusetts 02173 (or at such
other address to which it may relocate its headquarters during the term of this
Agreement), directed to the Board of Directors with a copy of the Clerk of the
Company.
13. Heirs and Successors Bound. This Agreement shall be binding upon the
heirs, administrators and executors of Executive and upon the successors or
assigns of the Company.
14. Miscellaneous.
a. No provision of this Agreement may be modified, waived or discharged, unless
such waiver, modification or discharge is agreed to in writing and signed by
Executive and such officer as may be specifically designated by the Board of
Directors. No waiver by either party hereto at any time of any breach by the
other party hereto of, or in compliance with any condition or provision of this
Agreement to be performed by the other party shall be deemed a waiver of similar
or dissimilar provisions or conditions at the time or at any prior or subsequent
time.
b. Executive agrees that the remedy at law for any breach by Executive of the
provisions of Sections 10 or 11 of this Agreement will be inadequate and that
the Company will also be entitled to injunctive relief without bond against any
such breach. Such injunctive relief will not be exclusive but will be in
addition to any other relief that the Company may have.
c. The Employment Agreement dated 21st October 1993 between Executive and the
Company is superseded by this Agreement and of no further force or effect. There
are no agreements or understandings, oral or written, between the parties hereto
other than those set forth in this Agreement, and there are no agreements or
understandings which in any way alter, modify, amend or otherwise change this
Agreement, with the exception of a certain Severance Agreement between Executive
and the Company, dated as of February 17, 1995, as such may be further modified,
amended or replaced (the "Severance Agreement"). If a "change in control" as
defined in the Severance Agreement occurs during the Employment Period which
triggers the terms of the Severance Agreement, the parties agree that the
Severance Agreement shall thenceforth be deemed to supersede this Agreement in
all respects, except that Executive shall retain all his rights under Section
5(b)(ii) and (iii).
d. The validity, interpretation, construction and performance of this Agreement
shall be governed by the laws of the Commonwealth of Massachusetts applicable to
instruments under seal.
<PAGE>
e. The invalidity or unenforceability of any provision of this Agreement shall
not affect the validity or enforceability of any other provision of this
Agreement, which shall remain in full force and effect.
f. This Agreement may be executed in two counterparts, each of which shall be
deemed an original but all of which together will constitute one and the same
instrument.
g. The section headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement.
Agreed and accepted this 13th day of December, 1996.
THE STRIDE RITE CORPORATION EXECUTIVE
Signed: /s/ Margaret McKenna Signed: /s/ Robert C. Siegel
Margaret McKenna, Chairman of the Robert C. Siegel
Compensation Committee of the
Board of Directors
<PAGE>
================================================================================
Exhibit 11
================================================================================
THE STRIDE RITE CORPORATION
CALCULATION OF NET INCOME PER SHARE
For The Five Fiscal Years Ended November 29, 1996
<TABLE>
<CAPTION>
Nov. 27, Dec. 3, Dec. 2, Dec. 1, Nov. 29,
1992 1993 1994 1995 1996
--------- -------- -------- --------- --------
Calculation of shares:
Weighted average number
of common shares
<S> <C> <C> <C> <C> <C>
outstanding 51,259,960 50,619,238 49,811,244 49,481,929 9,593,888
Common shares attributable to assumed exercise of dilutive stock options and
stock purchase rights using the treasury
stock method 295,717 192,251 92,964 298,476 313,134
---------- ---------- --------- ---------- ----------
Average common shares and
common equivalent
shares outstanding 51,555,677 50,811,489 49,904,208 49,780,405 49,907,022
========== =========== ========== =========== ==========
Net income (loss)
available for common
stock $61,506,000a$58,291,000b$19,798,000 ($8,430,000)c$2,499,000
=========== ========== ========== ============ ==========
Primary and fully diluted
net income (loss)
per share $1.19a $1.15b $0.40 ($0.17)c $0.05
=========== ========== ========= ========== ========
</TABLE>
a. Net income and net income per common share in 1992 included nonrecurring
charges of $18,319,000 ($11,087,000, net of income taxes, or $.22 per share). b.
Net income and net income per common share in 1993 included nonrecurring charges
of $7,200,000 ($4,274,000, net of income taxes, 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. c. 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).
<PAGE>
EXHIBIT 13
The Stride Rite Corporation
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996
- ------------------------------------------------------------------------------
OPERATING RESULTS (1)
<S> <C> <C> <C> <C> <C>
Net sales $585,926 $582,868 $523,877 $496,432 $448,297
Net income (loss) (2)(3) 61,506 58,291 19,798 (8,430) 2,499
Common stock dividends 15,872 17,686 18,898 16,581 9,923
Per common share:
Net income(loss) (2)(3) 1.19 1.15 .40 (.17) .05
Cash dividends .31 .35 .38 .335 .20
FINANCIAL POSITION (1)
Working capital 241,310 243,249 236,628 204,785 201,597
Total assets 383,524 412,449 396,620 366,616 364,330
Long-term debt 3,333 2,500 1,667 833 -
Stockholders' equity 271,535 302,473 292,506 267,456 261,524
Book value per
common share 5.33 6.02 5.91 5.40 5.27
STATISTICS (1)
Return on average
equity (2) (3) 23.6% 20.2% 6.6% (2.9)% 0.9%
Return on sales (2) (3) 10.5% 10.0% 3.8% (1.7)% 0.6%
Common shares
outstanding at
end of year 50,908 50,280 49,518 49,531 49,667
Number of employees
at end of year 3,100 3,600 3,700 3,600 3,500
Number of shareholders 4,100 4,800 5,100 5,000 4,800
</TABLE>
1. Financial data is in thousands, except for per share information.
2. Amount in 1993 included a charge of $2,034,000 ($.04 per share)
representing the cumulative effect of an accounting change related to
income taxes.
3. Amounts included 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.
<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. Portions of the information
presented include forward-looking statements that involve risks and
uncertainties detailed from time to time in the Company's filings with the
Securities and Exchange Commission which may cause actual results to differ
materially from those projected or implied in forward-looking statements.
The Company's fiscal 1995 results included nonrecurring charges related
to several initiatives to reduce future operating costs and to realign certain
product lines and business units, which were announced in November 1995. The
actions included the closing of a children's shoe manufacturing facility, the
closure of 48 underperforming retail locations and the elimination of certain
administrative positions. In connection with these initiatives, the Company
recorded pre-tax nonrecurring charges of $16.6 million ($10 million, net of tax
benefits) during fiscal 1995.
