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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 28, 1999
( ) 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 02421
(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, 1999, 46,443,710 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
THE STRIDE RITE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
May 28, May 29,
1999 November 27, 1998
(Unaudited) 1998 (Unaudited)
-------------- -------------- --------------
Assets
Current Assets:
Cash and cash equivalents $30,560 $42,427 $19,565
Short-term investments - - 10,000
Accounts and notes
receivable, net 85,456 56,475 84,284
Inventories 110,472 128,472 100,468
Deferred income taxes 24,758 24,758 29,013
Other assets 3,583 6,097 6,281
----- ----- -----
Total current assets 254,829 258,229 249,611
Property and equipment, net 63,626 58,350 58,587
Other assets 24,338 18,917 19,055
------ ------ ------
Total assets $342,793 $335,496 $327,253
======== ======== ========
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)
May 28, May 29,
1999 November 27, 1998
(Unaudited) 1998 (Unaudited)
--------------- -------------- -------------
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable 27,516 $40,951 19,719
Income taxes payable 20,742 14,130 21,074
Accrued expenses and other
liabilities 31,946 29,646 28,927
------ ------ ------
Total current liabilities 80,204 84,727 69,720
Deferred income taxes 6,042 6,042 6,504
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 21,862 22,063 22,309
Retained earnings 349,212 337,943 335,561
Less cost of 10,504,209
shares of common stock
held in treasury
(10,565,526 on November
27, 1998 and 9,656,021
on May 29, 1998) (128,764) (129,516) (121,078)
--------- --------- ---------
Total stockholders' equity 256,547 244,727 251,029
--------- --------- ---------
Total liabilities and
stockholders' equity $342,793 $335,496 $327,253
======== ======== ========
The accompanying notes are an integral part of the condensed
consolidated financial statements.
3
<PAGE>
PART I - FINANCIAL INFORMATION (Continued)
THE STRIDE RITE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
For the periods ended May 28, 1999 and May 29, 1998
(In Thousands Except Per Share Data)
Three Months Ended Six Months Ended
May 28, May 29, May 28, May 29,
1999 1998 1999 1998
------------ ------------ ------------- ---------
Net sales $166,253 $143,176 $314,437 $272,161
Cost of sales 105,012 91,543 198,689 174,048
Selling and
administrative expenses 45,320 40,033 89,860 79,178
-------- -------- -------- --------
Operating income 15,921 11,600 25,888 18,935
Other income(expense):
Interest income 707 843 1,665 1,773
Interest expense (658) (557) (1,304) (943)
Other, net (282) 3,215 (647) 2,279
--------- -------- --------- --------
(233) 3,501 (286) 3,109
--------- -------- --------- --------
Income before income
taxes 15,688 15,101 25,602 22,044
Provision for income
taxes 5,925 5,505 9,690 8,047
-------- -------- -------- --------
Net income $ 9,763 $ 9,596 $ 15,912 $ 13,997
======== ======== ======== ========
Net income per common share:
Diluted $ .21 $ .20 $ .34 $ .29
======== ======== ======== ========
Basic $ .21 $ .20 $ .34 $ .30
======== ======== ======== ========
Dividends per common
share $ .05 $ .05 $ .10 $ .10
======== ======== ======== ========
Average common shares
used in per share
computations:
Diluted 46,840 47,655 46,685 47,611
======== ======== ======== ========
Basic 46,422 47,275 46,408 47,282
======== ======== ======== ========
The accompanying notes are an integral part of the
condensed consolidated financial statements
4
<PAGE>
PART I - FINANCIAL INFORMATION (Continued)
THE STRIDE RITE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the three months ended May 28, 1999 and May 29, 1998
(Dollars in Thousands)
May 28, 1999 May 29, 1998
-------------- --------------
Cash was provided from (used for) Operations:
Net income $15,912 $13,997
Adjustments to reconcile to net cash provided
from (used for) operations:
Depreciation and amortization 5,190 5,166
Compensation expense related to executive
stock plans 228 165
Equity in loss of affiliate 813 -
Loss(gain) on disposal of property and
equipment 934 (3,395)
Changes in:
Accounts and notes receivable (28,981) (32,576)
Inventories 18,000 34,260
Other current assets 2,514 (1,159)
Accounts payable, income taxes, accrued
expenses and other current liabilities (5,095) (24,683)
Net cash provided from (used for) operations $ 9,515 $(8,225)
Investments:
Additions to property and equipment (11,264) (10,720)
Proceeds from sales of property and equipment - 5,888
Purchase of marketable securities (772) (139)
Increase in other assets (5,062) (2,758)
------- -------
Net cash used for investments (17,098) (7,729)
-------- -------
Financing:
Proceeds from sale of stock under stock plans 355 944
Cash dividends paid (4,639) (4,727)
Repurchase of common stock - (2,361)
------- -------
Net cash used for financing (4,284) (6,144)
------- -------
Net decrease in cash and cash equivalents (11,867) (22,098)
Cash and cash equivalents at beginning of the
period 42,427 41,663
------ ------
Cash and cash equivalents at end of the period $30,560 $19,565
======= =======
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 28, 1999 and May 29, 1998
is unaudited and subject to year-end 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 28, 1999 and May 29, 1998 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
statement, but does not include all disclosures required by generally accepted
accounting principles. The Company filed audited consolidated financial
statements for the year ended November 27, 1998 on Form 10-K which included all
information and footnotes necessary for such presentation.
