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Exhibit Index
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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 May 29, 1998
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.)
of incorporation)
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 July 6, 1998, 47,308,321 shares of the registrant's common stock, $.25 par
value, and the accompanying Preferred Stock Purchase Rights were outstanding.
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
<TABLE>
THE STRIDE RITE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
<CAPTION>
May 29, May 30,
1998 November 28, 1997
(Unaudited) 1997 (Unaudited)
Assets
Current assets:
<S> <C> <C> <C>
Cash and cash equivalents $ 19,565 $ 41,663 $ 14,728
Short-term investments 10,000 9,417 46,387
Accounts and notes receivable, net 84,284 51,708 78,140
Inventories:
Finished goods 99,870 133,233 93,267
Work in process - 256 515
Raw materials 598 1,239 2,387
------- ------- -------
100,468 134,728 96,169
Deferred income taxes and
prepaid expenses 35,294 34,135 35,968
------- ------- -------
Total current assets 249,611 271,651 271,392
Property and equipment, net 58,587 55,395 53,563
Other assets 19,055 16,872 19,527
------- ------- --------
Total assets $327,253 $343,918 $344,482
======== ======== ========
</TABLE>
The accompanying notes are an integral part of
the condensed consolidated financial statements.
2
<PAGE>
PART I - FINANCIAL INFORMATION (Continued)
THE STRIDE RITE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
(Dollars in Thousands)
<TABLE>
May 29, May 30,
<CAPTION>
1998 November 28, 1997
(Unaudited) 1997 (Unaudited)
Liabilities and Stockholders' Equity
Current Liabilities:
Current maturities of
long-term debt - - $ 833
<S> <C> <C> <C>
Accounts payable $ 19,719 $ 31,748 18,330
Income taxes payable 21,074 21,445 24,518
Accrued expenses and other
liabilities 28,927 42,195 40,325
-------- ------- -------
Total current liabilities 69,720 95,388 84,006
Deferred income taxes 6,504 6,504 8,276
Stockholders' Equity:
Preferred stock, $1 par value
Shares authorized-1,000,000
Shares issued-None - - -
Common stock, $.25 par value
Shares authorized-135,000,000
Shares issued-56,946,544 14,237 14,237 14,237
Capital in excess of par value 22,309 22,289 22,682
Retained earnings 335,561 326,292 322,459
Less cost of 9,656,021 shares of
common stock held in treasury
(9,630,600 on November 28, 1997
and 8,533,335 on May 30, 1997) (121,078) (120,792) (107,178)
--------- -------- --------
Total stockholders' equity 251,029 242,026 252,200
--------- -------- --------
Total liabilities and
stockholders' equity $327,253 $343,918 $344,482
========== ======== ========
</TABLE>
The accompanying notes are an integral part
of the condensed consolidated financial statements.
3
<PAGE>
PART I - FINANCIAL INFORMATION (Continued)
<TABLE>
THE STRIDE RITE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
For the periods ended May 29, 1998 and May 30, 1997
(In Thousands Except Per Share Data)
<CAPTION>
Three Months Ended Six Months Ended
------------------ ----------------
May 29, May 30, May 29, May 30,
1998 1997 1998 1997
-------- -------- ------------ ---------
<S> <C> <C> <C> <C>
Net sales $143,176 $141,604 $272,161 $273,409
Cost of sales 91,543 90,341 174,048 176,136
Selling and
administrative expenses 40,033 40,652 79,178 80,364
-------- -------- -------- --------
Operating income 11,600 10,611 18,935 16,909
Other income(expense):
Interest income 843 991 1,773 1,843
Interest expense (557) ( 50) (943) (81)
Other, net 3,215 (497) 2,279 (1,181)
--------- --------- -------- ---------
3,501 444 3,109 581
-------- --------- -------- --------
Income before income
taxes 15,101 11,055 22,044 17,490
Provision for income
taxes 5,505 3,978 8,047 6,293
-------- -------- -------- --------
Net income $ 9,596 $ 7,077 $ 13,997 $ 11,197
======== ======== ======== ========
Net income per common
share:
Diluted $ .20 $ .14 $ .29 $ .22
======== ======== ======== ========
Basic $ .20 $ .15 $ .30 $ .23
======== ======== ======== ========
Dividends per common
share $ .05 $ .05 $ .10 $ .10
======== ======== ======== ========
Average common shares
used in per share
computations:
Diluted 47,655 49,282 47,611 49,591
======== ======== ======== ========
Basic 47,275 48,775 47,282 49,184
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of the
condensed consolidated financial statements
4
<PAGE>
PART I - FINANCIAL INFORMATION (Continued)
THE STRIDE RITE CORPORATION
<TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the six months ended May 29, 1998 and May 30, 1997
(Dollars in Thousands)
<CAPTION>
May 29, May 30,
1998 1997
--------- ---------
Cash was provided from (used for) Operations:
<S> <C> <C>
Net income $13,997 $11,197
Adjustments to reconcile to net cash
provided from (used for)operations:
Depreciation and amortization 5,166 5,160
Compensation expense related to executive
stock plans 165 299
Equity in loss of affiliate - 400
Gain on disposals of property and equipment (3,395) (44)
Changes in:
Accounts and notes receivable (32,576) (33,274)
Inventories 34,260 22,918
Prepaid expenses (1,159) 4,327
Accounts payable, income taxes, accrued
expenses and other current liabilities (24,683) (10,436)
-------- -------
Net cash provided from (used for) operations (8,225) 547
------- -------
Investments:
Short-term investments (583) (11,776)
Additions to property and equipment (10,720) (5,692)
Proceeds from sales of property and
equipment 5,888 49
Sale(purchase) of noncurrent marketable
securities 444 (2,538)
Increase in other assets (2,758) (2,199)
------- -------
Net cash used for investments (7,729) (22,156)
------- --------
Financing:
Proceeds from sales of stock under stock plans 944 422
Cash dividends paid (4,727) (4,943)
Repurchase of common stock (2,361) (16,411)
------- --------
Net cash used for financing (6,144) (20,932)
------- -------
Net decrease in cash and cash equivalents (22,098) (42,541)
Cash and cash equivalents at beginning of the
period 41,663 57,269
-------- --------
Cash and cash equivalents at end of the period $19,565 $14,728
========= ========
</TABLE>
The accompanying notes are an integral part of the
condensed consolidated financial statements
5
<PAGE>
PART I - FINANCIAL INFORMATION (Continued)
THE STRIDE RITE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1
The financial information included in this Form 10-Q of The Stride Rite
Corporation (the "Company") for the periods ended May 29, 1998 and May 30, 1997
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 May 29, 1998 and May 30, 1997 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 1997 condensed consolidated financial statements to conform to the
fiscal 1998 presentation. These financial statements should be read together
with the Company's financial statements (and notes thereto) for the fiscal year
ended November 28, 1997, which are included in the Company's most recent Form
10K.
NOTE 2
During the first six months of fiscal 1998, interest payments amounted
to $932,000 ($85,000 in 1997). For the first six months of 1998, the Company
paid income taxes amounting to $8,418,000 ($3,602,000 in 1997).
NOTE 3
Earnings per share information has been restated to conform to SFAS No.
128, "Earnings per Share" which was adopted in the first quarter 1998. Basic
earnings per common share is calculated by dividing net income by the weighted
average number of common shares outstanding during the period. Diluted earnings
per share is calculated by dividing net income by the sum of the weighted
average number of shares plus additional common shares that would have been
outstanding if potential dilutive common shares had been issued for stock
options granted. The following table reconciles the number of shares for the
basic and dilutive computations for the second quarter and six month periods
ended May 29, 1998 and May 30, 1997.