<TABLE>
<CAPTION>
Percent Change
---------------------------------------------
1996 vs. 1995 1995 vs. 1994
Increase (decrease)
- --------------------------------------------------------------------------------
<S> <C> <C>
Net sales (9.7)% (5.2)%
Gross profit (6.9)% (16.7)%
Selling and administrative expenses (7.6)% (0.7)%
Operating income (loss) 108.3% (151.5)%
Net income (loss) 129.6% (142.6)%
Before nonrecurring charges:
Operating income 726.1% (99.5)%
Net income 62.1% (92.2)%
</TABLE>
<TABLE>
<CAPTION>
Percent to Net Sales
---------------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Gross profit 34.1% 33.1% 37.6%
Selling and administrative expenses 33.8% 33.1% 31.5%
Operating income (loss) 0.3% (3.3)% 6.1%
Net income (loss) 0.6% (1.7)% 3.8%
Before nonrecurring charges:
Operating income 0.3% - 6.1%
Net income 0.6% 0.3% 3.8%
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
NET SALES
- --------------------------------------------------------------------------------
During fiscal 1996, the Company's consolidated net sales decreased $48.1
million or 9.7% from the sales level achieved in fiscal 1995. A 12.1% decline in
revenues related to the Company's wholesale divisions was partially offset by
higher retail sales. With respect to the wholesale divisions of the Company,
unit shipments of current line merchandise decreased 12.3% in fiscal 1996 as
compared to fiscal 1995. Increased promotional allowances in the Keds division
also contributed to the lower sales in fiscal 1996. Excluding the impact of
product mix changes, net sales in 1996 increased approximately $4.4 million from
1995 due to selling price inflation.
The sales decline in the Company's wholesale businesses in fiscal 1996
was largely caused by lower revenues of the Keds division. The other divisions
of the Company generally made progress during fiscal 1996. Sales of the Stride
Rite Children's Group to independent dealers, family shoe stores and department
stores increased 6% during 1996 with a favorable consumer reaction to Stride
Rite's Fall product line resulting in a 17% sales increase in the second half of
the year. The Sperry Top-Sider division posted sales which were down 1% from
1995, as late product deliveries and the corresponding inventory shortages
prevented the division from fully capitalizing on a favorable reaction to
Sperry's 1996 product lines. During 1996, sales of the Company's International
division increased $3 million or 12% over 1995 due to higher sales of Keds and
Sperry Top-Sider products in Europe, Latin America and the Middle East. Sales of
the Keds division, the Company's largest business unit, were down 22% in fiscal
1996 as compared to fiscal 1995, with sales of Keds children's product line down
26% and women's category revenues below 1995 by 18%. Sales of the basic Keds
Champion(R) style, which have been declining for several seasons due to a shift
in women's fashions, decreased 12% in fiscal 1996. The Keds division is
executing a new product strategy beginning with the Spring 1997 line in order to
emphasize Keds classic styling by adding new fabrics and colors and by
interpreting Keds basic styles in updated, feminine silhouettes.
In fiscal 1996, sales of the Company's Retail division, which includes
the Stride Rite children's booteries and leased departments, manufacturers'
outlets and the initial stores of the Great Feet(TM) and Keds retail concepts,
increased 1% as compared to fiscal 1995. A sales gain of 1.7% at comparable
stores (stores open for a full year in each fiscal year) and a more productive
store mix offset the impact of store closings. The Retail division operated an
average of 227 stores during fiscal 1996, a 15% decrease from the average of 267
stores operated during fiscal 1995. The division ended the 1996 fiscal year with
213 stores, down from the store count of 254 in November 1995. During fiscal
1996, the Retail division eliminated 33 of the 48 underperforming retail
operations, which were targeted for closing as part of the Company's
restructuring plan announced in November 1995, and also closed 18 low-volume
leased departments, which were marginally profitable.
<PAGE>
In fiscal 1995, consolidated net sales decreased $27.5 million or 5.2%
from the sales level achieved in fiscal 1994. Sales of the Company's wholesale
businesses decreased 8.9% in fiscal 1995, with the decline more than offsetting
a 17% increase in retail sales. An 8.3% decrease in unit shipments of current
line merchandise and selling price deflation of approximately $11 million
combined to produce the lower wholesale revenues. All of the retail sales
increase was due to new stores as the division operated an average of 267 stores
during fiscal 1995 compared to 201 stores in fiscal 1994. Sales at comparable
stores in 1995 were down 2.1% from 1994. The performance of the Keds division in
1995 was the largest factor contributing to the sales decline of the wholesale
businesses. Sales of Keds products were down 15% in 1995 with the women's
business down 20% and children's sales below 1994 by 14%. In the women's
category, sales of the Keds Champion(R) product line were down 25% in 1995,
following a sales decline of 22% experienced in fiscal 1994. Sales of the Stride
Rite Children's Group to independent stores decreased 6% in 1995 due to
generally soft retail conditions and the purchase, during the prior two years,
of 23 independent stores by the Company's Retail division. Both the Sperry
Top-Sider and International divisions achieved higher sales in fiscal 1995, up
10% and 26%, respectively, from the sales levels achieved in fiscal 1994.
GROSS PROFIT
The Company's gross profit in fiscal 1996 totaled $153 million, a
decrease of $11.3 million or 6.9% from fiscal 1995. In fiscal 1996, the
Company's consolidated gross profit percent of 34.1% was one percentage point
higher than the 33.1% rate achieved in fiscal 1995. Lower inventory obsolescence
charges and retail markdowns in fiscal 1996 accounted for an improvement of two
percentage points as these costs reduced gross profit percent by 4.3% in 1996
compared to 6.3% in 1995. The Company's LIFO adjustment had little impact on the
1996 gross profit performance as LIFO reduced income by $0.1 million (less than
0.1% of net sales) compared to the reduction of $1.3 million (0.3% of net sales)
in fiscal 1995. The increased contribution to consolidated sales of the Retail
division, the portion of the Company with the highest gross profit percentage,
also favorably impacted the current year's gross profit performance as retail
sales accounted for 19.9% of consolidated net sales in 1996 compared to 17.7% of
sales in 1995. Inefficiencies in manufacturing operations and reduced
profitability of the Company's joint venture manufacturing facility in Thailand
continued to hurt performance, reducing the gross profit rate by 1.5% in 1996
compared to 0.9% in 1995. The Company closed its manufacturing facility in
Fulton, Missouri in 1996. During fiscal 1997, the Company will evaluate various
alternatives with respect to its two remaining domestic manufacturing
facilities. Gross profit performance in fiscal 1996 was also negatively impacted
by $4.2 million (0.9% of sales) in costs of special promotions to help the
retail sell-through of Keds products.
<PAGE>
In fiscal 1995, gross profit decreased $32.9 million or 16.7% from
fiscal 1994. The Company's 1995 gross profit rate decreased 4.5 percentage
points from the 37.6% rate achieved in 1994. Higher inventory obsolescence
charges and retail markdowns, which included charges of $2.1 million associated
with the planned store closings, accounted for 1.7 percentage points of the
decline in gross profit percentage in 1995 as compared to 1994. A higher LIFO
provision, increased manufacturing inefficiencies and a changing sales mix
within the Keds division also had an unfavorable impact on gross profit
performance. As in fiscal 1996, the increased significance of retail sales as a
proportion of consolidated sales, representing 17.7% of consolidated sales in
1995 compared to 14.4% in 1994, favorably impacted gross profit performance in
fiscal 1995.