The Company's preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingency assets and liabilities at the dates of the financial
statements and the reported amounts of revenues and expenses during the reported
periods. The most significant estimates included in these financial statements
include valuation allowances and reserves for accounts receivable, inventory and
income taxes. Actual results could differ from those estimates.
NOTE 2
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 $3.9 million ($.05 per share, net of income taxes) in
the second quarter of fiscal 1998.
6
<PAGE>
PART I - FINANCIAL INFORMATION (Continued)
THE STRIDE RITE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3
Basic earnings per share excludes dilution and is computed by dividing net
earnings available to common stockholders by the weighted average number of
common shares outstanding for the period. Diluted earnings per share reflects
the potential dilution that could occur if options to issue common stock were
exercised.
The following is a reconciliation of the number of shares used in the
basic and diluted earnings per share computations (shares in thousands):
Second Quarter
-------------------------------------------
1999 1998
--------------------- --------------------
Per Share Per Share
Shares Amount Shares Amount
---------- ---------- --------- ---------
Basic EPS 46,422 .21 47,275 .20
Effect of Dilutive Stock Options 418 - 380 -
---------- ---------- --------- ---------
Diluted EPS 46,840 .21 47,655 .20
========== ========== ========= =========
First Six Months
-------------------------------------------
1999 1998
--------------------- --------------------
Per Share Per Share
Shares Amount Shares Amount
---------- ---------- --------- ---------
Basic EPS 46,408 .34 47,282 .30
Effect of Dilutive Stock Options 277 - 329 (.01)
========== ========== ========= =========
Diluted EPS 46,685 .34 47,611 .29
========== ========== ========= =========
The following options were not included in the computation of diluted EPS
because the options' exercise price was greater than the average market price of
the common shares:
Second Quarter First Six Months
-------------------- -----------------------
1999 1998 1999 1998
--------- --------- ---------- -----------
Options to purchase shares of
common stock (in thousands) 708 370 2,142 661
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. The words "expect", "estimate", and other
similar expressions which do not relate solely to historical matters identify
forward-looking statements. Undue reliance should not be placed on
forward-looking statements because they involve known and unknown risks and
uncertainties which may cause actual results to differ materially from
anticipated, projected or implied future results. 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 1999 as compared to the results for the
same periods in fiscal 1998:
Increase (Decrease) Percent vs. 1998 Results:
Second Quarter Six Months
Net sales 16.1% 15.5%
Gross profit 18.6% 18.0%
Selling and administrative expenses 13.2% 13.5%
Operating income 37.3% 36.8%
Income before income taxes* 3.9% 16.2%
Net income* 1.7% 13.7%
Operating Ratios as a Percent to Net Sales:
Second Quarter Six Months
------------------ ------------------
1999 1998 1999 1998
-------- --------- -------- ---------
Gross profit 36.8% 36.1% 36.8% 36.0%
Selling and administrative expenses 27.3% 28.0% 28.6% 29.1%
Operating income 9.6% 8.1% 8.2% 7.0%
Income before income taxes* 9.4% 10.6% 8.1% 8.1%
Net income* 5.9% 6.7% 5.1% 5.1%
* 1998 results for the second quarter and six months include a one-time gain
related to a real estate sale.
