1 of 15 Pages
Exhibit Index
Appears on Page 14
- -------------------------------------------------------------------------------
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 March 3, 2000
( ) 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 April 7, 2000, 43,263,134 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)
<TABLE>
<CAPTION>
March 3, February 26,
2000 December 3, 1999
(Unaudited) 1999 (Unaudited)
-------------- ------------- -------------
Assets
Current Assets:
<S> <C> <C> <C>
Cash and cash equivalents $3,850 $ 57,186 $2,327
Accounts and notes
receivable, net 105,374 47,478 108,485
Inventories 106,521 121,167 125,610
Deferred income taxes 26,303 26,303 24,758
Other assets 4,645 4,895 4,478
------- ------- --------
Total current assets 246,693 257,029 265,658
Property and equipment, net 69,594 67,425 59,433
Other assets 21,134 21,738 24,193
------- ------- --------
Total assets $337,421 $346,192 $349,284
======== ======== ========
</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>
<CAPTION>
March 3, February 26,
2000 December 3, 1999
(Unaudited) 1999 (Unaudited)
--------------- -------------- -------------
Liabilities and Stockholders' Equity
Current Liabilities:
Short-term debt $ 6,000 - $ 13,700
<S> <C> <C> <C>
Accounts payable 24,402 $ 41,557 28,951
Income taxes payable 25,933 22,059 22,731
Accrued expenses and other
liabilities 27,717 26,862 29,033
-------- -------- ----------
Total current liabilities 84,052 90,478 94,415
Deferred income taxes 5,219 5,219 6,042
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 20,732 20,738 21,975
Retained earnings 360,697 355,158 341,833
Less cost of 13,641,463
shares of common stock
held in treasury
(12,312,461 on December
3, 1999 and 10,541,243
on February 26, 1999) (147,516) (139,638) (129,218)
--------- --------- ---------
Total stockholders' equity 248,150 250,495 248,827
-------- --------- ---------
Total liabilities and
stockholders' equity $337,421 $ 346,192 $ 349,284
======== ========= =========
</TABLE>
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 March 3, 2000 and February 26, 1999
(In Thousands Except Per Share Data)
<TABLE>
<CAPTION>
2000 1999
------------ --------------
<S> <C> <C>
Net sales $151,663 $148,184
Cost of sales 96,766 93,677
Selling and administrative expenses 43,264 44,540
-------- --------
Operating income 11,633 9,967
Other income (expense):
Interest income 861 957
Interest expense (473) (646)
Other, net 41 (365)
-------- ---------
429 (54)
-------- ---------
Income before income taxes 12,062 9,913
Provision for income taxes 4,575 3,764
-------- --------
Net income $ 7,487 $ 6,149
======== ========
Net income per common share:
Diluted $ .17 $ .13
======== ========
Basic $ .17 $ .13
======== ========
Dividends per common share $ .05 $ .05
======== ========
Average shares used in per share computations:
Diluted 44,103 46,530
======== ========
Basic 43,980 46,394
======== ========
</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
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the three months ended March 3, 2000 and
February 26, 1999 (Dollars in Thousands)
<TABLE>
<CAPTION>
2000 1999
-------------- -----------
Cash was provided from (used for) Operations:
<S> <C> <C>
Net income $ 7,487 $ 6,149
Adjustments to reconcile to net cash
provided from (used for) operations:
Depreciation and amortization 2,938 2,499
Compensation expense related to executive
stock plans 60 160
Equity in loss of affiliate - 276
Loss on disposal of property and equipment - 908
Changes in:
Accounts and notes receivable (57,896) (52,010)
Inventories 14,647 2,862
Other current assets 250 1,619
Accounts payable, income taxes, accrued
expenses and other current liabilities (12,154) (3,956)
-------- --------
Net cash used for operations (44,668) (41,493)
-------- --------
Investments:
Additions to property and equipment (5,041) (4,424)
Decrease in noncurrent marketable
securities 1,394 346
Increase in other assets (856) (5,965)
-------- --------
Net cash used for financing investments (4,503) (10,043)
-------- --------
Financing:
Proceeds from sale of stock under stock plans - 55
Cash dividends paid (2,247) (2,319)
Repurchase of common stock (7,918) -
Short-term debt 6,000 13,700
-------- -------
Net cash provided from (used for) financing (4,165) 11,436
-------- -------
Net decrease in cash and cash equivalents (53,336) (40,100)
Cash and cash equivalents at beginning of the
period 57,186 42,427
------- -------
Cash and cash equivalents at end of the period $ 3,850 $ 2,327
======= ========
</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 March 3, 2000 and February 26,
1999 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 March 3, 2000 and February 26, 1999 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. The Company filed audited consolidated
financial statements for the year ended December 3, 1999 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 amount of assets and liabilities and
disclosure of contingent 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.