OPERATING COSTS
The Company's selling and administrative expenses in fiscal 1996 decreased
$12.5 million or 7.6% below the expense level incurred in fiscal 1995. As a
percentage of net sales, selling and administrative costs were 33.8% in 1996
compared to 33.1% in 1995. Advertising and sales promotion expenses in fiscal
1996 were reduced $7.9 million or 25.7% from the total expenditures in fiscal
1995, resulting in advertising spending of 5.1% of net sales in 1996 compared to
6.5% of sales in 1995. Retail store expenses decreased slightly as the impact of
the 39 stores, which were opened in fiscal 1995, and a 3.9% cost increase at
comparable stores, offset the store closings effected as part of the
restructuring program announced in November 1995. The increased significance of
retail sales, where selling expenses are high relative to the Company's
wholesale businesses, resulted in an increase of 1.2% in the selling expense to
sales ratio in 1996. Retail expenses are expected to decline in fiscal 1997 due
to the full impact of the 1996 store closings and the plan for minimal new store
activity. Distribution costs, which had included $2.9 million of relocation and
start-up expenses in 1995, decreased $4.1 million or 25% in fiscal 1996, as
further efficiencies were achieved at the Company's distribution facility in
Kentucky. Total distribution costs represented 2.8% of net sales in 1996
compared to 3.3% of net sales in 1995. In January 1997, the Company entered into
a lease for a 263,000 square foot distribution facility in Huntington, Indiana.
The Company plans to move the Stride Rite children's business, the last division
remaining in the Company's Boston, Massachusetts facility, to the Huntington
facility in the fourth quarter of fiscal 1997 following the peak, back-to-school
season shipping. In fiscal 1996, selling and administrative expenses also
included a $4 million charge due to the impairment in value of certain software
related costs which were capitalized in prior years.
In fiscal 1995, selling and administrative expenses decreased $1.2
million or 0.7% from fiscal 1994. Lower advertising costs (down $0.8 million or
2.6%) and reduced distribution expenses (down $2.3 million or 12.1%)
<PAGE>
contributed to the cost decrease for fiscal 1995. Retail stores expenses
increased 19.2% in 1995 as $8.1 million of expenses related to new stores offset
a 3.6% reduction in expenses at comparable stores. As described above, expenses
in fiscal 1995 also included $16.6 million of nonrecurring charges related to
several initiatives to reduce future operating costs and to realign certain
product lines and business units.
OTHER INCOME AND TAXES
The Company's non-operating income (expense) increased pre-tax earnings by
$1.7 million in fiscal 1996 compared to a decrease of $1.7 million in 1995 and
an increase of $0.7 million in 1994. Investment income increased $0.4 million in
1996 as a 29% increase in the funds available for investment during the year
offset lower yields on short-term investments. In fiscal 1995, investment income
increased $0.3 million over 1994 with improved investment yields offsetting a
21% decrease in available funds. Interest expense in fiscal 1996 decreased $0.3
million as compared to 1995 due to a 14% decrease in average borrowings under
the Company's available lines of credit as compared to the borrowings during
1995. Average interest rates were also lower during fiscal 1996, 5.9% compared
to 6.3% in 1995. Interest expense increased $0.5 million in fiscal 1995, as both
interest rates and average borrowings were higher than 1994. Other income and
expense items reduced pre-tax income by $1.3 million in fiscal 1996 compared to
decreases of $4 million in 1995 and $1.9 million in 1994. Expenses associated
with a company-owned life insurance program reduced income in each year. In
1996, other income included $1.2 million in gains from a limited partnership
investment, while 1995's other expenses included $1.3 million of losses on the
sale of assets in connection with the move of the Company's corporate
headquarters.
Income taxes resulted in an expense of $0.5 million in fiscal 1996 compared
to a benefit of $9.6 million in fiscal 1995 as a result of the higher pre-tax
earnings in 1996 and the absence of nonrecurring charges related to the November
1995 restructuring. The Company's effective income tax expense (benefit) rate
was 17.4% in 1996, (53.3)% in 1995 and 39.2% in 1994 with tax savings associated
with the company-owned life insurance program being the largest item causing the
effective tax rate to be different from the statutory tax rate.
NET INCOME (LOSS)
The Company earned $2.5 million in fiscal 1996 compared to a net loss of
$8.4 million in fiscal 1995 and net income of $19.8 million in 1994. After
adjusting for the nonrecurring charge, the Company earned $1.5 million in fiscal
1995. Despite the lower sales level experienced in fiscal 1996, net income
increased $1 million or 62.1% from fiscal 1995's adjusted net income. In fiscal
1996, gross margin improvements and operating cost reductions offset the impact
of the lower net sales. However, both 1996 and the adjusted 1995 results are
significantly below the net income of $19.8 million earned in fiscal 1994 due to
lower sales levels and reduced gross profit performance in both years as
compared to fiscal 1994.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
As of the end of fiscal 1996, the Company's balance sheet reflects a
current ratio of 3.1 to 1. The Company's cash and short-term investments totaled
$91.9 million at the end of fiscal 1996, up $37.6 million from the total of
$54.3 million at the end of fiscal 1995. In addition, other assets in 1996
includes $7.1 million of investments in intermediate-term, fixed income
instruments. Despite the profitability problems experienced in the last two
years, the Company's operations generated substantial amounts of cash, $58.6
million in fiscal 1996 and $25.6 million in fiscal 1995. This performance
reflected an improvement over fiscal 1994's results, which generated $8.4
million of cash from operations. The elements of working capital, other than
cash and short-term investments, decreased $40.7 million during fiscal 1996,
with the investment in receivables and inventories down $29.6 million or 15.3%
from the fiscal 1995 total. Inventories at the end of fiscal 1996 were reduced
significantly from last year, down $26.4 million or 18.2%, as the year-end
inventories of all business units were below 1995. The lower year-end inventory
levels were especially evident in the Keds division, as the 1996 inventory of
Keds basic styles was below 1995 by 25% and quantities of discontinued products
declined 26% from fiscal 1995. The 1996 year-end inventory level also included
$6.2 million related to the Company's new Tommy Hilfiger(R) footwear business,
which will be introduced during Spring 1997.
Additions to property and equipment totaled $7.8 million in fiscal 1996,
compared with capital expenditures of $22.3 million in 1995 and $8.5 million in
1994. The 1996 expenditure level slowed from the spending in 1995 because the
Company redirected its efforts to upgrade computer systems and seriously
curtailed its investment in retail stores. The fiscal 1995 additions also
included $4.6 million for furniture and equipment at a new corporate
headquarters leased by the Company in late 1995. Capital expenditures related to
computer systems totaled $3 million in fiscal 1996, down from $6.6 million in
1995. Spending related to retail stores in 1996 amounted to $2.3 million
compared to $4.6 million in 1995 as only 10 stores were opened during the year,
down from 39 new stores in fiscal 1995. Minimal store openings are expected
during fiscal 1997. As part of the business realignment initiated during the
fourth quarter of fiscal 1995, the Company closed 51 retail stores during 1996
and an additional 10 to 15 stores are expected to close in fiscal 1997. The
Company expects capital expenditures to be somewhat higher during fiscal 1997
with spending increasing on new computer systems and on equipment and
improvements at the new Stride Rite Children's Group distribution facility in
Indiana. Funding for capital expenditures is expected to be provided from
internal sources.