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 1999 increased $23.1 million or
16.1% over the net sales level for the same period of fiscal 1998. Over the
first six months of fiscal 1999, consolidated net sales increased by $42.3
million, 15.5% above the sales for the comparable period of fiscal 1998. A 16.7%
increase in revenues from the Company's wholesale divisions during the first
half of fiscal 1999 combined with a 9% increase in sales of the Company's retail
division to produce the consolidated revenue gain. In the second quarter of
fiscal 1999, wholesale division revenues increased 17.5% and retail sales
increased 9% from the same period in fiscal 1998. With respect to the wholesale
divisions of the Company, unit shipments of current line merchandise during the
first half of 1999 were 8% above the comparable period in fiscal 1998. The
Company's average selling price was also higher in the first half of 1999
increasing 8% from 1998. The higher sales of current line merchandise during the
first half of fiscal 1999 was partially offset by a 4% decrease in the sales of
discontinued products.
In the second quarter of fiscal 1999, Keds, the Company's largest
business, increased sales 9% from 1998. Sales of women's products were up 3%
during the second quarter, while children's sales increased 22% over the prior
year. Sales of Keds' new products, including the Ready to Wear(R) and Relaxed
Fit(TM) collections, more than offset the continuing sales decline of the
Champion(R) style. However, during the April/May timeframe, reorders for Keds
basic women's styles were below expectations as sales trends at retail appeared
to favor sandals and other fashion products. The Company is increasing
promotions in the third quarter of 1999 and is accelerating the introduction of
new styles later in the year to react to these trends. For the first six months,
Keds' net sales increased 10% compared to 1998, with the sales of women's
products increasing 5% and sales of children's products up 31% from the first
half of 1998.
The Stride Rite Children's Group had a s1ight decrease (1%) in the second
quarter of fiscal 1999, the result of a 9% increase in retail sales offset by
lower sales to independent accounts which declined 12% compared to the same
period in fiscal 1998. During the second quarter of 1999, sales at comparable
company-owned retail stores increased 6% from 1998. For the first six months of
fiscal 1999, sales of the Stride Rite Children's Group increased 2% from the
same period in 1998, the result of a 4% decline in sales to independent accounts
and a 9% increase in sales at company-owned retail stores. Sales at comparable
company-owned retail stores increased 7.1% during the first half of 1999. At the
end of the second quarter of fiscal 1999, the Company operated 201 stores, up 4%
from the 194 stores open at the end of the second quarter in fiscal 1998.
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)
Sales of Tommy Hilfiger products in the second quarter of 1999 increased
114% as compared to the same period in 1998. The introduction of the Tommy
Hilfiger women's line offset lower revenues from the Tommy Hilfiger men's
product line. Sales for the first six months of fiscal 1999 for the Tommy
Hilfiger division increased 94% as compared to the same period in 1998, again
the result of the initial delivery of the women's Spring product line offsetting
lower revenues in the Tommy Hilfiger men's business. The lower Tommy men's sales
in the first half of 1999 were the result of a sharp reduction in the sales of
discontinued products, down 54% from 1998.
Compared to the same period in fiscal 1998, sales of the Sperry Top-Sider
division increased 13% in the second quarter of fiscal 1999 and were 12% higher
for the first six months of fiscal 1999. The brand's retailer sales incentive
program and the first deliveries of the "Pioneer Collection" of men's casual
styles helped generate the improved shipping performance. International revenues
in the second quarter of 1999 were below the comparable period of 1998 by $1
million or 15%, as the Company continued to change business relationships to
emphasize license royalty arrangements. For the first six months of 1999,
International revenues declined $1.5 million or 9.1% from the comparable period
of fiscal 1998.
