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Exhibit Index
Appears on Page 15
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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended February 28, 1997
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to .
Commission File Number: 1-4404
THE STRIDE RITE CORPORATION
(Exact name of registrant as specified in its charter)
Massachusetts 04-1399290
(State or other jurisdiction) (I.R.S. Employer Identified No.)
191 Spring Street, Lexington, Massachusetts 02173
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (617)824-6000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Common stock, $.25 par value New York Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such report), and (2) has been subject to such filing
requirements for the past 90 days.
Yes (X) No ( )
As of March 31 1997, 48,945,596 shares of the registrant's common stock, $.25
par value, and the accompanying Preferred Stock Purchase Rights were
outstanding.
<PAGE>
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PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
<TABLE>
THE STRIDE RITE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
<CAPTION>
February 28, March 1,
1997 November 29, 1996
(Unaudited) 1996 (Unaudited)
-------------- -------------- --------------
Assets
Current assets:
<S> <C> <C> <C>
Cash and cash equivalents $11,551 $57,269 $13,081
Short-term investments 36,270 34,611 37,765
Accounts and notes 92,804 44,866 92,921
receivable, net
Inventories:
Finished goods 101,654 115,468 121,700
Work in process 1,380 615 815
Raw materials 4,349 3,004 3,627
-------- -------- -------
107,383 119,087 126,142
Deferred income taxes and
prepaid expenses 36,939 40,295 43,751
--------- --------- --------
Total current assets 284,947 296,128 313,660
Property and equipment, net 53,222 52,894 59,286
Other assets 19,115 15,308 12,779
--------- --------- --------
Total assets $357,284 $364,330 $385,725
========= ========= ========
</TABLE>
The accompanying notes are an integral part of the condensed
consolidated financial statements.
2
<PAGE>
PART I - FINANCIAL INFORMATION (Continued)
<TABLE>
THE STRIDE RITE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
(Dollars in Thousands)
<CAPTION>
February 28, March 1,
1997 November 29, 1996
(Unaudited) 1996 (Unaudited)
--------------- -------------- ------------
Liabilities and Stockholders' Equity
Current Liabilities:
Current maturities of
<S> <C> <C> <C>
long-term debt $ 833 $ 833 $ 833
Short-term debt 3,200 - 30,100
Accounts payable 14,114 25,488 10,317
Income taxes payable 25,533 25,618 24,628
Accrued expenses and other
liabilities 47,732 42,592 41,909
-------- -------- --------
Total current liabilities 91,412 94,531 107,787
Deferred income taxes 8,275 8,275 10,749
Long-term debt - - 833
Stockholders' Equity:
Preferred stock, $1 par value
Shares authorized - 1,000,000
Shares issued - None - - -
Common stock, $.25 par value
Share authorized - 135,000,000
Shares issued - 56,946,544 14,237 14,237 14,237
Capital in excess of par
value 22,691 22,778 23,006
Retained earnings 317,799 316,142 322,466
Less cost of 7,747,230 shares
of common stock held in
treasury (7,279,457 on
November 29, 1996 and
7,416,037 on March 1, 1996) (97,130) (91,633) (93,353)
--------- -------- --------
Total stockholders' equity 257,597 261,524 266,356
--------- --------- --------
Total liabilities and
stockholders' equity $357,284 $364,330 $385,725
========== ========== =========
</TABLE>
The accompanying notes are an integral part of the condensed
consolidated financial statements.