The Board of Directors has previously authorized a 16 million share stock
repurchase program. No shares were repurchased under this program during fiscal
1996. 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 Company has repurchased 13,957,500 shares or 87% of the shares covered by
the Board's authorization. From the initiation of this program in the fourth
quarter of 1987 through fiscal 1996, the aggregate expenditures on stock
repurchases totaled $120 million. The aggregate shares
<PAGE>
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. Cash used for dividends decreased to $9.9
million in fiscal 1996 compared to $18.8 million in 1995 and $19 million in
1994. Given the Company's reduced profitability in the past few years, 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.
At year-end 1996, the Company's available lines of credit total $70 million, of
which $10 million is formally committed by agreement. During fiscal 1996, the
Company's borrowings averaged $9.2 million compared to the average borrowings of
$10.6 million in 1995. No short-term borrowings were outstanding at the end of
1996 or 1995. At November 29, 1996, the Company had no long-term debt as the
final payment on the Company's Senior Notes will be made during 1997.
During 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("FAS 123"). FAS 123 defines a fair-value method of accounting for
employee stock options or similar equity instruments and encourages companies to
adopt that method of accounting beginning in the Company's 1997 fiscal year.
However, FAS 123 also allows companies to continue to use the intrinsic value
method of accounting prescribed by Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25"). The Company expects to
continue to account for stock options and purchases in accordance with APB 25,
but beginning in fiscal 1997, will also make proforma disclosures of net income
and earnings per share as if the fair-value-based method of accounting defined
in FAS 123 had been applied.
<PAGE>
- --------------------------------------------------------------------------------
Consolidated Balance Sheets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(in thousands,
except for share data) 1996 1995
- --------------------------------------------------------------------------------
ASSETS
Current Assets:
<S> <C> <C>
Cash and cash equivalents $ 57,269 $ 28,130
Short-term investments 34,611 26,211
Accounts and notes receivable,
less allowances of $7,172 in 1996
and $7,139 in 1995 44,866 48,066
Inventories 119,087 145,498
Deferred income taxes 33,120 39,277
Prepaid expenses 7,175 5,181
----------------- ------------------
Total current assets 296,128 292,363
Property and equipment, net 52,894 60,434
Other assets, net 14,009 12,485
Goodwill, net 1,299 1,334
================= ==================
Total assets $364,330 $366,616
================= ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt 833 833
Accounts payable 25,488 22,963
Income taxes payable 25,618 19,492
Accrued expenses and other liabilities 42,592 44,290
----------------- ------------------
Total current liabilities 94,531 87,578
Deferred income taxes 8,275 10,749
Long-term debt - 833
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 22,778 23,006
Retained earnings 316,142 323,566
----------------- ------------------
353,157 360,809
Less cost of 7,279,457 shares
of common stock held in
treasury (7,416,037 in 1995) (91,633) (93,353)
----------------- ------------------
Total stockholders' equity 261,524 267,456
----------------- ------------------
Total liabilities and
stockholders' equity $364,330 $366,616
================= ==================
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
<PAGE>
================================================================================
CONSOLIDATED STATEMENTS OF INCOME
================================================================================
<TABLE>
<CAPTION>
(in thousands, Years Ended
------------------------------------------
except for per share date) 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $448,297 $496,432 $523,877
Cost of sales 295,292 332,102 326,643
Selling and administrative expenses 151,642 164,165 165,350
Nonrecurring charges - 16,573 -
----------- ----------- ------------
Operating income (loss) 1,363 (16,408) 31,884
Investment income 3,713 3,363 3,074
Interest expense (701) (1,034) (538)
Other income (expense), net (1,348) (3,986) (1,878)
------------ ----------- ------------
Income (loss) before income taxes 3,027 (18,065) 32,542
Provision for (benefit from)
income taxes 528 (9,635) 12,744
------------ ----------- -----------
Net income (loss) $ 2,499 $ (8,430) $ 19,798
============ =========== ===========
Net income (loss) per share
of common stock $ .05 $ (.17) $ .40
============ =========== ============
Average common shares and
common equivalents outstanding 49,909 49,780 49,904
============ ============ ============
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CASH FLOWS
Years Ended
----------------------------------
(in thousands) 1996 1995 1994
- -------------------------------------------------------------------------------------------------------
CASH WAS PROVIDED FROM (USED FOR)
OPERATIONS:
<S> <C> <C> <C>
Net income (loss) $ 2,499 $(8,430) $19,798
Adjustments to reconcile to net cash provided from operations:
Depreciation and amortization 9,698 10,860 8,486
Impairment of long-term assets 4,038 1,972 -
Deferred income taxes 3,683 (3,414) (4,825)
Compensation expense related to executive
stock plans 484 846 1,182
Equity in loss (earnings) of affiliate 1,092 (150) (1,226)
Loss (gain) related to long-term investments (1,235) 2 (516)
Loss on disposal of property and equipment 2,451 1,797 1,981
Changes in:
Accounts and notes receivable 3,200 15,337 11,781
Inventories 26,411 11,330 (20,895)
Prepaid expenses (1,994) (454) (618)
Long-term notes receivable 143 915 157
Accounts payable, income taxes, accrued
expenses and other current liabilities 8,082 (4,992) (6,938)
-------- -------- ---------
Net cash provided from operations 58,552 25,619 8,367
-------- -------- ---------
INVESTMENTS:
Short-term investments (8,400) 4,323 35,111
Additions to property and equipment (7,784) (22,301) (8,522)
Proceeds from sales of property and equipment 354 87 6
Distributions and dividends from long-term
investments 4,334 261 2,700
Purchase of noncurrent marketable securities (7,091) - -
Acquisition of business - (5,308) -
Decrease (increase) in other assets 94 82 (14)
--------- --------- ---------
Net cash provided from (used for)
investments (18,493) (22,856) 29,281
--------- --------- ---------
FINANCING:
Long-term debt payments (833) (833) (833)
Proceeds from sale of stock under stock plans 28 1,525 12
Tax benefit (provision) in connection with
stock plans (199) 75 276
Repurchase of common stock - (2,006) (11,482)
Cash dividends paid (9,916) (18,807) (18,971)
--------- --------- ---------
Net cash used for financing (10,920) (20,046) (30,998)
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 29,139 (17,283) 6,650
Cash and cash equivalents at beginning
of the year 28,130 45,413 38,763
--------- --------- ---------
Cash and cash equivalents the end
of the year $57,269 $28,130 $45,413
========= ========= =========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
<PAGE>
================================================================================
CONSOLIDATED STATEMENTS OF CHANGES
================================================================================
IN STOCKHOLDERS'
<TABLE>
<CAPTION>
Capital in
(in thousands, Common Excess of Retained Treasury
except for share data) Stock Par Value Earnings Stock
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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 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)
Net income 2,499
Issuance of 136,580 common shares
under executive stock plans (29) 1,720
Tax provision in connection with
stock plans (199)
Cash dividends on common stock,
$.20 per share (9,923)
---------- ---------- ----------- --------
Balance, November 29, 1996 $14,237 $22,778 $316,142 $(91,633)
========== ========== =========== ========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
<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
1996 presentation.
