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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(Mark One)
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 1, 2000
OR
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to
Commission file number 1-4404
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THE STRIDE RITE CORPORATION
(Exact name of registrant as specified in its charter)
Massachusetts 04-1399290
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
191 Spring Street, P.O. Box 9191, Lexington, Massachusetts 02420-9191
(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:
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
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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 [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
The aggregate market value of the Registrant's Common Stock $.25 par value,
held by non-affiliates of the Registrant as of February 8, 2001, was
$316,770,348 based on the closing price on that date on the New York Stock
Exchange. As of February 8, 2001, 41,680,309 shares of the Registrant's Common
Stock, $.25 par value, and the accompanying Preferred Stock Purchase Rights
were outstanding.
Documents Incorporated by Reference
Certain portions of the following document (as more specifically identified
elsewhere in this Annual Report) is incorporated by reference herein:
Part of Form 10-K into
Name of Document which document is incorporated
---------------- ------------------------------
Portions of the Registrant's Proxy Statement Part III
for 2001 Annual Meeting of Stockholders
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PART I
Item 1. Business
General
The Stride Rite Corporation is the leading marketer of high quality
children's footwear in the United States and a major marketer of athletic and
casual footwear for children and adults. All of the Company's products are
manufactured abroad by independent manufacturers in accordance with the
Company's specifications and quality standards. Footwear products are
distributed through independent retail stores, company-owned stores and
footwear departments in department stores. Unless the context otherwise
requires, the "Company", "Stride Rite" or "The Stride Rite Corporation" refers
to The Stride Rite Corporation and all of its wholly owned subsidiaries.
Certain Factors Affecting Future Operating Results
This Form 10-K 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 as follows:
Mature markets; Competition; Consumer Trends
Our strategy for growth depends upon increasing the acceptance of our
current brands in our major markets, expanding into new markets and increasing
the number of footwear products and brands that we sell. There can be no
assurance that we will successfully be able to develop new branded products or
acquire existing brands from third parties. The bulk of our sales are in the
U.S. and Canada where the market is mature for many of our products. To grow
our business, we must increase our market share at the expense of our
competitors, and there can be no assurance we will be successful. Our efforts
to expand sales outside the U.S. and Canada may not succeed.
Both the footwear industry specifically and the fashion industry in general
are subject to rapid and substantial shifts in consumer tastes and preferences.
There are many competitors in our markets with substantially greater financial
resources, production, marketing and product development capabilities. Our
performance may be hurt by our competitors' product development, sourcing,
pricing, innovation and marketing strategies. In addition, we expect the
footwear industry in the U.S. to continue to experience substantial foreign
competition.
The fashion and retail industries are subject to sudden shifts in consumer
trends and consumer spending, on which our results are, in part, dependent.
Consumer acceptance of our new products may fall below expectations and the
launch of new product lines may be delayed. The results of our wholesale
businesses are affected by the buying plans of our customers, which include
large department stores, as well as smaller retailers. Our wholesale customers
may not inform us of changes in their buying plans until it is too late for us
to make the necessary adjustments to our product lines and marketing
strategies. While we believe that purchasing decisions in many cases are made
independently by individual stores or store chains, we are exposed to decisions
by the controlling owner of a store chain, to decrease the amount of footwear
products purchased from us. Moreover, the retail industry periodically
experiences consolidation. We face a risk that our wholesale customers may
consolidate, restructure, reorganize or realign in ways that could decrease the
number
1
of stores or the amount of shelf space that carry our products. The impact that
electronic commerce will have in the future on the retail industry is uncertain
and may adversely affect our business.
Inventory Obsolescence
The fashion-oriented nature of our industry, the rapid changes in customer
preferences and the extended product development and sourcing lead times also
leave us vulnerable to an increased risk of inventory obsolescence. While we
have successfully managed this risk in the past, and believe we can
successfully manage it in the future, our revenue and operating margins will
suffer if we are unable to do so.
Retention of Major Brand License
We have derived significant revenues and earnings in the past from our
exclusive licensing arrangement with Tommy Hilfiger Licensing, Inc. to produce
and sell Hilfiger branded footwear. Our original Hilfiger license was due to
expire on December 31, 2001 and we had one option to renew the license for an
additional three-year term. In January 2001, we reached agreement on all of the
essential terms of an amended agreement with Hilfiger, which extended the
license through December 31, 2003. The Company and Hilfiger are presently in
the process of finalizing the amended contractual agreement. Whether our
license with Hilfiger will remain in effect depends on our achieving certain
minimum sales levels for the licensed products. If we lose the Hilfiger
license, our business could be materially and adversely affected.