<TABLE>
<CAPTION>
Second Quarter First Six Months
--------------------------------------------------------
May 29, May 30, May 29, May 30,
1998 1997 1998 1997 - -
-------------- --------- --------- --------
<S> <C> <C> <C> <C>
Net income $ 9,596 $7,077 $13,997 $11,197
Earnings per common share:
Basic $ .20 $ .15 $ .30 $ .23
Diluted .20 .14 .29 .22
Weighted average common shares
outstanding (basic) 47,275 48,775 47,282 49,184
Dilutive effect of stock
options 380 507 329 407
------ ------ ------ ------
Weighted average common shares
outstanding (diluted) 47,655 49,282 47,611 49,591
====== ====== ====== ======
</TABLE>
6
<PAGE>
PART I - FINANCIAL INFORMATION (Continued)
THE STRIDE RITE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - continued...
Earnings per share information, restated to conform to SFAS No. 128, for the
three years ended November 28, 1997, is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------------- -------------- --------------
<S> <C> <C> <C>
Basic net income per share $.41 $.05 $(.17)
Diluted net income per share .40 .05 (.17)
</TABLE>
NOTE 4
On March 31, 1998, the Company sold two buildings and adjoining land in
Boston which was formerly used as a distribution center for the Company's
wholly-owned subsidiary, Stride Rite Children's Group, Inc. The Boston facility
was closed in December 1997 following the transfer of operations to a new
distribution center in Huntington, Indiana. The transaction resulted in a
one-time pre-tax gain of $3.8 million ($.05 per share, net of income taxes) in
the second quarter of fiscal 1998.
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
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, projected 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 certain such factors. The Company disclaims any obligation to
update such forward-looking statements.
Results of Operations
The following table summarizes the Company's performance for the second
quarter and first six months of fiscal 1998 as compared to the results for the
same periods in fiscal 1997:
Increase (Decrease) Percent vs. 1997 Results:
<TABLE>
<CAPTION>
Second Quarter Six Months
<S> <C> <C>
Net sales 1.1% (0.5)%
Gross profit 0.7% 0.9%
Selling and administrative expenses (1.5)% (1.5)%
Operating income 9.3% 12.0%
Income before income taxes 36.6% 26.0%
Net income 35.6% 25.0%
</TABLE>
Operating Ratios as a Percentage to Net Sales:
<TABLE>
<CAPTION>
Second Quarter Six Months
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Gross profit 36.1% 36.2% 36.0% 35.6%
Selling and administrative expenses 28.0% 28.7% 29.1% 29.4%
Operating income 8.1% 7.5% 7.0% 6.2%
Income before income taxes 10.6% 7.8% 8.1% 6.4%
Net income 6.7% 5.0% 5.1% 4.1%
</TABLE>
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)
Net Sales
Net sales in the second quarter of fiscal 1998 increased $1.6 million or
1.1% over the net sales level for the same period of fiscal 1997. Over the first
six months of fiscal 1998, consolidated net sales were lower than the same
period of fiscal 1997 by $1.2 million or 0.5%. A 1.1% decrease in revenues from
the Company's wholesale divisions during the first half of fiscal 1998 was
partially offset by a 3.5% increase in sales of the Company's retail division
sales during the same period. In the second quarter of fiscal 1998, wholesale
division revenues increased 1.9% and retail sales increased 2.6% from the same
period in fiscal 1997. With respect to the wholesale divisions of the Company,
unit shipments of current line merchandise during the first half of 1998 were
1.8% below the comparable period in fiscal 1997. The lower sales of current line
merchandise during the first half of fiscal 1998 were partially offset by a
46.8% increase in the sales of discontinued products. Excluding the impact of
product mix changes, net sales in the first six months of fiscal 1998 was not
affected by selling price inflation or deflation.
In the second quarter of fiscal 1998, Keds, the Company's largest
division, accounted for a significant portion of the increased revenues in the
Company's wholesale businesses. Keds division sales in the second quarter of
1998 increased 10% from 1997 with sales of current line merchandise in the
second quarter increasing 13% and sales of discontinued styles down 32% from the
comparable period of 1997. Sales of Keds' new "basics" offerings, including the
Ready to Wear(TM) and Relaxed Fit(TM) collections, more than offset the
continuing sales decline of the Champion(R) style. For the first six months,
Keds' net sales increased 4% compared to 1997, with the sales of current line
merchandise higher by 8% and sales of discontinued styles down 52% from the
first half of 1997.