Fiscal Year-The Company's fiscal year ends on the Friday closest to November 30
in each year. Fiscal years 1996, 1995 and 1994 ended on November 29, 1996,
December 1, 1995 and December 2, 1994, respectively.
Cash Equivalents, Short-term Investments and Marketable Securities - 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 fair value. Noncurrent marketable
securities, representing funds invested in intermediate-term, fixed income
instrument with maturities greater than one year, are stated at fair value.
Financial Instruments-Financial instruments consist principally of cash,
short-term investments, intermediate-term investments, trade receivables and
payables and long-term debt. The Company places its investments in highly rated
financial institutions and investment grade, short-term financial instruments,
which limits the amount of credit exposure. The Company sells footwear to
numerous retailers. Historically, the Company has not experienced significant
losses related to investments or trade receivables. The Company's exposure to
foreign exchange risk is limited through dollar denominated transactions. The
Company does not enter into derivative financial instruments such as futures,
forward or option contracts. The Company calculates the fair value of all
financial instruments and includes this additional information in the
consolidated financial statements when the fair value is different than book
value. The Company uses quoted market prices, when available, to calculate these
fair values.
<PAGE>
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 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.
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
In November, 1995, the Company announced several initiatives to reduce
future operating costs and to realign certain product lines and business units.
The actions included the closing of a children's shoe manufacturing facility,
the closure of 48 underperforming retail locations and the elimination of
certain administrative positions. In connection with these initiatives, the
Company recorded pre-tax nonrecurring charges of $16,573,000 ($9,972,000, net of
tax benefits, or $.20 per share) during fiscal 1995. The nonrecurring charges
included $3,680,000 related to the cost of severing approximately 600
associates, $5,946,000 in estimated termination costs related to leases and
$6,947,000 in reserves to adjust the carrying values of associated assets to
estimated realizable values. During fiscal 1996, the Company completed the
majority of the restructuring efforts contemplated in the nonrecurring charge
including the closing of its Fulton, Missouri manufacturing facility and the
closure of 33 underperforming retail locations. Additional store closings are
expected in fiscal 1997 in accordance with the restructuring initiatives.
<PAGE>
In fiscal 1992, the Company's operating results included the accrual of
$18,319,000 in pre-tax 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 facility in
December 1993 and began shipping Keds products from the new distribution center
in January 1994, after closing its New Bedford, Massachusetts warehouse. The
Company's 1994 results were negatively impacted by shipping delays and other
start-up difficulties at the new facility. After correcting the initial
problems, the Company began distributing Sperry Top-Sider products from the
Kentucky facility in August 1995 and will distribute products for the new Tommy
Hilfiger(R) footwear business beginning in January 1997. The Company had delayed
the complete closing of its Boston, Massachusetts facility, which currently
distributes Stride Rite children's products, because of the Kentucky facility's
start-up difficulties and increased service demands from retailers. On January
21, 1997, the Company entered into a lease for a 263,000 square foot facility in
Huntington, Indiana and is planning to transfer the distribution function for
Stride Rite branded products to the new facility in the fourth quarter of fiscal
1997.
The following table summarizes activity during the three years ended
November 29, 1996 with respect to the nonrecurring charges established in fiscal
1992 and 1995:
<TABLE>
<CAPTION>
(in thousands) 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $17,257 $7,416 $15,276
Unanticipated start-up expenses - 2,902 6,811
Nonrecurring charges - 16,573 -
Amounts charged against accrual (7,677) (9,634) (14,671)
----------- ----------- ------------
Balance at end of year $ 9,580 $17,257 $ 7,416
============ =========== ============
</TABLE>
The balance of $9,580,000, which remains in accrued expenses as of November 29,
1996, relates to the costs of severing associates of the Boston distribution
facility and the affected retail stores, the estimated termination costs related
to store leases and adjustments to the carrying value of property and equipment
involved in the initiatives.
<PAGE>
3. INVENTORIES
The cost of inventories at November 29, 1996 and December 1, 1995 was
determined primarily on a last-in, first-out (LIFO) basis. A summary of
inventory values is as follows:
<TABLE>
<CAPTION>
(in thousands) 1996 1995
- ------------------------------------------------------------------
<S> <C> <C>
Finished goods $115,468 $141,914
Work in process 615 863
Raw materials 3,004 2,721
----------------- ----------------
$119,087 $145,498
================= ================
</TABLE>
During 1996, the LIFO reserve increased by $103,000 to $22,831,000 at
November 29, 1996. If all inventories had been valued on a FIFO basis, net
income would have been higher by $90,000 (less than $.01 per share) in 1996. The
LIFO reserve increased by $1,339,000 in 1995 and decreased by $1,539,000 in
fiscal 1994. If all inventories had been valued on a FIFO basis, net income
would have been increased in 1995 by $806,000 ($.02 per share) and decreased in
1994 by $906,000 ($.02 per share).
During 1996 and 1995, 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 $1,874,000 ($.04 per share) and $491,000 ($.01 per
share) in 1996 and 1995, respectively.
4. PROPERTY AND EQUIPMENT
The components of property and equipment at November 29, 1996 and December
1, 1995 and the range of asset lives used in depreciation calculations for each
asset category are as follows:
<TABLE>
<CAPTION>
Range of
(in thousands) Useful Lives 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Land and improvements 10 years $ 3,667 $ 3,632
Buildings and improvements 12-45 years 17,439 17,321
Machinery, equipment,
computer software and fixtures 3-15 years 46,382 49,207
Leaseholds and leasehold
improvements 5-15 years 11,190 17,753
------------ -----------
78,678 87,913
Less accumulated
depreciation and amortization (25,784) (27,479)
------------ -----------
$52,894 $60,434
============ ===========
</TABLE>
<PAGE>
5. OTHER ASSETS
As of November 29, 1996 and December 1, 1995, other assets includes the
following:
<TABLE>
<CAPTION>
(in thousands) 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C>
Limited partnership $ 331 $ 1,071
Joint venture manufacturing facility 2,408 5,859
Marketable securities 7,091 -
Trademark rights and other
intangible assets, net 1,827 2,874
Other 2,352 2,681
========== ============
$ 14,009 $ 12,485
========== ============
</TABLE>
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 1996, 1995 and 1994, the Company recognized gains of
$1,235,000, $78,000 and $516,000, respectively, due to the sale of certain
investments by the limited partnership. The Company's investment in this limited
partnership is accounted for under the cost method. The fair value of this
investment as of September 30, 1996, the latest valuation as determined by the
General Partner, totaled approximately $835,000.