Overseas Production and Raw Material Procurement
We purchase substantially all of our product lines and raw materials
overseas and expect to do so for the foreseeable future. Our international
sourcing subjects us to the risks of doing business abroad. Such risks include
expropriation, acts of war, political disturbances, political instability and
similar events, including trade sanctions, loss of normalized trade relations
status, export duties, import controls, quotas, and other trading restrictions,
as well as fluctuations in currency values. Moreover, we rely heavily on
independent third-party manufacturing facilities, primarily located in China,
to produce our products. If trade relations between the U.S. and China, or
other countries in which we manufacture our products, deteriorate or are
threatened by instability, our business may be adversely affected. We cannot
predict the effect that changes in the economic and political conditions in
China could have on the economics of doing business with Chinese manufacturers.
Although we believe that we could find alternative manufacturing sources for
our products with independent third-party manufacturing facilities in other
countries, the loss of a substantial portion of our Chinese manufacturing
capacity could have a material adverse effect on our business. Also, if we were
required to relocate a substantial portion of our manufacturing outside of
China, there can be no assurance that we could obtain as favorable economic
terms, which could adversely affect our performance.
Dependence on Logistical Systems
Our business operations are dependent on our logistical systems, which
include our order management system and our computerized warehouse network,
enabling us to procure our footwear products from overseas manufacturers,
transport it to our distribution facilities, store it and deliver it to our
customers on time, in the correct sizes and styles. A disruption to the
logistical systems could have an adverse impact on our business. During the
second half of fiscal 2000, to improve overall efficiency, we implemented new
computer software systems that control and manage orders from our customers. If
we experience problems with this important system, we could experience
disruptions to our business that could have an adverse effect on our business.
Intellectual Property Risk
We believe that our patents and trademarks are important to our business and
are generally sufficient to permit us to carry on our business as presently
conducted. We cannot, however, know whether we will be able to secure patents
or trademark protection for our intellectual property in the future or that
protection will be adequate for future products. Further, we face the risk of
ineffective protection of intellectual property rights in
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the countries where we source and distribute our products. Finally, we cannot
be sure that our activities will not infringe on the proprietary rights of
others. If we are compelled to prosecute infringing parties, defend our
intellectual property, or defend ourselves from intellectual property claims
made by others, we may face significant expenses and liability.
Retail Stores
Company-owned retail stores are increasingly significant to our business,
especially with respect to the Stride Rite brand. In the future, the Company
may also evaluate new retail concepts to market the other footwear brands owned
by the Company. The management of our Stride Rite Children's Group does
extensive research on potential sites for new concept stores, including
demographic studies and an evaluation of the impact that potential locations
would have on the results of our existing company-owned stores and our network
of locations operated by independent licensed dealers. Despite this careful
evaluation, new Stride Rite concept stores may not meet sales expectations and
new retail concepts may not achieve the expected financial results. The opening
of new stores may also be delayed for a variety of reasons.
Products
The Company's wholly-owned subsidiary, Stride Rite Children's Group, Inc.,
designs and markets children's footwear, primarily for consumers between the
ages of six months and ten years, including dress and recreational shoes,
boots, sandals and sneakers, in traditional and contemporary styles. Those
products are marketed under the Company's STRIDE RITE(R), MUNCHKIN(R),
SPERRY(R), SPERRY TOP-SIDER(R), STREET HOT(R) and TODDLER UNIVERSITY(R)
trademarks in medium to high price ranges.
The Keds Corporation designs and markets sneakers and casual footwear for
adults and children under the KEDS(R) and PRO-KEDS(R) trademarks and casual
footwear for women under the GRASSHOPPERS(R) label.
Sperry Top-Sider, Inc. designs and markets marine footwear and outdoor
recreational, hand-sewn, dress and casual footwear for adults and children
under the Company's SPERRY TOP-SIDER(R) and SPERRY(R) trademarks. Products sold
under the SPERRY TOP-SIDER(R) label also include sneakers and sandals for men
and women.
In 1997, the Company began marketing a line of dress casual, sport casual
and athletic footwear for men and boys using the TOMMY HILFIGER(R) brand name
under a license agreement with Tommy Hilfiger Licensing, Inc. A women's
footwear product line was launched in August 1998 and a girls' footwear line
was introduced in July, 2000 using the TOMMY HILFIGER(R) brand name.
Sales and Distribution
The Company sells its products nationwide to customers operating retail
outlets, including premier department stores, value retailers and specialty
stores, as well as to Stride Rite children's shoe stores and other shoe stores
operated by independent retailers. The Company maintains an in-stock inventory
of certain styles of its various branded footwear in a wide range of sizes and
widths for shipment to its wholesale customers. In addition, the Company sells
footwear products to consumers through company-owned stores, including
children's shoe stores, manufacturers' outlet stores and the children's
footwear departments of certain department stores. The Company also sells
products directly to consumers through its e-commerce site, www.keds.com. The
Company's largest single customer accounted for approximately 8% of
consolidated net sales for the fiscal year ended December 1, 2000.