The Stride Rite Children's Group achieved a 6% sales increase in the
second quarter of fiscal 1998 with a 3% increase in retail sales and sales to
independent accounts which were 10% higher than for the same period in fiscal
1997. During the second quarter of 1998, sales at comparable company-owned
retail stores increased 5.8% from 1997. For the first six months of fiscal 1998,
sales of the Stride Rite Children's Group increased 3% from the same period in
1997, with sales to independent accounts and sales at company-owned retail
stores both up 3% from the 1997 period. Sales at comparable company-owned retail
stores increased 7% during the first half of 1998. At the end of the second
quarter of fiscal 1998, the Company operated 194 stores, down 5% from the 205
stores open at the end of the second quarter in fiscal 1997.
Sales of Tommy Hilfiger products in the second quarter of 1998 increased
21% as compared to the same period in 1997; however, all of the increase came
from the liquidation of discontinued styles. Sales of current merchandise in
the quarter declined 26% as compared to the same period in 1997. Tommy
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)
Hilfiger sales continue to be adversely affected by the difficult market
conditions for athletic footwear and the brand's disappointing results in the
Fall 1997 selling season. Sales for the first six months of fiscal 1998 for the
Tommy Hilfiger division increased 4% as compared to the same period in 1997 as
revenues associated with the liquidation of discontinued styles offset a 16%
decrease in the sales of current line merchandise. While the comparison to 1997
was difficult, as sales in the first half of 1997 included heavy shipments to
retailers to support the initial launch of the brand, the slowdown in the
overall athletic market continued to have a negative effect on Tommy Hilfiger
division sales in 1998. Additionally, product line changes away from higher
priced basketball styles and more competitive market conditions resulted in an
average selling price which was 24% lower than the first half of 1997.
Compared to the same period in fiscal 1997, sales of the Sperry
Top-Sider division decreased 13% in the second quarter of fiscal 1998 and
declined 14% for the first six months of fiscal 1998 as the brand experienced
heavy cancellations of future orders and soft reorders due to increased
competition in the men's boat shoe market. International revenues in the second
quarter of 1998 were below the comparable period of 1997 by $6.1 million or 48%,
largely due to a restructuring of the Company's international operations which
changed distribution arrangements to license agreements in certain countries.
For the first six months of 1998, International revenues declined $3.7 million
or 18% from the comparable period of fiscal 1997.
During the third quarter of fiscal 1998, the Company expects to begin
shipping products to customers for three new licensed brands: the Levi's product
lines for men and boys; the Tommy Hilfiger women's collection; and the Nine West
Kids products for girls.
Gross Profit
During the first six months of fiscal 1998, gross profit increased $0.8
million, a gain of 0.9% compared to the net sales decrease of 0.5% for the same
period. The consolidated gross profit percent in the first half of 1998
increased 0.4 percentage points, finishing at 36.0% in 1998 compared to 35.6% in
1997. The gross profit performance in the second quarter of 1998 was slightly
lower than the same period in fiscal 1997, 36.1% in 1998 compared to 36.2% in
the 1997 second quarter. The Company's LIFO provision had a favorable impact on
gross profit comparisons for the first six months of 1998, with LIFO increasing
gross profit by $1.5 million (0.6% of net sales) in 1998 compared to $0.1
million (less than 0.1% of net sales) in 1997. The primary reason for the
favorable LIFO impact was the reduction of certain manufactured inventory
quantities which were valued at costs prevailing in prior years. The lower sales
of current line merchandise and the increased sales of discontinued styles in
the first half of 1998 produced a less profitable product mix than in the
comparable period of 1997. In addition, increased inventory obsolescence charges
and sales allowances, particularly in the Tommy Hilfiger
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)
division, and higher retail markdowns in the first half of 1998 were also
contributing factors. The Company's second quarter and six month gross profit
performance in 1998 was also negatively affected by $0.9 million and $1.7
million, respectively, in start-up costs related to new licensed product lines
which will be introduced in the second half of the year.