6
<PAGE>
PART I - FINANCIAL INFORMATION (Continued)
THE STRIDE RITE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 2
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):
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------
March 3, February 26,
2000 1999
-------------- --------------
<S> <C> <C>
Net income applicable to common shares $ 7,487 $ 6,149
======= =======
Calculation of shares:
Weighted average number of common shares
outstanding(basic) 43,980 46,394
Common shares attributable to assumed
exercise of dilutive stock options and
stock purchase rights using the treasury
stock method 123 136
------- -------
Average common shares and common equivalents
outstanding during the period (diluted) 44,103 46,530
======= =======
Net income per common share (basic) $ .17 $ .13
===== =====
Net income per common share (diluted) $ .17 $ .13
===== =====
</TABLE>
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:
First Quarter
----------------------------
2000 1999
------------ ------------
Options to purchase shares of common
stock (in thousands) 3,572 2,591
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 Factors Affecting Future Operating Results
This form 10-Q contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. We caution investors that any forward-looking statements
presented in this report and presented elsewhere by management from time to time
are based on management's beliefs and assumptions made by, and information
currently available to, management. When used, the words "anticipate",
"estimate", "project", "should", "expect" and similar expressions are intended
to identify forward-looking statements. Such statements are subject to risks,
uncertainties and assumptions and are not guarantees of future performance,
which may be affected by various trends and factors that are beyond our control.
Should one or more of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, actual results may vary materially from
those anticipated, estimated or projected. Accordingly, past results and trends
should not be used by investors to anticipate future results or trends. Some of
the key factors that may have a direct bearing on our results are presented in
the Company's Form 10-K for the fiscal year ended December 3, 1999 which was
filed with the Securities and Exchange Commission.
Results of Operations
The following table summarizes the Company's performance for the first
quarter of fiscal 2000 as compared to the results for the comparable period in
fiscal 1999:
<TABLE>
Increase (Decrease) Percent vs. 1999 Results:
<CAPTION>
First Quarter
<S> <C>
Net sales 2.3%
Gross profit 0.7%
Selling and administrative expenses (2.9)%
Operating income 16.7%
Income before income taxes 21.7%
Net income 21.8%
</TABLE>
<TABLE>
Operating Ratios as a Percent to Net Sales:
<CAPTION>
First Quarter
--------------------------------
2000 1999
-------------- --------------
<S> <C> <C>
Gross profit 36.2% 36.8%
Selling and administrative expenses 28.5% 30.1%
Operating income 7.7% 6.7%
Income before income taxes 8.0% 6.7%
Net income 4.9% 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 first quarter of fiscal 2000 increased $3.5 million
(2.3%) from the sales level achieved in the comparable period of fiscal 1999.
Revenues related to the Company's wholesale brands increased 2% during the first
quarter of 2000, while retail sales during the period increased 3% from last
year. During the first quarter of 2000, the wholesale brands of the Company had
unit shipments of current line merchandise which were 2% higher than the 1999
first quarter. The Company's average selling price decreased in the first
quarter of 2000, by 1% from 1999. This price decrease was primarily the result
of a lower-priced product mix in the Tommy Hilfiger footwear brand. Sales of
discontinued products increased $4.5 million in the first quarter of fiscal 2000
as compared to the comparable period of fiscal 1999 as the Company paid close
attention to asset management.
During the first quarter of fiscal 2000, each domestic wholesale brand
experienced increased sales as compared to the 1999 first quarter. Sales of the
Keds business unit increased 7% during the first quarter of 2000, with most of
the sales growth related to Keds women's product lines. Sales of the Stride Rite
Children's Group in the first quarter of 2000 increased 1% as compared to the
same period in 1999 with higher retail sales accounting for all of the gain in
the period. Retail sales in the first quarter of 2000 benefited from a more
productive store mix and improved sales at comparable, company-owned stores
which increased 1.5% from the first quarter of 1999. At the end of the first
quarter of 2000, the Company operated 188 stores, down from the 195 stores open
at the end of the first quarter in 1999. Sales of the Sperry brand increased 6%
in the first quarter, driven by classic, Sperry Top-Sider boat shoes. Sales of
the Tommy Hilfiger footwear brand in 2000 were 4% above the first quarter of
fiscal 1999. The product line for women continues to perform well with higher
sales, offsetting a decrease in the sales of men's and boys' products during the
first quarter of 2000. Sales of the Company's International division in the
first quarter of 2000 decreased $1.8 million or 27% compared to the prior year,
due to a combination of delayed shipments and the Company's continued strategy
to emphasize royalty over distribution type arrangements.
Gross Profit
During the first quarter of fiscal 2000, gross profit increased $0.4
million, or 1%, as compared to the net sales increase of 2.3%. The consolidated
gross profit percentage for the first three months of 2000 decreased 0.6
percentage points, to 36.2% in 2000 from 36.8% in 1999. The overall gross profit
decline was due principally to the increased sales of discontinued products in
the quarter compared to last year, particularly in the Keds brand. The LIFO
provision also had an unfavorable effect on gross profit comparisons, with LIFO
decreasing gross profit by $0.8 million (0.5% of net sales) in 2000 compared to
a decrease of $0.6 million (0.4% of net sales) in 1999.