The Company provides assistance to a limited number of qualified specialty
retailers to enable them to operate independent Stride Rite children's shoe
stores. Such assistance sometimes includes the sublease of a desirable retail
site by the Company to an independent dealer. There are approximately 13
independent dealers who currently sublease store locations from the Company.
3
The Company owns two distribution centers, one located in Louisville,
Kentucky with 520,000 square feet of space and the other in Huntington, Indiana
with 409,000 square feet of space. During the fourth quarter of fiscal 2000 the
Company completed an addition to its Huntington, Indiana facility. This
expansion added 146,000 square feet to the original building, and allowed the
Company to discontinue a higher-cost outsourcing arrangement for the
distribution function for one of its brands. We expect that the expanded
Huntington facility will be fully operational for fiscal 2001.
Generally, the Company uses independent distributors and licensees to market
its various product lines outside of North America. International revenues,
including sales of the Company's Canadian subsidiary, represented approximately
4% of consolidated net sales for the fiscal year ended December 1, 2000.
The Company is also a party to foreign license agreements in which
independent companies operate Stride Rite retail stores outside the United
States. An aggregate of 12 stores are currently operating in Canada,
Costa Rica, Guatemala, Haiti, Honduras, Kuwait, Nicaragua and Peru pursuant to
such agreements.
The Company also distributes SPERRY TOP-SIDER(R), STRIDE RITE(R), KEDS(R),
GRASSHOPPERS(R) and TOMMY HILFIGER(R) products in Canada through its Canadian
subsidiary.
International Sourcing
Having closed all of its manufacturing facilities in the United States and
the Caribbean over the years, the Company purchases substantially all of its
products from foreign sources. It maintains a staff of approximately 90
professional and technical personnel in Taiwan and China, to supervise a
substantial portion of its canvas and leather footwear production. It is
anticipated that overseas resources will continue to be utilized in the future.
The Company also purchases certain raw materials (particularly leather) from
overseas sources. The Company is a party to a joint venture agreement with a
foreign footwear manufacturer which operates a manufacturing facility in
Thailand. The Company has a 49.5% interest in the Thai corporation operating
this facility, which manufactures vulcanized canvas and leather footwear for
several branded companies. During fiscal 2000, none of the Company's footwear
production requirements were fulfilled by the Thai facility. In addition, the
Company uses the services of buying agents to source merchandise.
Approximately 90% of the Company's footwear products are manufactured by
independently owned footwear manufacturers in China. Historically, instability
in China's political and economic environment has not had a material adverse
effect on the Company's financial condition or results of operations. The
Company cannot predict, however, the effect that future changes in economic or
political conditions in China could have on the economics of doing business
with its Chinese manufacturers.
Retail Operations
As of December 1, 2000, the Company operated 117 Stride Rite children's shoe
stores, 46 leased children's shoe departments in leading department stores and
38 manufacturers' outlet stores under the name STRIDE RITE FAMILY FOOTWEAR,
which sell primarily prior season goods for all of the Company's owned and
licensed brands. The product and merchandising formats of the Stride Rite
children's shoe stores are utilized in the 46 leased children's shoe
departments that the Company operates in certain divisions of Federated
Department Stores, including Macy's, Rich's and Lazarus department stores. The
Stride Rite children's shoe stores carry a significant portion of the lines of
the Company's STRIDE RITE(R) and SPERRY(R) children's footwear and portions of
the KEDS(R) and TOMMY HILFIGER(R) children's product lines. The Company's
stores are located primarily in larger regional shopping centers, clustered
generally in the major marketing areas of the United States. Most of the
Company's manufacturers' outlet stores are located in shopping centers
consisting only of outlet stores.
During the 2000 fiscal year, the Company opened 12 Stride Rite concept
stores and 12 manufacturers' outlet stores. During 2000, the Company closed 15
retail stores. The Company currently plans to open approximately 25 retail
stores in fiscal 2001. The Company will also continue its efforts to close or
sell underperforming retail locations in fiscal 2001, and expects to cease
operations in 10 to 15 stores during the year.
4
Sales through the Company's retail operations accounted for approximately
19% of consolidated net sales for the fiscal year ended December 1, 2000.
Apparel and Accessory Licensing Activities
License royalties accounted for approximately 1% of the Company's sales in
fiscal year 2000. The Company has license agreements with a number of third
parties pursuant to which apparel and accessories are designed, manufactured
and sold under the KEDS(R), PRO-KEDS(R), STRIDE RITE(R) and SPERRY TOP-SIDER(R)
trademarks. The Company is actively evaluating its current license structure
and is continually pursuing new licensees.
Backlog
At December 1, 2000 and December 3, 1999, the Company had a backlog of
orders amounting to approximately $141,700,000 and $148,700,000, respectively.