During 1988 and 1989, the Company invested a total of $1,948,000 in a
joint venture, which is accounted for under the equity method, with a foreign
manufacturer to construct and operate a footwear manufacturing facility in
Thailand. The consolidated statements of income include a loss of $1,092,000 in
1996 and income of $150,000 in 1995 and $1,226,000 in 1994, representing the
Company's share of the joint venture's operating results in those years. The
joint venture paid cash dividends to each shareholder of $2,359,000 in 1996 and
$1,275,000 in 1994, which reduced the carrying value of the Company's
investment.
In 1996, the Company invested $10,000,000 in intermediate-term, fixed
income securities using an outside investment advisory firm. Other assets at
November 29, 1996 includes $7,091,000, representing the fair value of the
noncurrent portion of this investment.
6. DEBT
The Company utilizes short-term bank loans to finance seasonal working
capital requirements. Banks have extended lines of credit to the Company
amounting to $70 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 1996, 1995, and 1994, borrowings under these
lines averaged $9,173,000, $10,622,000 and $1,402,000, respectively, with a
maximum amount outstanding of $33,500,000 in 1996, $34,800,000 in 1995 and
$17,400,000 in 1994. The weighted average interest rate paid on these
<PAGE>
borrowings during the year was 5.9% in 1996, 6.3% in 1995 and 4.6% in 1994. No
short-term borrowings were outstanding on November 29, 1996 or December 1, 1995.
Long-term debt at December 1, 1995 ($833,000) represented 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 and is included in current liabilities.
Interest payments amounted to $714,000, $896,000 and $354,000 in fiscal
1996, 1995 and 1994, respectively.
7. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities at November 29, 1996 and
December 1, 1995 consist of the following:
<TABLE>
<CAPTION>
(in thousands) 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Salaries, wages and commissions $ 7,626 $ 8,890
Nonrecurring charges 9,580 17,257
Advertising 3,919 4,335
Deferred U.S. Customs duties 6,910 3,972
Dividends 2,483 2,476
Other liabilities 12,074 7,360
=============== ==============
$ 42,592 $ 44,290
=============== ==============
</TABLE>
8. 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
November 29, 1996 was as follows:
<TABLE>
<CAPTION>
(in thousands) 1996 1995 1994
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Base rent $16,693 $15,983 $14,230
Additional rent 1,168 1,750 1,537
Less rental from subleases (1,552) (2,119) (2,488)
============== ============== ==============
$16,309 $15,614 $13,279
============== ============== ==============
</TABLE>
The future minimum rental payments for all non-cancelable operating leases
and the amounts due from tenants on related subleases at November 29, 1996 are
as follows:
<PAGE>
<TABLE>
<C> <C>
1997 $11,195
1998 9,894
1999 8,504
2000 7,423
2001 6,703
Later years 24,174
--------------
Total minimum rental payments 67,893
Less rental due from subleases (4,212)
--------------
$63,681
==============
</TABLE>
9. 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 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 active associates and the remaining lives of vested
and retired associates, consists of the following:
<TABLE>
<CAPTION>
(in thousands) 1996 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost-benefit earned during the period $1,774 $1,274 $1,423
Interest cost on benefit obligations 2,498 2,319 2,143
Actual return on plan assets (5,443) (7,532) (1,127)
Amortization and deferral, net 2,221 4,612 (1,659)
=================================
$1,050 $ 673 $ 780
=================================
</TABLE>
The accrued pension liability in the Company's consolidated balance sheets at
November 29, 1996 and December 1, 1995 includes the following:
<TABLE>
<CAPTION>
(in thousands) 1996 1995
- -------------------------------------------------------------------------
<S> <C> <C>
Fair market value of plan assets $40,041 $36,132
Projected benefit obligations 37,386 35,240
----------------------------
Excess assets 2,655 892
Unrecognized prior service cost 505 366
Unrecognized net gain (3,239) (124)
Unrecognized net asset (1,146) (1,438)
============================
$(1,225) $ (304)
============================
</TABLE>
<PAGE>
================================================================================
================================================================================
At November 29, 1996, the accumulated benefit obligation, which represents
the actuarial present value of the Company's pension obligation if the plans
were to be discontinued, totaled $31,638,000, including a vested benefit
obligation of $30,723,000. The accumulated benefit obligation at December 1,
1995 was $29,677,000, including a vested benefit obligation of $28,918,000. In
each year, a discount rate of 7% and an annual compensation increase at the rate
of 5% were assumed to determine these liabilities.
During fiscal 1996 and 1995, 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 1996 and 1995.
The Company's savings and investment plans, which are qualified under
Section 401(k) of the Internal Revenue Code of 1986, as amended, enable eligible
associates to defer a portion of their salary to be held by the trustees of the
plans. The Company makes an additional contribution to the plans equal to a
maximum of 25% of the first 6% of savings by each participant. During fiscal
1996, 1995 and 1994, this contribution amounted to $495,000, $544,000 and
$607,000, respectively.
10. 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 414 participating associates during a payment
period ending October 31, 1997. As of November 29, 1996, $804,000 has been
withheld from associates' earnings and, if all participants had been allowed to
exercise their stock purchase rights at that date, approximately 94,600 shares
could have been purchased at a price of $8.50 per share. At November 29, 1996, 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 shall be granted to any director who
is not an employee of the Company in accordance with the provisions of the Plan.
An aggregate of 100,000 shares is authorized for issuance under the Plan.
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 initial 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
<PAGE>
full at the time of exercise. Under the terms of the Plan, the Company awarded
3,000, 3,500 and 3,500 shares of common stock during 1996, 1995 and 1994,
respectively.
In April 1995, the Company's shareholders approved The Stride Rite
Corporation 1995 Long-Term Growth Incentive Plan (the "1995 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. In fiscal 1996 and 1995, 109 and 102 associates, respectively, held
outstanding rights under the Plan. Stock awards, which are limited to 200,000
shares in the Plan, generally vest over a five-year period. During fiscal 1996,
a stock award of 20,779 shares was made under the Plan to one individual.
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 were equivalent in value to
the Company's common stock, were granted to each participant. Payments under the
Plan, which were made in cash, Company common stock, or a combination of both,
were based on the income achieved by the Company in relation to the goal
established for each cycle. The Company charged to compensation expense the
costs associated with the Plan. The Company issued 3,706 shares to two
individuals in 1994 as a result of performance against the goal for the cycle
which ended in 1993.
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. The purchase prices on stock
options granted under all Plans during the three years ended November 29, 1996
were as follows:
<PAGE>
<TABLE>
<CAPTION>
1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Range of prices $7.75 to $9.63 $.25 to $14.50 $.25 to $15.88
Average price $8.15 $11.69 $8.26
</TABLE>
The activity in stock options with respect to all plans for the three years in
the period ended November 29, 1996 was as follows:
<TABLE>
<CAPTION>
1996 1995 1994
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Outstanding at beginning of year 1,267,916 834,996 408,323
Granted 1,072,800 638,400 580,150
Canceled (418,553) (154,404) (108,206)
Exercised (112,801) (51,076) (45,271)
============== ============ ============
Outstanding at end of year 1,809,362 1,267,916 834,996
============== ============ ============
</TABLE>
The purchase price for all options exercised during the three years ended
November 29, 1996 was $.25 per share. Options to purchase 549,197, 607,466 and
603,196 shares were exercisable as of November 29, 1996, December 1, 1995 and
December 2, 1994, respectively. At November 29, 1996, stock awards and options
to purchase a total of 5,458,424 shares had been granted under all plans and
rights to purchase an additional 1,125,889 shares (1,964,350 shares at December
1, 1995) could be granted.