3
<PAGE>
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PART I - FINANCIAL INFORMATION (Continued)
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<TABLE>
THE STRIDE RITE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
For the periods ended February 28, 1997 and March 1, 1996
(In Thousands Except Per Share Data)
<CAPTION>
1997 1996
--------------------- ---------------------
<S> <C> <C>
Net sales $131,805 $118,899
Cost of sales 85,795 79,146
Selling and administrative expenses 39,712 37,396
--------- ---------
Operating income 6,298 2,357
Other income (expense):
Interest income 852 762
Interest expense (31) (315)
Other, net (684) (783)
--------- ---------
137 (336)
--------- ---------
Income before income taxes 6,435 2,021
Provision for income taxes 2,315 643
--------- ---------
Net income $ 4,120 $ 1,378
========= =========
Net income per common share $.08 $.03
====== ======
Dividends per common share $.05 $.05
====== ======
Average common shares and common
equivalents outstanding during
the period 49,962 49,781
====== ======
</TABLE>
The accompanying notes are an integral part of the
condensed consolidated financial statements
4
<PAGE>
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PART I - FINANCIAL INFORMATION (Continued)
- --------------------------------------------------------------------------------
<TABLE>
THE STRIDE RITE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the three months ended February 28, 1996 and March
1, 1996 (Dollars in Thousands)
<CAPTION>
1997 1996
------------ -----------
Cash was provided from (used for) Operations:
<S> <C> <C>
Net income $4,120 $1,378
Adjustments to reconcile to net cash
provided from (used for)operations:
Depreciation and amortization 2,284 2,518
Deferred income taxes, net - 179
Compensation expense related to executive
stock plans 178 262
Equity in loss of affiliate 400 123
Loss on disposal of property and equipment - 458
Changes in:
Accounts and notes receivable (47,938) (44,855)
Inventories 11,704 19,356
Prepaid expenses 3,356 528
Accounts payable, income taxes, accrued
expenses and other current liabilities (6,290) (10,154)
-------- -------
Net cash used for operations (32,186) (30,207)
-------- -------
Investments:
Short-term investments (1,659) (11,554)
Additions to property and equipment (2,527) (1,197)
Distributions and dividends from long-term
investments - 2,359
Purchase of noncurrent marketable securities (1,600) -
Increase in other assets (2,656) (2,074)
------- ------
Net cash used for investments (8,442) (12,466)
------- -------
Financing:
Proceeds from sale of stock under stock plans 6 -
Cash dividends paid (2,483) (2,476)
Repurchase of common stock (5,813) -
Short-term debt 3,200 30,100
------- ------
Net cash provided from (used for) financing (5,090) 27,624
------- ------
Net decrease in cash and cash equivalents (45,718) (15,049)
Cash and cash equivalents at beginning of
the period 57,269 28,130
-------- ------
Cash and cash equivalents at end of the period $11,551 $13,081
========= =======
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements
5
<PAGE>
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PART I - FINANCIAL INFORMATION (Continued)
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THE STRIDE RITE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1
The financial information included in this Form 10-Q of The Stride Rite
Corporation (the "Company") for the periods ended February 28, 1997 and March 1,
1996 is unaudited and subject to year-end audit adjustments. However, such
information includes all adjustments (including all normal recurring
adjustments) which, in the opinion of management, are considered necessary for a
fair presentation of the consolidated results for those periods. The results of
operations for the periods ended February 28, 1997 and March 1, 1996 are not
necessarily indicative of the results of operations that may be expected for the
complete fiscal year. The year-end condensed balance sheet data was derived from
audited financial statements, but does not include all disclosures required by
generally accepted accounting principles. Certain reclassifications have been
made to the 1996 condensed consolidated financial statements to conform to the
fiscal 1997 presentation.
NOTE 2
During the first three months of fiscal 1997, interest payments
amounted to $13,000($249,000 in 1996). For the first three months of 1997 and
1996, the Company received net refunds of income taxes amounting to $278,000 and
$6,477,000, respectively.
6
<PAGE>
PART I - FINANCIAL INFORMATION (Continued)
THE STRIDE RITE CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
Certain statements contained in this Item 2 are "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995 and are thus prospective. Such forward-looking statements are subject to
risks, uncertainties and other factors which could cause actual results to
differ materially from future results expressed or implied by such
forward-looking statements. Readers are referred to Exhibit 99 to the Company's
Quarterly Report on Form 10-Q for the fiscal period ended March 1, 1996 for a
discussion of some of such factors.