To a significant extent, the backlog at the end of each fiscal year represents
orders for the Company's Spring footwear styles, and substantially all of such
orders are delivered or canceled during the first two quarters of the next
fiscal year.
In all of the Company's wholesale businesses, reorders from retail customers
are an important source of revenue to supplement the orders taken in advance of
the season. Over the years, the importance of reorder activity to a season's
success has grown as customers, especially larger retailers, have placed
increased reliance on orders during the season which are transmitted via
electronic data interchange (EDI) programs.
Competition
The Company competes with a number of suppliers of children's footwear, a
few of which are divisions of companies which have substantially greater net
worth and/or sales revenue than the Company. Management believes, however, that
on the basis of sales, the Company is the largest supplier of nationally
branded children's footwear in the United States.
In the highly fragmented sneaker, casual and recreational footwear industry,
numerous domestic and foreign competitors, some of which have substantially
greater net worth and/or sales revenue than the Company, produce and/or market
goods which are comparable to, and compete with, the Company's products in
terms of price and general level of quality.
Management believes that the creation of attractive styles, together with
specialized engineering for fit, durability, quality and high service standards
are significant factors in competing successfully in the marketing of all types
of footwear. Management believes that the Company is competitive in all such
respects.
In operating its own retail outlets, the Company competes in the children's
retail shoe industry with numerous businesses, ranging from large retail chains
to single store operators.
Employees
As of December 1, 2000, the Company employed approximately 2,200 full-time
and part-time employees. One collective bargaining unit represents a small
number of these employees. Management believes that its relations with its
employees are good.
Environmental Matters
Compliance with federal, state, local and foreign regulations with respect
to the environment have had, and are expected to have, no material effect on
the capital expenditures, earnings or competitive position of the Company.
5
Patents, Trademarks and Licenses
The Company has an existing trademark license agreement with Tommy Hilfiger
Licensing, Inc. pursuant to which it designs, markets and sells footwear to
men, women and children.
The Company believes that its patents and trademarks are important to its
business and are generally sufficient to permit the Company to carry on its
business as presently conducted.
Research and Development
The Company depends principally upon its design, engineering and marketing
skills and the quality of its products for its ability to compete successfully.
The Company conducts research and development for footwear products; however,
the level of expenditures with respect to such activity is not material and is
expensed as incurred.
Executive Officers of the Registrant
The information with respect to the executive officers of the Company listed
below is as of February 15, 2001.
Name Position with Company Age
---- --------------------- ---
David M. Chamberlain.. Chairman of the Board of Directors and Chief 57
Executive Officer of the Company since joining
the Company in November 1999. Prior to joining
the Company, Mr. Chamberlain was Chairman of
the Board of Genesco, Inc., a footwear company,
from 1994 to 1999 and President and Chief
Executive Officer of Genesco, Inc. from 1994 to
1996.
Diane M. Sullivan..... President and Chief Operating Officer since 45
July 1999. Previous to this position, Ms.
Sullivan was Group President of the Company
since October 1997 and President, Wholesale
division, Stride Rite Children's Group, Inc.,
since joining the Company in April 1995. Prior
to joining the Company, Ms. Sullivan was Vice
President, Marketing, of The Rockport Company,
Inc., a footwear company wholly owned by Reebok
International Ltd., from May 1993 to April
1995.
Yusef Akyuz........... Vice President and Chief Information Officer of 50
the Company since November 2000. Previously,
Mr. Akyuz was Vice President and Chief
Information Officer at The Timberland Company,
a footwear and apparel company, from June 1996
to November 2000. Prior to that, Mr. Akyuz was
Director of M.I.S. at The Rockport Company,
Inc., a footwear company wholly owned by Reebok
International Ltd., from November 1991 to May
1996.
Frank A. Caruso....... Vice President--Finance and Operations since 48
January 2001. Previously, Mr. Caruso was Vice
President and Corporate Controller since
January 1998. Prior to that, Mr. Caruso was
Vice President and Controller of Parametric
Technology Corporation, a software company,
from June 1997 to December 1997 and Senior Vice
President, Finance and Operations, of The Keds
Corporation from June 1990 to June 1997.
6
Name Position with Company Age
---- --------------------- ---
Peter J. Charles............. Senior Vice President and General 36
Manager, Stride Rite Sourcing
International, Inc., since August 1999.
Previously, Mr. Charles was Senior Vice
President, Sourcing, since he joined the
Company in December 1996. Prior to
joining the Company, Mr. Charles was
employed by Clarks International, an
international footwear manufacturer,
from 1986 to 1996, as General Manager,
Resourced Production, Regional
Resourcing Manager, South East Asia and
served in various other management level
positions.
Janet M. DePiero............. Vice President of Human Resources of the 39
Company since March 1997. Previously,
Ms. DePiero was Director of Compensation
and Benefits of the Company from October
1995 to February 1997 and Manager of
Compensation and Benefits at the Company
from December 1991 to September 1995.