For the second quarter of fiscal 1998, the gross profit percentage was
adversely affected by increased sales allowances and inventory obsolescence
costs, principally in the Tommy Hilfiger division. In the second quarter, the
LIFO provision had a favorable impact on gross profit comparisons, with LIFO
increasing gross profit by $0.8 million (0.6% of net sales) in 1998 compared to
$0.3 million (0.2% of net sales) in 1997.
Operating Costs
Selling and administrative expenses in the first six months of fiscal
1998 decreased $1.2 million or 1.5% below the first half of 1997. This decline
compared favorably to the overall decrease in net sales of 0.5% during the same
period. Operating costs as a percentage of sales decreased from last year by 0.3
percentage points in the first six months (29.1% in 1998 compared to 29.4% in
1997). The operating cost comparison between the 1998 and 1997 second quarter
periods was also favorable, as expenses decreased by 1.5% compared to a sales
gain of 1.1%. In the second quarter of 1998, the relationship of expenses to net
sales declined by 0.7 percentage points as compared to the comparable period of
1997. Operating costs in the second quarter and first six months of 1998
included $1.6 million and $3.0 million, respectively, of product development and
other selling and administrative costs related to the Levi's, Tommy Hilfiger
women's and Nine West Kids product lines which are expected to begin producing
revenues in the second half of 1998.
Advertising costs increased by $2.2 million or 14% in the first six
months of fiscal 1998, principally related to the Keds Spring 1998 national
television campaign supporting the introduction of the Ready to Wear(TM) and
Relaxed Fit(TM) collections. As a percentage of net sales, advertising expense
represented 6.5% of sales in the first six months of 1998, which was higher than
the spending rate of 5.7% of sales in the comparable period in 1997. Offsetting
these spending increases was a $1.7 million decrease in distribution expenses
due to efficiencies at the Company's Kentucky distribution center and the lower
costs of the new Huntington, Indiana facility which was opened in October 1997.
Distribution expenses represented 1.8% of net sales in the first half of 1998
compared to 2.3% in 1997. In addition, the elimination of certain International
division overhead costs of $1.3 million and various other administrative expense
decreases contributed to the overall reduction in operating expenses.
Other Income and Taxes
Other income (expense) increased pre-tax income by $3.1 million in the
first six months of fiscal 1998 compared to an increase of $0.6 million in the
first half of fiscal 1997. In the first half of fiscal 1998, other
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
income included a pre-tax gain of $3.8 million from the sale of real estate
formerly used as a distribution center for the Company's wholly-owned
subsidiary, Stride Rite Children's Group, Inc. (See Note 4 above). Interest
income in 1998 was flat for the first six months of 1998 compared to the 1997
first half. Interest expense in the first six months of 1998 increased to $0.9
million compared to $0.1 million in 1997, as the Company maintained higher
borrowings than in 1997 due to increased inventory levels and cash expenditures
related to the Company's share repurchase program. Average short-term borrowings
in the first six months of 1998 were $28.7 million, up from the average
borrowings of $1.1 million in the comparable period of 1997.
The provision for income taxes increased $1.8 million in the first six
months of fiscal 1998 as compared to the similar period in fiscal 1997 primarily
due to the higher pre-tax income earned in the 1998 period. The 1998 effective
income tax rate was also higher, 36.5% compared to 36.0% in 1997, due to reduced
tax savings related to a company-owned life insurance program.
Net Income
Net income for the first six months of fiscal 1998 increased $2.8
million, up 25% from the income earned in the first half of fiscal 1997. The
higher net income was the result of improved gross profit performance, a slight
decrease in operating expenses and the one-time gain from the sale of real
estate. The Company's after-tax return on net sales in the first six months of
fiscal 1998 improved by 1 percentage point (5.1% of sales in 1998 compared to
4.1% in 1997).
Liquidity and Capital Resources
At May 29, 1998, the Company's balance sheet reflects a current ratio of
3.6 to 1 with no long-term debt. The Company's cash and short-term investments
totaled $29.6 million at the end of the latest quarter, below the cash and
investments total of $61.1 million at the end of the first half of fiscal 1997.