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)
Operating Costs
Selling and administrative expenses in the first quarter of fiscal 2000
decreased 2.9% as compared to the first quarter of 1999 as the Company continues
to contain operating costs. Operating costs as a percentage of sales in the
first quarter decreased from last year by 1.6 percentage points (28.5% in 2000
compared to 30.1% in 1999). The expense level in the first quarter of fiscal
2000 was favorably impacted by the Company's restructuring efforts which
eliminated approximately 125 administrative positions during the third quarter
of fiscal 1999. Advertising expense represented 5.9% of net sales in the first
quarter of 2000, which was below the spending rate of 6.8% of sales in the
comparable period in 1999, largely due to a shift from television to print media
with respect to the Keds brand resulting in a spending plan that was lower than
last year. Distribution expenses represented 2% of net sales in the first
quarter of 2000 compared to 2.3% in the 1999 first quarter.
Other Income and Taxes
Other income (expense) increased pre-tax income by $0.4 million in the
first quarter of fiscal 2000 compared to a decrease of $0.1 million in the first
quarter of fiscal 1999. Interest income during the first quarter of 2000 was
slightly below the prior year. Interest expense in the first quarter of 2000 was
lower than 1999, decreasing $0.2 million. While average interest rates in the
quarter were higher than in 1999, average short-term borrowings in the first
quarter of 2000 were $26.0 million, 40% below the average borrowings of $43.3
million in the first quarter of 1999.
The provision for income taxes increased $0.8 million in the first quarter
of fiscal 2000 as compared to the similar period in fiscal 1999 primarily due to
the higher pre-tax income earned in the period. The 2000 effective income tax
rate was slightly lower, 37.9% compared to 38.0% in 1999.
Net Income
Net income for the first quarter of fiscal 2000 increased $1.3 million, up
21.8% from the income earned in the 1999 first quarter. The increased net sales
and lower operating costs were the primary factors contributing to the improved
earnings. As a result, the Company's return on net sales improved by 0.8
percentage points in the first quarter of 2000 (4.9% of sales in 2000 compared
to 4.1% in 1999).
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)
Liquidity and Capital Resources
At March 3, 2000, the Company's balance sheet reflects a current ratio of
2.9 to 1 with no long-term debt. The Company's cash and short-term investments
totaled $3.9 million at the end of the latest quarter, slightly above the prior
year's cash and investments total of $2.3 million. The Company uses its $75
million revolving credit agreement to fund seasonal working capital needs.
Borrowings under this line of credit totaled $6.0 million at March 3, 2000,
lower than the $13.7 million of short-term debt outstanding at the end of the
first quarter of 1999.
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 2000, the Company used $44.7 million of cash to fund
operating needs. This negative cash flow amount was higher than the $41.5
million use of cash to fund operations during the first quarter of fiscal 1999.
At March 3, 2000, accounts receivable and inventory levels totaled $211.9
million, a decrease of $22.2 million or 9.5% below the $234.1 million asset
amount at the end of the first quarter of 1999. Accounts receivable at the end
of the first quarter of 2000 decreased $3.1 million or 3% from the same period
in 1999, despite the higher sales level in 2000. Inventories were significantly
lower at the end of the first quarter of 2000, down $19.1 million or 15% from
the 1999 level. The principal reason for the lower inventory levels in 2000 was
an overall reduction in basics style inventory compared to last year,
particularly in the Keds brand.
Additions to property and equipment totaled $5.0 million in the first
quarter of 2000 compared to $4.4 million in the 1999 first quarter. The majority
of the capital expenditure increase related to computer equipment and related
software. During the first quarter of 2000, the Company continued its share
repurchase program, buying back 1.3 million shares of common stock at a cost of
$7.9 million. At March 3, 2000, the Company has 3.9 million shares remaining on
the repurchase authorization voted by the Board of Directors in December 1999.
11
<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
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.
12
<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 14, 2000 By: /S/ John M. Kelliher
-------------------------
John M. Kelliher
Chief Financial Officer
13
<PAGE>
THE STRIDE RITE CORPORATION
INDEX TO EXHIBITS
Exhibit Sequential Page No.
-------------------
No.
27 Financial Data Schedule 15 of 15
14
<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 informtaion in
this schedule. Figures below are in thousands, except per-share data.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-01-2000
<PERIOD-START> DEC-04-1999
<PERIOD-END> MAR-03-2000
<CASH> 3,851
<SECURITIES> 0
<RECEIVABLES> 113,179
<ALLOWANCES> 7,806
<INVENTORY> 106,521
<CURRENT-ASSETS> 246,693
<PP&E> 116,577
<DEPRECIATION> 46,983
<TOTAL-ASSETS> 337,421
<CURRENT-LIABILITIES> 84,052
<BONDS> 0
0
0
<COMMON> 14,237
<OTHER-SE> 233,913
<TOTAL-LIABILITY-AND-EQUITY> 337,421
<SALES> 151,663
<TOTAL-REVENUES> 151,663
<CGS> 96,766
<TOTAL-COSTS> 96,766
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 722
<INTEREST-EXPENSE> 473
<INCOME-PRETAX> 12,062
<INCOME-TAX> 4,575
<INCOME-CONTINUING> 7,487
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,487
<EPS-BASIC> .17
<EPS-DILUTED> .17
</TABLE>