Daniel R. Friedman........... President of The Keds Corporation since 40
joining the Company in November 1999.
Previously, Mr. Friedman was President
of Aerosoles, Inc., a women's footwear
manufacturer, from December 1998 to
November 1999, and was with the Nine
West Group, a marketer of women's
footwear, in various senior management
positions from 1994 to 1998, including
President of its Evan Picone division.
Gordon W. Johnson, Jr........ Treasurer of the Company since February 46
2001. Mr. Johnson was Assistant
Treasurer of the Company since May 1989.
John M. Kelliher............. Chief Financial Officer of the Company 49
since February 1998 and Vice President,
Finance since February 1993 and
Treasurer of the Company from February
1993 to February 2001. Mr. Kelliher was
Corporate Controller of the Company from
March 1982 to January 1998.
Thomas L. Nelson............. President, Sperry Top-Sider, Inc. since 46
joining the Company in May 1998. Prior
to joining the Company, Mr. Nelson was
Senior Vice President for North American
Sales for Converse, Inc., an athletic
footwear company, from March 1995 to May
1998 and Senior Vice President of Global
Sales for The Rockport Company, Inc., a
footwear company wholly owned by Reebok
International, Ltd., from September 1992
to January 1995.
Charles W. Redepenning, Jr... General Counsel, Clerk and Secretary of 44
the Company since March 1998 and
President of Stride Rite International
Corp. since December 1999. Prior to
joining the Company, Mr. Redepenning was
Senior Vice President, General Counsel
and Secretary of Daka International,
Inc., a multi-national food service and
restaurant corporation, from 1989 to
1998.
Gerrald B. Silverman......... President, Stride Rite Children's Group, 42
Inc., since September 1999. Previous to
this position, Mr. Silverman was Senior
Vice President of The Keds Corporation
from January 1996 to September 1999 and
President of Stride Rite International
Corp. since joining the Company in April
1994.
7
Name Position with Company Age
---- --------------------- ---
Richard T. Thornton.. President, Tommy Hilfiger Footwear, Inc., since 47
January 2001. Previously, Mr. Thornton was Vice
President--Operations of the Company from August
1999 to December 2000, and was Senior Vice
President--Finance, Operations and Merchandising
of Tommy Hilfiger Footwear, Inc. from September
1998 to August 1999. Prior to joining the
Company, Mr. Thornton was Vice President,
Finance, at the Greg Norman division of Reebok
International, Ltd. from December 1997 to August
1998, Vice President of Operations of BMB
Associates, a computer company, from March 1997
to December 1997, and General Manager of Boston
Whaler from September 1984 to March 1997.
These executive officers are generally elected at the Board of Directors'
meeting held in conjunction with the Company's Annual Meeting and serve at the
pleasure of the Board.
Item 2. Properties
The Company owns an automated distribution center located in Louisville,
Kentucky with 520,000 square feet of space and a distribution center located in
Huntington, Indiana with 409,000 square feet of space. The Company leases
approximately 18,000 square feet of space in Wilmington, Massachusetts for
product sample distribution and customer returns processing. The Company's
Canadian subsidiary leases approximately 30,000 square feet for administrative
offices and warehousing in Mississauga, Ontario.
The Company leases approximately 163,000 square feet for its headquarters
and administrative offices in Lexington, Massachusetts in a single tenant
office building. The Company also leases 24,000 square feet of space in
Richmond, Indiana for its customer service, order processing and telemarketing
functions, and 25,000 square feet of space for its liaison offices in Mainland
China and Taiwan. In addition, the Company leases smaller facilities for local
sales offices and showrooms in various locations in the United States.
At December 1, 2000, the Company operated 155 retail stores throughout the
country on leased premises that, in the aggregate, covered approximately
259,000 square feet of space. The Company also operates 46 children's footwear
departments in certain divisions of Federated Department Stores. In addition,
the Company is the lessee of 13 retail locations with a total of approximately
16,000 square feet that are subleased to independent Stride Rite dealers and
other tenants.
For further information concerning the Company's lease obligations, see Note
8 to the Company's consolidated financial statements, which are contained in
Item 8 below. Management believes that all properties and facilities of the
Company are suitable, adequate and fit for their intended purposes.
Item 3. Legal Proceedings
The Company is a party to various litigations arising in the normal course
of business. Management of the Company does not believe the ultimate resolution
of such litigations will have a material adverse effect on the Company's
financial position or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
None
8
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
The Stride Rite Corporation's Common Stock is listed on the New York Stock
Exchange (the "NYSE") under the symbol "SRR". The following table sets forth
the high and low closing sales prices on the NYSE--Composite Tape. As of
February 8, 2001 the Company had approximately 4,200 shareholders of record.