Stock options are accounted for in accordance with Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25").
Accordingly, no compensation cost has been recorded in connection with fair
market value stock option grants under the Company's stock option plans and its
employee stock purchase plan. During 1995, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" ("FAS 123"). FAS 123 defines a fair-value method
of accounting for employee stock options or similar equity instruments and
encourages companies to adopt that method of accounting beginning in the
Company's 1997 fiscal year. However, FAS 123 also allows companies to continue
to use the intrinsic value method of accounting prescribed by APB 25. The
Company expects to continue to account for stock options and purchases in
accordance with APB 25, but beginning in fiscal 1997 will also make proforma
disclosures of net income and earnings per share as if the fair-value method of
accounting defined in FAS 123 had been applied.
11. PREFERRED STOCK PURCHASE RIGHTS
In 1987, the Company's Board of Directors adopted a Stockholder Rights Plan
and declared a dividend under the Plan at the rate of one preferred stock
purchase right for each share of outstanding common stock. Effective with the
stock splits in December 1991, July 1989 and December 1987, one-eighth of one
preferred stock purchase right attaches to each share of common stock. The
rights may be exercised (in whole units only), or transferred apart from the
common stock, beginning 10 days after a person
<PAGE>
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 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 November 29, 1996, December 1, 1995 and
December 2, 1994 totaled 6,208,386, 6,191,313 and 6,189,741, respectively.
12. LITIGATION
The Company is a party to various litigation arising in the normal course
of business. Having considered facts which have been ascertained and opinions of
counsel handling these matters, management does not believe the ultimate
resolution of such litigation will have a material adverse effect on the
Company's financial position or results of operation.
<PAGE>
13. INCOME TAXES
The provision for (benefit from) income taxes, which is computed under FAS
No. 109, consists of the following for the three years in the period ended
November 29, 1996:
<TABLE>
<CAPTION>
(in thousands 1996 1995 1994
- -----------------------------------------------------------------------------
Current:
<S> <C> <C> <C>
Federal $(2,428) $(6,300) $12,094
State (727) 79 5,211
--------------- ---------------- ----------------
(3,155) (6,221) 17,305
--------------- ---------------- ----------------
Deferred:
Federal 2,537 (1,994) (3,711)
State 1,146 (1,420) (850)
--------------- ---------------- ----------------
3,683 (3,414) (4,561)
--------------- ---------------- ----------------
$ 528 $(9,635) $12,744
=============== ================ ================
</TABLE>
Net deferred tax assets as of November 29, 1996 and December 1, 1995 have
the following significant components:
<TABLE>
<CAPTION>
(in thousands) 1996 1995
- -------------------------------------------------------------------------------
Deferred tax assets:
<S> <C> <C>
Inventory valuation reserves $ 6,464 $ 9,520
Nonrecurring charges 4,800 8,472
Accounts receivable allowances 3,827 3,196
Compensation accruals 3,894 3,477
Other accounting reserves and accruals 14,135 14,612
------------- --------------
33,120 39,277
------------- --------------
Deferred tax liabilities:
Undistributed earnings of foreign affiliates 180 1,685
Depreciation and amortization 6,563 6,236
Other items 1,532 2,828
------------- --------------
8,275 10,749
------------- --------------
$ 24,845 $ 28,528
============= ==============
</TABLE>
A valuation allowance has not been assigned to the deferred tax assets since
management believes it is more likely than not that the Company will fully
realize the benefits of such tax assets.
<PAGE>
The effective income tax rate differs from the statutory federal income tax
rate as follows:
<TABLE>
<CAPTION>
1996 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory federal tax rate 35.0% (35.0) 35.0%
State income taxes, net of federal tax benefit 9.0 (4.8) 8.7
Tax benefit from manufacturing operations
in Puerto Rico - - (1.1)
Tax benefit related to company-owned life
insurance program (29.8) (14.0) (4.3)
Other 3.2 0.5 0.9
--------- ---------- ---------
Effective income tax rate 17.4% (53.3)% 39.2%
========= ========== =========
</TABLE>
During 1996, the Company received a net refund of $9,085,000 as a result of the
loss incurred in fiscal 1995. Payments of income taxes amounted to $13,565,000
and $22,115,000 in 1995 and 1994, respectively.
14. ACQUISITION
On January 11, 1995, the Company 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 1996 or
1995. Proforma financial information for fiscal 1994 has not been presented
because the amounts were immaterial to the 1994 consolidated results of
operations. As part of the business realignments described in Note 2 to the
consolidated financial statements, 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.
<PAGE>
15. QUARTERLY DATA (UNAUDITED)
The following table provides quarterly data for the fiscal years ended
November 29, 1996 and December 1, 1995.
<TABLE>
<CAPTION>
(in thousands, except
for per share data) First Second Third Fourth
- -----------------------------------------------------------------------------------
1996
<S> <C> <C> <C> <C>
Net sales $118,899 $124,185 $123,540 $81,673
Gross profit 39,753 42,929 43,473 26,850
Net income (loss) 1,378 3,012 3,193 (5,084)
Per common share:
Net income (loss) .03 .06 .06 (.10)
Dividends .05 .05 .05 .05
</TABLE>
<TABLE>
<CAPTION>
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
</TABLE>
Net income (loss) for the fourth quarter of 1995 included 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.
<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 on the company's financial statements.
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 the Company's independent accountants, Coopers & Lybrand
L.L.P., to review management's process of implementation and administration of
internal accounting controls, and auditing and financial reporting matters. The
independent and internal auditors have unrestricted access to the Audit
Committee.
The Company maintains high standards in selecting, training and developing
personnel to help ensure that management's objectives of maintaining strong,
effective internal controls and unbiased, uniform reporting standards are
attained. We believe it is essential for the Company to conduct its business
affairs in accordance with the highest ethical standards as expressed in The
Stride Rite Corporation's Code of Ethics.
/s/ Robert C. Siegel /s/ John R. Ranelli /s/ John M. Kelliher
Robert C. Siegel John R. Ranelli John M. Kelliher
Chairman of the Board of Executive Vice President, Vice President, Finance
Directors, President and Finance and Operations Treasurer and Controller
Chief Executive Officer
<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 November 29, 1996 and December 1, 1995, and the related
consolidated statements of income, cash flows and changes in stockholders'
equity for each of the three years in the period ended November 29, 1996. 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 November 29, 1996 and December 1, 1995, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended November 29, 1996, in conformity with generally accepted accounting
principles.