Results of Operations
The following table summarizes the Company's performance for the first
quarter of fiscal 1997 as compared to the results for the comparable period in
fiscal 1996:
Increase (Decrease) Percent vs. 1996 Results:
<TABLE>
<CAPTION>
First Quarter
<S> <C>
Net sales 10.8%
Gross profit 15.7%
Selling and administrative expenses 6.2%
Operating income 167.2%
Income before income taxes 218.4%
Net income 199.0%
</TABLE>
Operating Ratios as a Percent to Net Sales:
<TABLE>
First Quarter
--------------------------------------
<CAPTION>
1997 1996
------------------ ----------------
<S> <C> <C>
Gross profit 34.9% 33.4%
Selling and administrative expenses 30.1% 31.4%
Operating income 4.8% 2.0%
Income before income taxes 4.9% 1.7%
Net income 3.1% 1.2%
</TABLE>
7
<PAGE>
PART I - FINANCIAL INFORMATION (Continued)
THE STRIDE RITE CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
Net Sales
Net sales in the first quarter of fiscal 1997 increased $12.9 million
(10.8%) from the sales level achieved in the comparable period of fiscal 1996. A
14.2% increase in revenues related to the Company's wholesale divisions during
the first quarter of 1997 offset a 7.2% decline in retail sales during the
latest period. With respect to the wholesale divisions of the Company, unit
shipments of current line merchandise during the first quarter were 14% higher
than the 1996 first quarter and average selling prices in the 1997 quarter
increased 6.2% from last year, primarily due to the mix of sales between the
Company's various branded divisions. The higher sales of current line
merchandise during the first quarter of 1997 offset a 42% decline in the sales
of discontinued products. Excluding the impact of product mix charges, net sales
in the first quarter of 1997 increased by approximately $0.1. million due to
selling price inflation.
In the first quarter of fiscal 1997, the increased revenues of the
Company's wholesale businesses were helped by the shipment of the initial orders
of the Tommy Hilfiger(R) division. The Tommy Hilfiger(R) men's product line,
which is being marketed under a license agreement with the Tommy Hilfiger(R)
Corporation, was introduced to consumers in leading department stores and other
specialty retailers on February 1, 1997. The Spring product line includes
athletic, sport and casual collections for men. For the Fall season, the Tommy
Hilfiger(R) division will introduce outdoor and dress styles for men and will
deliver a boys' product line for back-to-school selling. The Company's other
wholesale divisions also contributed to the higher revenues in the first quarter
of 1997. Sales of the Stride Rite Children's Group to independent dealers,
family shoe stores and department stores increased 7% during the first quarter
of 1997. The Sperry Top-Sider division's sales during the first quarter of 1997
increased 9% as compared to the comparable period in fiscal 1996 with a 30%
increase in the sales of current line merchandise offsetting a 78% decline in
the sales of discontinued products. Sales of the Company's International
division increased 4% during
8
<PAGE>
PART I - FINANCIAL INFORMATION (Continued)
THE STRIDE RITE CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
during the first quarter of 1997. Sales of the Keds division, the Company's
largest business unit, decreased 11% during the first quarter of 1997 as the
sales of discontinued styles in the quarter decreased 21% from last year and
some business shifted to the second quarter, which the Company believes is due
to additional customers taking advantage of Keds reorder capabilities on core
styles. Over the past few years, a larger proportion of the sales of Keds basic
styles has been transacted through quick-response reorders during the selling
season. The sell-through performance of Keds products during retail promotional
events scheduled by major retailers in the second quarter of 1997 will be an
important factor in determining Keds' success for the Spring season.
For the first quarter of fiscal 1997, 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, decreased 7% from 1996 as a lower store count offset a
2.4% increase in sales at comparable stores. At the end of the first quarter of
1997, the Retail division operated 204 stores, down 14% from the total of 236
stores which were open in February 1996.
Gross Profit
During the first quarter of fiscal 1997, gross profit increased $6.3
million, a gain of 15.7% compared to the net sales increase of 10.8%. The
consolidated gross profit percent in the three months increased 1.5 percentage
points, finishing at 34.9% in 1997 compared to 33.4% in 1996. The increased
sales of current line merchandise and the lower sales of discontinued styles in
the first quarter of 1997 produced a more profitable product mix than in the
comparable period of 1996. Inventory obsolescence charges and retail markdowns
were lower in the 1997 period due to the Company's reduced inventory levels and
a more disciplined approach to purchasing seasonal products. The LIFO provision
also had a favorable impact on gross profit comparisons, with LIFO reducing
gross profit by $0.2 million (0.2% of net sales) in 1997 compared to a reduction
of $1.1 million (0.9% of net sales) in 1996. Inefficiencies in domestic
9
<PAGE>
PART I - FINANCIAL INFORMATION (Continued)
THE STRIDE RITE CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
manufacturing operations widened in the latest quarter, reducing the gross
profit percentage by 1.1% in the first quarter of 1997 compared to 0.6% in the
first quarter of 1996. In February 1997, the Company announced the closure of
its two remaining children's footwear manufacturing facilities in Missouri.