COMMON STOCK PRICES
2000 1999
-------------- ----------------
Fiscal Quarter High Low High Low
-------------- ------ ------- ------- --------
1st........................................ 6 5/8 5 11 7/16 7 13/16
2nd........................................ 8 9/16 5 3/8 13 1/4 10 3/8
3rd........................................ 6 3/4 5 13/16 11 9/16 8 1/8
4th........................................ 6 1/16 4 15/16 9 6 1/8
The Company has paid a quarterly dividend of $.05 per share of Common Stock
during its two most recent fiscal years.
Item 6. Selected Financial Data
The selected financial data for the Company, for the years ended November
29, 1996 through December 1, 2000, set forth below, should be read in
conjunction with the Consolidated Financial Statements and the notes thereto
and the other information contained elsewhere in this report.
1996 1997 1998 1999(2) 2000(3)
-------- -------- -------- -------- --------
Operating Results(1)
Net sales................... $448,297 $515,728 $539,413 $572,696 $548,334
Net income.................. 2,499 19,780 21,052 26,424 25,193
Common stock dividends...... 9,923 9,630 9,401 9,209 8,530
Per common share:
Net income................ .05 .40 .44 .57 .58
Cash dividends............ .20 .20 .20 .20 .20
Financial Position(1)
Working capital............. 201,597 176,263 173,502 166,551 158,175
Total assets................ 364,330 343,918 335,496 346,192 352,473
Stockholders' equity........ 261,524 242,026 244,727 250,495 249,592
Book value per common
share...................... 5.27 5.12 5.28 5.61 6.00
Statistics(1)
Return on average equity.... 0.9% 7.8% 8.5% 10.4% 10.0%
Return on sales............. 0.6% 3.8% 3.9% 4.6% 4.6%
Common shares outstanding at
end of year................ 49,667 47,316 46,381 44,634 41,591
Number of employees at end
of year.................... 3,500 2,900 2,400 2,300 2,200
Number of shareholders...... 4,800 5,100 4,800 4,600 4,200
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(1) Financial data is in thousands, except for per share information.
(2) 1999 amounts include nonrecurring charges of $3,254,000 ($2,017,000 net of
income taxes or $.04 per share).
(3) 2000 amounts include income of $396,000 related to the reversal of prior
year accruals for nonrecurring charges ($249,000 net of income taxes or
less than $.01 per share).
9
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Overview
The table below and the paragraphs which follow summarize the Company's
performance in the last three fiscal years. The Company operates within a very
competitive industry. Portions of the information presented in this Annual
Report include "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Forward-looking statements involve
risks, uncertainties and assumptions (detailed from time to time in the
Company's filings with the Securities and Exchange Commission), and are not
guarantees of future performance, which may be affected by various trends and
factors that are beyond the Company's 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 the Company's results are as follows: general
economic conditions, sudden changes in consumer trends, changes in consumer
spending patterns, consumer preference changes for the products of existing
competitors, the arrival of new competitors, delays in the launch of new
product lines, revenues from new product lines falling short of expectations,
delays in opening of new stores, unexpected store closings by large department
stores, new retail concepts not producing intended results, difficulties in
forecasting operating results due to the cancellation of advance orders by
retailers, the variability of reorder demand for the Company's products, the
retention of major licensed brands and possible disruptions in overseas
production. The risks listed here are not exhaustive and should be considered
with those detailed in the Company's filings with the Securities and Exchange
Commission.
Percent
Change
-----------
2000 1999
Vs. Vs.
Increase (decrease) 1999 1998
------------------- ---- ----
Net sales..................................................... (4.3)% 6.2%
Gross profit.................................................. (5.8)% 10.4%
Selling and administrative expenses........................... (3.5)% 3.4%
Operating income.............................................. (6.5)% 37.6%
Income before income taxes.................................... (6.0)% 28.4%
Net income.................................................... (4.7)% 25.5%
Percent to Net
Sales
-----------------
2000 1999 1998
---- ---- ----
Gross profit............................................ 36.2 % 36.8% 35.4%
Selling and administrative expenses..................... 29.3 % 29.1% 29.9%
Nonrecurring charges (income)........................... (0.1)% 0.6% --
Operating income........................................ 6.9 % 7.1% 5.5%
Income before income taxes.............................. 7.3 % 7.4% 6.2%
Net income.............................................. 4.6 % 4.6% 3.9%
Net Sales
During fiscal 2000, consolidated net sales decreased $24.4 million to $548.3
million or 4.3% below the sales level achieved in fiscal 1999, which included
53 weeks due to the Company's fiscal calendar. Sales of the Company's branded
wholesale operations decreased 6.5% in fiscal 2000. Unit shipments of current
line merchandise during 2000 for the wholesale brands of the Company were 2%
lower than the prior year, while average selling prices declined 3% from 1999.