This lower cash and short-term investment balance was principally the result of
cash used in the company's stock repurchase program and increased working
capital needs. In 1998, other assets also included $8.7 million of investments
in intermediate-term, fixed income instruments compared to $9.6 million in
similar investments in May 1997. During the first six months of 1998, the
Company's operations used $8.2 million of cash, compared to the $0.5 million of
operating cash generated in 1997, as accounts receivable and inventory levels
were increased.
At May 29, 1998, receivable and inventory levels totaled $184.8 million,
an increase of $10.5 million or 6.0% from the $174.3 million asset amount at the
end of the first half of fiscal 1997. Accounts receivable of $84.3 million at
the end of the second quarter of 1998 increased 7.9% from the 1997, above the
sales increase of 1.1% in the quarter as shipments were heavier than last year
in the April/May timeframe. Inventories were higher at the end of the first six
months of 1998, up $4.3 million or 4.5% from the 1997 level, as additional
inventory associated with the Tommy Hilfiger division more than offset the
impact of lower retail store inventories.
12
<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)
Additions to property and equipment totaled $10.7 million in the first
six months of fiscal 1998 compared to $5.7 million in the same 1997 period.
Capital expenditures in the first half of 1998 included a $3.2 million
expenditure related to the Company's purchase of its Huntington, Indiana
distribution facility. A large portion of the Company's capital expenditures
over the next two years will be related to upgrading its information systems in
order to prepare for the Year 2000 transition. During fiscal 1997, the Company
formulated a plan to implement system changes designed to handle the transition
in the Company's systems. In most areas, the Company plans to implement new
computer systems, which will be Year 2000 compliant, as part of its continuing
efforts to upgrade systems capabilities and to effect the transition from
mainframe computer processing to lower cost, midrange computers. As previously
disclosed, the Company expects to spend approximately $15 million in capital
expenditures during the 1997 to 1999 period as part of this effort to upgrade
system capabilities and to deal with the Year 2000 transition. As a further step
to minimize business interruptions related to the Year 2000 issue, the Company
is in the process of executing a plan to remediate certain elements of its
existing business software. The cost of this remediation effort, which is
expected to be approximately $1 million, will be charged to expense as the costs
are incurred. Operating expenses in the first half of fiscal 1998 included $0.3
million related to the remediation of these systems.
During the first six months of fiscal 1998, the Company repurchased
215,000 shares of stock for an aggregate cost of $2.4 million. This brings the
cumulative number of shares repurchased under the authorization approved by the
Company's Board of Directors in October 1997 to 740,000 shares, leaving
1,260,000 shares currently authorized for future repurchases.
The Company uses bank lines of credit to fund seasonal working capital
needs. There were no borrowings outstanding under these arrangements at May 29,
1998 or May 30, 1997.
13
<PAGE>
PART II - OTHER INFORMATION
THE STRIDE RITE CORPORATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of the Company's shareholders was held on April 16,
1998. The three directors nominated by management were elected by the vote set
forth below:
<TABLE>
<CAPTION>
Votes
---------------------------------
Name of Director For Withheld
<S> <C> <C>
Warren Flick 42,247,363 1,302,877
Donald R. Gant 42,275,028 1,275,212
W. Paul Tippett, Jr. 42,273,946 1,276,295
</TABLE>
The Company's other directors, whose term of office continues after the 1998
stockholders' meeting, are as follows:
Margaret A. McKenna
Frank R. Mori
Robert L. Seelert
Robert C. Siegel
Myles J. Slosberg
The Company's shareholders also ratified the Company's selection of Coopers &
Lybrand L.L.P. as auditors of the Company for the 1998 fiscal year by the vote
set forth below:
Votes
-------------------------------------------- ----------------------
For Against Abstentions
43,311,869 111,714 126,658
The shareholders voted in favor of a proposal requesting that the directors
consider and act upon to approve The Stride Rite Corporation 1998 Long-Term
Growth Incentive Plan, by the vote set forth below:
Votes
------------------------------ ----------------- ---------------
For Against Abstentions No Vote
30,390,808 2,949,929 661,386 9,548,118
The shareholders also voted in favor of a proposal requesting that the directors
consider and act upon to approve The Stride Rite Corporation 1998 Non-Employee
Director Stock Ownership Plan, by the vote set forth below:
Votes
------------------------------- ----------------- --------------
For Against Abstentions No Vote
30,789,218 2,950,115 263,789 9,547,119
The shareholders also voted in favor of a proposal requesting that the directors
consider and act upon to approve The Stride Rite Corporation Senior Executive
Annual Incentive Compensation Plan, by the vote set forth below:
Votes
----------------------------- --------------------
For Against Abstentions
41,539,117 1,232,503 778,620
14
<PAGE>
PART II - OTHER INFORMATION
THE STRIDE RITE CORPORATION
ITEM 5. OTHER INFORMATION
Rule 14a-4 under the Securities Exchange Act of 1934, as amended, provides that
the Company's proxy card for the 1999 annual meeting of stockholders may confer
discretionary authority on any matter as of which the Company does not have
notice of by January 13, 1999.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits Description of Exhibit
Exhibit No.