Reserves and accruals established in prior years are expected to be sufficient
to offset the employee severance and other nonrecurring costs resulting from
this decision. However, the Company expects to incur additional unfavorable
operating variances during the second quarter of fiscal 1997 as the final
production at these facilities is completed and the transfer of styles to lower
cost resources in the Far East and Mexico is accomplished. The decreased
contribution to consolidated sales of the Retail division, the portion of the
Company with the highest gross profit percentage, also negatively impacted the
consolidated gross profit performance in the first quarter, as retail sales
accounted for 13.1% of total sales in 1997 compared to 15.6% of sales in the
first quarter of 1996.
Operating Costs
Selling and administrative expenses in the first quarter of fiscal 1997
increased $2.3 million or 6.2% above the spending level in the first quarter of
1996. This rate of increase compares favorably to the overall gain in net sales
of 10.8%. Operating costs as a percentage of sales decreased from last year by
1.3 percentage points in the first quarter (30.1% in 1997 compared to 31.4% in
1996). Higher advertising spending, which increased by $1.5 million or 22% in
the first quarter of 1997, accounted for a large portion of the increase in
operating expenses. The additional advertising costs were primarily related to
the launch of the Tommy Hilfiger(R) product line. As a percentage of net sales,
advertising expense represented 6.3% of sales in the first quarter of 1997,
which was higher than the spending rate of 5.7% of sales in the comparable
period in 1996. Retail store expenses decreased 7.4% during the first quarter of
1997 due to the closing of underperforming locations over the past year.
Distribution expenses decreased 3.9% during the first quarter of 1997 despite
the increased sales volume of the wholesale business units due to increased
efficiencies at the Company's Kentucky distribution center. Distribution
expenses represented 2.4% of net sales in the first quarter of 1997 compared to
2.8% in the 1996 first quarter.
10
<PAGE>
PART I - FINANCIAL INFORMATION (Continued)
THE STRIDE RITE CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
Other Income and Taxes
Other income (expense) increased pre-tax income by $0.1 million in the
first quarter of fiscal 1997 compared to a decrease of $0.3 million in the first
three months of fiscal 1996. Interest income increased $0.1 million in the first
quarter of 1997 due to higher levels of short-term investments. Interest expense
in the first quarter of 1997 was lower than 1996, decreasing $0.3 million, as
the Company maintained inventories at lower levels than in 1996. Average
short-term borrowings in the first quarter of 1997 were $0.6 million, down
significantly from the average borrowings of $18.6 million in the first quarter
of 1996.
The provision for income taxes increased $1.7 million in the first
quarter of fiscal 1997 as compared to the similar period in fiscal 1996
primarily due to the higher pre-tax income earned in the 1997 period. The 1997
effective income tax rate was also higher, 36% compared to 31.8% in 1996, due to
reduced tax savings related to a company-owned life insurance program.
Net Income
Net income for the first quarter of fiscal 1997 increased $2.7 million,
up 199% from the income earned in the 1996 first quarter. With the improved
gross profit and the increase in operating expenses well below the rate of sales
growth, the Company's return on net sales in the first quarter of 1997 improved
by 1.9 percentage points (3.1% of sales in 1997 compared to 1.2% in 1996).
Liquidity and Capital Resources
At February 28, 1997, the Company's balance sheet reflects a current
ratio of 3.1 to 1 with no long-term debt. The Company's cash and short-term
investments totaled $47.8 million at the end of the latest quarter, down from
the cash and investments total of $50.8 million at the end of the first quarter
of 1996. In 1997, other assets also included $8.7 million of investments in
intermediate-term, fixed income instruments. The Company uses bank lines of
credit to fund seasonal working capital needs.