Sales of discontinued products in 2000 were 8% above last year. In fiscal 2000,
the retail portion of the Stride Rite children's business saw higher sales, as
improved results and new stores produced a 6.5% sales increase above last
year's total, despite the extra week in fiscal 1999.
The Stride Rite brand was the only portion of the Company to produce higher
sales during fiscal 2000. Sales of the Stride Rite Children's Group increased
3% during fiscal 2000 with all of the growth produced by
10
the Company's retail stores. After adjusting for the extra week in fiscal 1999
which added $1.6 million to last year's sales, total retail sales at company-
owned stores increased 8% during fiscal 2000. Sales at comparable (stores open
for 52 weeks in each fiscal year), company-owned retail stores increased 3.2%
during 2000, following a 3.7% comparable store sales increase in fiscal 1999.
The Company opened 24 retail stores in fiscal 2000 and closed 15 unproductive
stores during the year to leave the year-end store count at 201 stores, up 5%
from the 192 stores which were open as of December 3, 1999. In fiscal 2000, the
Company's Stride Rite concept stores and manufacturers' outlets represented
approximately 52% of the Children's Group's sales with the remaining revenues
related to sales of Stride Rite brand products to independent specialty stores
and department stores. The Company's retail stores should take on increased
importance in future years with current plans calling for the opening of
approximately 25 new stores during fiscal 2001. The Keds brand went through a
major strategy shift and product line transition during fiscal 2000. Sales of
Keds products decreased 5% in fiscal 2000 with children's sales down 9% from
1999 and women's sales below last year by 7%. During the year, the Keds brand
exited several basic women's product lines, the largest being Keds Ready to
Wear(TM), resulting in a $13 million sales decrease. Sales of the Keds
Champion(R) Oxford, which peaked in the early 1990's, also continued to
decline, finishing 21% below the 1999 sales level. These sales decreases were
partially offset by increased sales of Keds Stretch(TM) products and higher
sales of discontinued styles due to the product line transition. Sales of the
Tommy Hilfiger footwear brand decreased 12% in fiscal 2000, primarily due to a
9% reduction in average selling prices and increased sales allowances. Unit
shipments of Hilfiger products during fiscal 2000 were slightly higher than in
fiscal 1999. In fiscal 2000, sales of the Tommy Hilfiger men's and women's
product lines declined 25% and 2%, respectively, while the introduction of
Tommy footwear for girls pushed sales of the children's product line up 3% from
the 1999 level. Sales of the Sperry brand also decreased in fiscal 2000, off 4%
as compared to the 1999 level. International division revenues in fiscal 2000
were lower than 1999 by $2.4 million or 10% due to lower royalties from sales
in Japan and the conversion of certain distributors in South America to license
arrangements.
In fiscal 1999, consolidated net sales increased $33.3 million or 6.2% from
the sales level achieved in fiscal 1998 with sales of the Company's wholesale
brands up 5.7% and sales of company-owned retail stores above 1998 by 9%. Unit
shipments of current line merchandise were slightly higher during 1999, while
average selling prices increased 6% from 1998. The sales increase in fiscal
1999 was driven by the Tommy Hilfiger brand with sales up 51% from fiscal 1998
as the Tommy women's product line experienced its first full year of selling.
Sales of the Keds brand decreased 1% in fiscal 1999 as the sales from the
introduction of the Keds Stretch(TM) product concept were not sufficient to
offset a 42% decline in sales of the Keds Champion(R) Oxford and lower revenues
from the Keds Ready to Wear(TM) product line. Sales of the Stride Rite
Children's Group increased 1% in fiscal 1999 with a 9% sales increase at
company-owned retail stores offsetting a 5% decline in sales of Stride Rite
brand products to independent retailers. The extra week in fiscal 1999 due to
the Company's fiscal calendar added approximately $1.6 million to the retail
sales total. Sales at comparable, company-owned retail stores increased 3.7% in
fiscal 1999, excluding the impact of the extra week. This performance followed
a 6.7% comparable store sales increase in 1998. In fiscal 1999, sales of the
Sperry brand increased 15% due to a stronger men's casual product line, while
International division sales declined $5.2 million or 17%.
Gross Profit
The Company's gross profit in fiscal 2000 totaled $198.4 million, a decrease
of $12.1 million or 5.8% below fiscal 1999. In 2000, the Company's consolidated
gross profit percent of 36.2% was 0.6 percentage points below the 36.8% rate
achieved in fiscal 1999. The Company's LIFO provision had an unfavorable impact
on gross profit comparisons, accounting for 0.5 percentage points of the
reduced profitability. In fiscal 2000, LIFO reduced gross profit by $0.6
million (0.1% of net sales), while product cost reductions in fiscal 1999
helped to produce a LIFO benefit of $2.3 million (0.4% of net sales). Increased
obsolescence charges, retail markdowns and sales allowances had a negative
impact on the Company's gross profit performance in fiscal 2000 with these
costs reducing the gross profit percent by an additional 1.7 percentage points
in 2000 as compared to fiscal 1999. The additional costs in 2000 were primarily
caused by the Keds product transition and
11
the disappointing retail performance of the Tommy Hilfiger product line. Fiscal
2000's gross profit performance was favorably impacted by sales increases from
company-owned retail stores, which generally produce a higher gross profit
percentage than the Company's wholesale brands. The Company's retail operations
represented 18.9% of consolidated net sales in fiscal 2000 as compared to 17%
of total sales in fiscal 1999.