11 Computation of Per Share Earnings
27 Financial Data Schedule
(b) Reports on Form 8-K
The Company did not file any current reports on
Form 8-K during the most recent quarterly period.
15
<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: July 13, 1998 By: /s/ John M. Kelliher
--------------------
John M. Kelliher
Chief Financial Officer
16
<PAGE>
THE STRIDE RITE CORPORATION
INDEX TO EXHIBITS
Exhibit No.
Sequential Page No.
11 Computation of Per Share Earnings Page 18 of 19
27 Financial Data Schedule Page 19 of 19
17
<PAGE>
Exhibit 11
THE STRIDE RITE CORPORATION
COMPUTATION OF PER SHARE EARNINGS
(In Thousands except Per Share Data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
May 29, May 30, May 29, May 30,
1998 1997 1998 1997
------- ------- ------- -------
Net income applicable to common
<S> <C> <C> <C> <C>
shares $ 9,596 $ 7,077 $13,997 $11,197
======= ======= ======= ======
Calculation of shares:
Weighted average number of
common shares outstanding (basic) 47,275 48,775 47,282 49,184
Common shares attributable to
assumed exercise of dilutive
stock optionsand stock
purchase rights using the
treasury stock method 380 507 329 407
------ ------ ------ ------
Average common shares and common
equivalents outstanding during
the period (diluted) 47,655 49,282 47,611 49,591
====== ====== ====== ======
Net income per common share
(basic) $ .20 $ .15 $ .30 $ .23
======= ====== ======= ======
Net income per common share
(diluted) $ .20 $ .14 $ .29 $ .22
======= ======= ======= =======
</TABLE>
18
<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 6-MOS
<FISCAL-YEAR-END> NOV-27-1998 NOV-27-1998
<PERIOD-END> MAY-29-1998 MAY-29-1998
<CASH> 19,565 19,565
<SECURITIES> 10,000 10,000
<RECEIVABLES> 88,608 88,608
<ALLOWANCES> 4,324 4,324
<INVENTORY> 100,468 100,468
<CURRENT-ASSETS> 249,611 249,611
<PP&E> 90,942 90,942
<DEPRECIATION> 32,355 32,355
<TOTAL-ASSETS> 327,253 327,253
<CURRENT-LIABILITIES> 69,720 69,720
<BONDS> 0 0
0 0
0 0
<COMMON> 14,237 14,237
<OTHER-SE> 236,792 236,792
<TOTAL-LIABILITY-AND-EQUITY> 327,253 327,253
<SALES> 143,176 272,161
<TOTAL-REVENUES> 143,176 272,161
<CGS> 91,543 174,048
<TOTAL-COSTS> 91,543 174,048
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 389 886
<INTEREST-EXPENSE> 557 943
<INCOME-PRETAX> 15,101 22,044
<INCOME-TAX> 5,505 8,047
<INCOME-CONTINUING> 9,596 13,997
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 9,596 13,997
<EPS-PRIMARY> .20 .30
<EPS-DILUTED> .20 .29
</TABLE>