11
<PAGE>
PART I - FINANCIAL INFORMATION (Continued)
THE STRIDE RITE CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
Borrowings under these lines of credit totaled $3.2 million at February 28,
1997, significantly lower than the $30.1 million of short-term debt outstanding
at end of the first quarter of 1996. The Company's cash and investments balance,
net of these short-term borrowings, totaled $53.3 million at February 28, 1997
compared to a net asset position of $20.7 million at the end of the 1996 first
quarter.
The Company's normal seasonal shipping and cash flow patterns generally
require the use of funds in the first quarter of the fiscal year. During the
first quarter of fiscal 1997, the Company used $32.2 million of cash to fund
operating needs. This negative cash flow amount was slightly higher than the
$30.2 million use of cash to fund operations during the first quarter of fiscal
1996.
At February 28, 1997, receivable and inventory levels totaled $200.2
million, a decrease of $18.9 million or 8.6% from the $219.1 million asset
amount at the end of the first quarter of 1996. Accounts receivable of $92.8
million at the end of the 1997 first quarter was down slightly from 1996 amount
despite the 14.2% increase in revenues related to the Company's wholesale
businesses. Inventories were also lower at the end of the first quarter of 1997,
down $18.8 million or 14.9% from the 1996 level, as additional inventory
associated with the Tommy Hilfiger(R) business was more than offset by the
impact of retail store closings and a reduction in the inventory level of Keds
products.
The Company's Board of Directors had previously authorized a 16 million
share stock repurchase program. During the first quarter of 1997, the Company
repurchased 492,900 shares of common stock for an aggregate expenditure of $5.8
million in cash. The latest transactions bring the cumulative shares repurchased
under the program to 14,450,400 shares, or 90% of the authorized total, and the
aggregate expenditure amount to $125.8 million.
12
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. The following Exhibits are contained in this report:
Exhibit No. Description of Exhibit
11 Computation of Per Share Earnings
27 Financial Data Schedule
(b) Reports on Form 8-K
There were no reports filed on Form 8-K during the most recent
quarterly period.
13
<PAGE>
THE STRIDE RITE CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned duly authorized.
THE STRIDE RITE CORPORATION
(Registrant)
Date: April 11, 1997 By: /S/ John M. Kelliher
-------------------------
John M. Kelliher
Vice President, Finance,
Treasurer and Corporate
Controller
14
<PAGE>
THE STRIDE RITE CORPORATION
INDEX TO EXHIBITS
Exhibit
No. Sequential Page No.
11 Computation of Per Share Earnings 16 of 17
27 Financial Data Schedule 17 of 17
15
<PAGE>
Exhibit 11
<TABLE>
THE STRIDE RITE CORPORATION
COMPUTATION OF PER SHARE EARNINGS
(In Thousands except Per Share Data)
<CAPTION>
Three Months Ended
Feb. 28, 1997 March 1, 1996
----------------- ----------------
Net income applicable to common
<S> <C> <C>
shares $4,120 $1,378
Calculation of shares:
Weighted average number of
common shares outstanding 49,593 49,546
Common shares attributable to
assumed exercise of dilutive
stock options and stock
purchase rights using the
treasury stock method 369 235
Average common shares and common
equivalents outstanding during
the period 49,962 49,781
====== ======
Net income per common share $.08 $.03
==== ====
</TABLE>
16
<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>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-28-1997
<PERIOD-END> FEB-28-1997
<CASH> 11,552
<SECURITIES> 36,270
<RECEIVABLES> 100,838
<ALLOWANCES> 8,034
<INVENTORY> 107,383
<CURRENT-ASSETS> 284,947
<PP&E> 81,205
<DEPRECIATION> 27,983
<TOTAL-ASSETS> 357,284
<CURRENT-LIABILITIES> 91,412
<BONDS> 0
0
0
<COMMON> 14,237
<OTHER-SE> 243,360
<TOTAL-LIABILITY-AND-EQUITY> 357,284
<SALES> 131,805
<TOTAL-REVENUES> 131,805
<CGS> 85,795
<TOTAL-COSTS> 85,795
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 837
<INTEREST-EXPENSE> 31
<INCOME-PRETAX> 6,435
<INCOME-TAX> 2,315
<INCOME-CONTINUING> 4,120
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,120
<EPS-PRIMARY> .08
<EPS-DILUTED> .08
</TABLE>