Gross Profit
During the first six months of fiscal 1999, gross profit increased $17.6
million, a gain of 18% compared to the net sales increase of 15.5% for the same
period. The consolidated gross profit percent in the first half of 1999
increased 0.8 percentage points, finishing at 36.8% in 1999 compared to 36.0% in
1998. The gross profit performance in the second quarter of 1999 was also higher
than the same period in fiscal 1998, 36.8% in 1999 compared to 36.1% in the 1998
second quarter. The gross profit percentage improvement in 1999 was primarily
due to reductions in inventory obsolescence charges and sales allowances. In the
prior year, the slowdown in the sales of Tommy Hilfiger men's and boys' products
and generally weak conditions in the athletic footwear sector resulted in
significant retailer sales allowances, order cancellations and related inventory
obsolescence charges. In addition, air freight costs were lower in fiscal 1999
as these costs were necessary in the prior year to meet the introductory demand
of certain Keds "Relaxed Fit" styles. The Company's 1998 second quarter and six
month gross profit performance was negatively impacted by $0.9 million and $1.7
million, respectively, in start-up costs related to new product lines which were
introduced in the second half of the year. The Company's LIFO provision had an
unfavorable impact on gross profit comparisons for the second quarter of 1999,
with LIFO decreasing gross profit by $0.3 million (0.2% of net sales) in 1999
compared to a favorable impact of $0.8 million (0.6% of net sales) in 1998.
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)
Operating Costs
Selling and administrative expenses in the first six months of fiscal 1999
increased $10.7 million or 13.5% from the spending total in the first six months
of 1998. This rate of increase was below the overall increase in net sales of
15.5% during the first half of 1999. Operating costs as a percentage of sales
decreased from last year by 0.5 percentage points in the first six months (28.6%
in 1999 compared to 29.1% in 1998). Advertising expense increased 18.7% in the
first six months, representing 6.7% of net sales in the first six months of
1999, which was 0.2 percentage points higher than the spending rate in the
comparable 1998 period. Distribution expenses represented 3.7% of net sales in
the first half of 1999, which was 0.3 percentage points lower than the spending
rate in 1998. This lower level of distribution costs in 1999 was achieved due to
efficiencies gained by higher volumes, partially offset by the increased costs
associated with the outsourcing of a portion of the Company's distribution
function due to shipment capacity constraints. In addition, increased spending
in information technology, primarily related to the costs of installing enhanced
systems and achieving Year 2000 (Y2K) compliance, resulted in additional costs
of $3.0 million compared to 1998. Operating costs in the first six months of
1998 included $3.0 million of product development and other selling and
administrative costs related to new product lines, including women's Tommy
Hilfiger(R), Nine West Kids(R) and Levi's(R) which generated revenues starting
in the third quarter of 1998.
Other Income and Taxes
Other income (expense) decreased pre-tax income by $0.3 million in the
first six months of fiscal 1999 compared to an increase of $3.1 million in the
first six months of fiscal 1998. In fiscal 1998, other income included a $3.9
million pre-tax gain 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. Interest income for the first six months was $1.7
million, down slightly from the $1.8 million for the first six months of 1998.
Interest expense in the first six months of 1999 increased to $1.3 million
compared to $1.0 million in 1998, as the Company maintained higher borrowings
than in 1998 due to increased working capital levels, higher capital
expenditures and expenditures related to the Company's share repurchase program
in the second half of 1998. Average short-term borrowings in the first six
months of 1999 were $43.4 million, 30% above the average borrowings of $33.4
million in the comparable period of 1998.
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)
The provision for income taxes increased $1.6 million in the first six
months of fiscal 1999 as compared to the similar period in fiscal 1998 primarily
due to the higher pre-tax income earned in the period. The 1999 effective income
tax rate was also higher, 37.8% compared to 36.5% in 1998, due mostly to the
reduced tax savings related to a company-owned life insurance program.
Net Income
Net income for the first six months of fiscal 1999 increased $1.9 million,
up 13.7% from the income earned in the first half of fiscal 1998. The increased
net sales level and the improved gross profit performance were the primary
factors contributing to the improved earnings. Net income increased 38.7% in the
first half of 1999 when the one-time gain related to the sale of real estate is
excluded from 1998's results. The Company's return on net sales remained
constant at 5.1% in the first six months of 1999 as compared to 1998.