Boston, Massachusetts /s/Coopers & Lybrand L.L.P.
January 7, 1997 COOPERS & LYBRAND L.L.P
<PAGE>
ABOUT STRIDE RITE
The Stride Rite Corporation is the leading marketer of high quality children's
footwear in the United States and is a major marketer of athletic and casual
footwear for children and adults.
The Company markets children's footwear under the trademarks STRIDE RITE(R),
KEDS(R) and 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 casual and athletic 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 129 of its own Stride Rite(R) Bootery stores, four
Great Feet(TM) concept stores and 60 leased departments within leading
department stores. Products of the Company's brands are also sold directly to
consumers in 19 manufacturers' outlet stores and one Keds(R) retail concept
store.
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.
<PAGE>
BOARD OF DIRECTORS
Robert C. Siegel
Chairman of the Board of Directors,
President and Chief Executive Officer
Donald R. Gant
Limited Partner, The Goldman Sachs Group, L.P.
Margaret A. McKenna
President, Lesley College
Frank R. Mori
President and Chief Executive Officer,
Takihyo, Inc.
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*
Frank R. Mori Robert L. Seelert
Myles J. Slosberg W. Paul Tippett, Jr.
Jeanette S. Wagner
COMPENSATION COMMITTEE COMMITTEE ON THE BOARD
Margaret A. McKenna* Donald R. Gant*
Donald R. Gant Margaret A. McKenna
W. Paul Tippett, Jr. Frank R. Mori
Jeanette S. Wagner W. Paul Tippett, Jr.
* Signifies Chairperson
<PAGE>
CORPORATE DATA
SENIOR MANAGEMENT
Robert C. Siegel
Chairman of the Board of Directors,
President and Chief Executive Officer
John R. Ranelli
Executive Vice President,
Finance and Operations
Joseph T. Barrell
Vice President, Global Logistics
Howard B. Collins, Jr.
President, Stride Rite Sourcing International, Inc.
Karen K. Crider
General Counsel, Secretary and Clerk
Dennis Garro
President, Retail Division
Patrick J. Hogan
Vice President and General Manager,
Tommy Hilfiger(R) Footwear, Inc.
Joanna M. Jacobson
President, The Keds Corporation
Lorie M. Karnath
Vice President, Licensing, Strategic Planning
Mergers and Acquisitions and Corporate Communications
John M. Kelliher
Vice President, Finance,
Treasurer and Controller
Robert B. Moore, Jr.
President, Sperry Top-Sider, Inc.
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, Stride Rite Children's Group, Inc.
<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.
Tommy Hilfiger(R) Footwear, 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 1997 Annual Meeting of Stockholders off The Stride Rite Corporation is
scheduled to be held on Wednesday, April 23, 1997 at 10:00 a.m. at the company's
Corporate Headquarters, 191 Spring Street, Lexington, Massachusetts.
TRANSFER AGENT, REGISTRAR, DIVIDEND DISBURSING AGENT AND AUTOMATIC DIVIDEND
REINVESTMENT AND STOCK PURCHASE PLANS. Communication concerning transfer
requirements, address changes, dividend reinvestment and stock purchase plan
enrollment, and lost certificates should be addressed to:
The First National Bank of Boston
c/o Boston Equiserve
P.O. Box 8040
Boston, MA 02266-8040
The telephone number is (617) 575-3170.
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.
<PAGE>
COMMON STOCK PRICES
<TABLE>
<CAPTION>
1996 1995
Fiscal Quarter High Low High Low
- ---------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C> <C> <C>
1st 8 3/4 6 5/8 13 1/8 10 1/2
2nd 10 3/4 7 7/8 13 1/8 10 3/4
3rd 9 3/8 6 7/8 12 10
4th 10 1/4 7 7/8 12 8 1/2
</TABLE>
Based on closing prices on the New York Stock Exchange - Composite Tape.
Portions of the information presented include forward-looking statements that
involve risks and uncertainties detailed from time to time in the company's
filings with the Securities and Exchange Commission which may cause actual
results to differ materially from those projected or implied in forward-looking
statements including without limitation the factors set forth in Exhibit 99 to
the Company's Quarterly Report on Form 10-Q for the period ending March 1, 1996
which are incorporated herein by reference.
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE STRIDE RITE CORPORATION
The subsidiaries of the Registrant, all of which are wholly owned by the
Registrant except for PSR Footwear Company Limited (49.5% owned), are listed
below:
Place of Incorporation
Boston Footwear Group, Inc. Massachusetts
Stride Rite Children's Group, Inc. Massachusetts
Stride Rite International Corp. Massachusetts
Stride Rite Sourcing International, Inc. Massachusetts
Sperry Top-Sider, Inc. Massachusetts
The Keds Corporation Massachusetts
Tommy Hilfiger Footwear, Inc. 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
Stride Rite de Mexico, S.A. de C.V. Mexico
PSR Footwear Company Limited Thailand
Stride Rite Europe S.A.R.L. France
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of The Stride Rite Corporation:
We consent to the incorporation by reference in the Registration Statements
on Form S-8 (SEC File No. 2-76795, 33-54439, 33-58567 and 333-14837) of The
Stride Rite Corporation of our reports dated January 7, 1997 on our audits of
the consolidated financial statements and financial statement schedules of The
Stride Rite Corporation as of November 29, 1996 and December 1, 1995 and for the
years ended November 29, 1996, December 1, 1995 and December 2, 1994 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 25, 1997
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The notes to the condensed consolidated financial statements are an integral
part of such statements and the condensed consolidated financial information in
this schedule. Figures below are in thousands, except per-share data.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 12-MOS
<FISCAL-YEAR-END> NOV-29-1996 NOV-29-1996
<PERIOD-END> NOV-29-1996 NOV-29-1996
<CASH> 57,269 57,269
<SECURITIES> 34,611 34,611
<RECEIVABLES> 52,038 52,038
<ALLOWANCES> 7,172 7,172
<INVENTORY> 119,087 119,087
<CURRENT-ASSETS> 296,128 296,128
<PP&E> 78,678 78,678
<DEPRECIATION> 25,784 25,784
<TOTAL-ASSETS> 364,330 364,330
<CURRENT-LIABILITIES> 94,531 94,531
<BONDS> 0 0
0 0
0 0
<COMMON> 14,237 14,237
<OTHER-SE> 247,287 247,287
<TOTAL-LIABILITY-AND-EQUITY> 364,330 364,330
<SALES> 81,673 448,297
<TOTAL-REVENUES> 81,673 448,297
<CGS> 54,823 295,292
<TOTAL-COSTS> 54,823 295,292
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 130 1,214
<INTEREST-EXPENSE> 35 701
<INCOME-PRETAX> (7,088) 3,027
<INCOME-TAX> (2,004) 528
<INCOME-CONTINUING> (5,084) 2,499
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (5,084) 2,499
<EPS-PRIMARY> (.10) .05
<EPS-DILUTED> (.10) .05
</TABLE>