Liquidity and Capital Resources
At May 28, 1999, the Company's balance sheet reflects a current ratio of
3.2 to 1 with no long-term debt. The Company's cash and short-term investments
totaled $30.6 million at the end of the latest quarter, slightly above the prior
year's cash and investments total of $29.6 million. When combined with
intermediate-term fixed income investments, total available cash and investments
amounted to $41.8 million at May 28, 1999 compared to $38.3 million in 1998. The
Company uses bank lines of credit to fund seasonal working capital needs. No
borrowings under these lines of credit were outstanding as of May 28, 1999,
which is consistent with the second quarter of 1998.
During the first six months of fiscal 1999, the Company generated $9.5
million of cash from operations. This positive cash flow amount was an
improvement over the $8.2 million use of cash to fund operations during the
first six months of fiscal 1998.
At May 28, 1999, accounts receivable and inventory levels totaled $195.9
million, an increase of $11.1 million or 6% above the $184.8 million asset
amount at the end of the second quarter of 1998. Accounts receivable at the end
of the second quarter of 1999 increased only $1.2 million or 1.4% compared to
the prior year, well below the wholesale businesses' sales increase of 17.5% in
the second quarter of 1999. Inventories were higher at the end of
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)
the second quarter of 1999, up $10.0 million or 10% from the 1998 level, due to
additional inventory associated with Keds new basics program and the "Keds
Stretch" product line, which is being introduced in June.
Additions to property and equipment totaled $11.3 million in the first
half of 1999 compared to $10.7 million for the same period in 1998. A large
portion of the Company's capital expenditures are related to information systems
in order to upgrade capabilities and to prepare for the Year 2000 transition.
Other Matters
During the quarter, the Company continued its efforts to minimize the risk
of disruption from the "Year 2000 (`Y2K') problem." This problem is a result of
computer programs having been written using two digits (rather than four) to
define the applicable year. The Company's overall plan to address the Y2K
problem is described more fully in its 1998 Annual Report on Form 10-K, and the
following is an update of the information included therein.
Information Technology ("IT") Systems:
Remediation efforts (including testing and certification) continued during
the first six months of fiscal 1999 with respect to the Company's previously
identified "critical" and "important" IT business systems. The bulk of the
Company's systems have now been tested and are certified as Y2K compliant,
although testing of a small number of critical or important business systems
will not be completed until September 1999.
Non-IT and Partner Systems:
During the first six months of 1999, the Company continued its inventory
of third party and internal embedded, or "non-IT" systems. Company
representatives have met with significant sourcing vendors to ensure an
uninterrupted supply of product in the year 2000. The Company has compiled
detailed information regarding all of its significant business partners. In
appropriate cases, the Company has been relying upon vendors' testing and
certification documents to validate that the related systems are Y2K compliant.
Where the Company does not have adequate assurance that remediation efforts by
third parties are on schedule, contingency plans are being developed to minimize
potential disruption from Y2K failures experienced by our business partners.
These plans include avoidance of those partners who may present an unacceptable
level of risk. Validation efforts are expected to continue through September
1999.
13
<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)
Contingency Planning:
Contingency planning has been developed on a case by case basis and
includes encouraging customers to place orders before potential business
disruptions, manual intervention of processes or finding alternative suppliers.
There are, however, many variables and uncertainties surrounding the
effectiveness of contingency planning. Thus, there is no certainty that the
Company's contingency plans will be adequate to mitigate the materially adverse
effect related to a large scale Y2K failure.
Costs:
Total anticipated expenditures related to the Y2K project remain on target
at approximately $24 million, of which approximately $17 million is related to
new systems which are being capitalized. Total Y2K project costs expended during
the first six months of 1999 amounted to approximately $6.5 million.
14
<PAGE>
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of the Company's shareholders was held on April 15,
1999. The three directors nominated by management were elected by the vote set
forth below:
Votes
------------------------
Name of Director For Withheld
---------------- --- --------
James A. Eskridge 39,769,024 501,552
Frank R. Mori 39,678,220 592,356
Bruce Van Saun 39,745,485 525,091
The Company's other directors, whose term of office continues after the 1999
stockholders' meeting, are as follows:
Warren Flick
Donald R. Gant
Robert L. Seelert
Myles J. Slosberg
W. Paul Tippett, Jr.
The Company's shareholders also ratified the Company's selection of
PricewaterhouseCoopers LLP. as auditors of the Company for the 1999 fiscal year
by the vote set forth below:
Votes
------------------------------------------------
For Against Abstentions
--- ------- -----------
40,080,871 112,592 77,113
The shareholders voted in favor of a proposal requesting that the directors
consider and act upon to approve The Stride Rite Corporation 1999 Executive
Long-Term Bonus Plan, by the vote set forth below:
Votes
------------------------------------------------
For Against Abstentions
--- ------- -----------
38,494,249 1,533,997 242,330
The shareholders also voted in favor of a proposal requesting that the directors
consider and act upon to approve amendment to The Stride Rite Corporation 1998
Non-Employee Director Stock Ownership Plan, by the vote set forth below:
Votes
------------------------------------------------
For Against Abstentions
--- ------- -----------
37,887,227 2,180,453 202,897
The shareholders also voted in favor of a proposal requesting that the directors
consider and act upon to approve the amendment to The Stride Rite Corporation
1998 Stock Option Plan, by the vote set forth below:
Votes
------------------------------------------------
For Against Abstentions
--- ------- -----------
34,095,293 6,015,988 159,296
15
<PAGE>
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. On July 9, 1999, the Company filed a report on
Form 8-K describing the resignation of James A. Eskridge as
Chairman and Chief Executive Officer of the Company. The Company
also announced that its Board of Directors named Myles J.
Slosberg as interim Chairman and CEO, pending the successful
search and selection of a new Chairman and CEO. For additional
information, reference is made to the Form 8-K filed on July 9,
1999.
16
<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 12, 1999 By: /S/ John M. Kelliher
---------------------------
John M. Kelliher
Chief Financial Officer
17
<PAGE>
THE STRIDE RITE CORPORATION
INDEX TO EXHIBITS
Exhibit Sequential Page
No. No.
11 Computation of Per Share Earnings 19 of 20
27 Financial Data Schedule 20 of 20
18
<PAGE>
Exhibit 11
THE STRIDE RITE CORPORATION
COMPUTATION OF PER SHARE EARNINGS
(In Thousands except Per Share Data)
May 28, May 29, May 28, May 29,
1999 1998 1999 1998
--------- ---------- --------- ---------
Net income applicable to common
shares $ 9,763 $ 9,596 $15,912 $13,997
======= ======= ====== =======
Calculation of shares:
Weighted average number of
common shares outstanding
(basic) 46,422 47,275 46,408 47,282
Common shares attributable to
assumed exercise of dilutive
stock options and stock
purchase rights using the
treasury stock method 418 380 277 329
------ ------- ------ -------
Average common shares and common
equivalents outstanding during
the period (diluted) 46,840 47,655 46,685 47,611
====== ====== ====== ======
Net income per common share
(basic) $ .21 $ .20 $ .34 $ .30
===== ====== ====== =====
Net income per common share
(diluted) $ .21 $ .20 $ .34 $ .29
===== ===== ===== =====
19
<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> DEC-03-1999 DEC-3-1999
<PERIOD-END> MAY-28-1999 MAY-28-1999
<CASH> 30,560 30,560
<SECURITIES> 0 0
<RECEIVABLES> 94,164 94,164
<ALLOWANCES> 8,708 8,708
<INVENTORY> 110,472 110,472
<CURRENT-ASSETS> 254,829 254,829
<PP&E> 103,633 103,633
<DEPRECIATION> 40,007 40,007
<TOTAL-ASSETS> 342,793 342,793
<CURRENT-LIABILITIES> 80,204 80,204
<BONDS> 0 0
0 0
0 0
<COMMON> 14,237 14,237
<OTHER-SE> 242,310 242,310
<TOTAL-LIABILITY-AND-EQUITY> 342,793 342,793
<SALES> 166,253 314,437
<TOTAL-REVENUES> 166,253 314,437
<CGS> 105,012 198,689
<TOTAL-COSTS> 105,012 198,689
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 171 1,023
<INTEREST-EXPENSE> 658 1,304
<INCOME-PRETAX> 15,688 25,602
<INCOME-TAX> 5,925 9,690
<INCOME-CONTINUING> 9,763 15,912
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 9,763 15,912
<EPS-BASIC> .21 .34
<EPS-DILUTED> .21 .34
</TABLE>