In fiscal 1999, gross profit increased $19.8 million or 10.4% from fiscal
1998. The Company's 1999 gross profit rate improved 1.4 percentage points to
36.8% compared to the 35.4% rate achieved in fiscal 1998. In fiscal 1999, the
Company's gross profit performance benefited from an improved gross profit rate
on current merchandise, increased retail sales and lower inventory obsolescence
charges due to the absence of $3.7 million of inventory writedowns related to
the termination of the Levi's footwear license in October 1998. The Company's
LIFO provision had a favorable effect on gross profit in each year, increasing
gross profit by $2.3 million (0.4% of net sales) in 1999 and by $3.7 million
(0.7% of net sales) in fiscal 1998.
Operating Costs
Selling and administrative expenses (excluding nonrecurring items) in fiscal
2000 decreased $5.8 million to $160.9 million or 3.5% below the expense level
incurred in fiscal 1999. As a percentage of net sales, selling and
administrative costs were 29.3% in 2000 compared to 29.1% in fiscal 1999. The
restructuring actions completed in August 1999, which reduced annual operating
costs by approximately $8.5 million by eliminating approximately 125 positions
from the Company's administrative staff, were a major contributing factor to
the lower expenses in fiscal 2000. In addition, marketing and advertising costs
in fiscal 2000 were $4.1 million or 10.9% below the spending level in fiscal
1999 due to lower contractual payments in the Tommy Hilfiger footwear business
and lower expenses related to the Keds brand. Marketing and advertising costs
represented 6.1% of net sales in fiscal 2000, down from 1999's spending rate of
6.5% of sales. Retail store expenses in fiscal 2000 increased $3.4 million from
fiscal 1999 as the Company accelerated its pace of store openings during the
year. Spending on information systems increased 4% from the fiscal 1999 total
as the Company began to amortize the cost of a new customer order management
system, which was successfully installed during the year. In connection with
the restructuring actions taken in fiscal 1999, the Company recorded
nonrecurring charges of $3.3 million to cover severance and other costs. Income
in the fourth quarter of fiscal 2000 included a credit of $0.4 million related
to the reversal of unused accruals from the 1999 nonrecurring charge.
Operating costs in fiscal 1999 increased $5.4 million or 3.4% above the
expense level incurred in fiscal 1998. As a percentage of sales, selling and
administrative costs were 29.1% in 1999 compared to 29.9% in 1998. Higher
marketing and advertising expenses accounted for more than half of the
increased costs in fiscal 1999 with spending up $2.9 million or 8.4% from the
1998 total. Marketing expenses related to the Tommy Hilfiger women's product
line and the Keds national television campaign, which supported the Keds
Stretch(TM) product launch, were the primary reasons for the higher advertising
spending in fiscal 1999. Increased retail store expenses ($2.6 million), higher
distribution costs ($2 million) due to the outsourcing of certain warehousing
functions, and additional information systems costs ($1.7 million) contributed
to the higher spending level in fiscal 1999. Cost savings measures, including
the August 1999 restructuring actions, undertaken by the Company during fiscal
1999 offset a portion of these higher expenses.
Other Income and Taxes
Non-operating income (expense) increased the Company's pre-tax earnings by
$2.1 million in fiscal 2000 compared to increases of $2 million in fiscal 1999
and $3.7 million in fiscal 1998. Investment income decreased by $0.4 million in
2000. Investment income in 1999 increased $1.1 million from 1998 as the funds
available for investment during the year were 10% higher than in fiscal 1998.
Interest expense in fiscal 2000 increased $0.1 million as higher interest rates
during the year offset a 15% reduction in average borrowings. In fiscal 1999,
interest expense was flat compared to fiscal 1998. The average interest rate
during fiscal 2000 was 6.9%, above the average interest rates of 6.2% in fiscal
1999 and 6.4% in fiscal 1998. In fiscal 2000, other income and expense items
decreased pre-tax income by $0.2 million, compared to a decrease of $0.9
million in
12
fiscal 1999 and an increase of $1.8 million in 1998. In 1998, other income
included a gain of $3.9 million from the sale of the Company's former
distribution facility in Boston, Massachusetts. Expenses associated with a
company-owned life insurance program reduced income in all three years.
In fiscal 2000, the provision for income taxes decreased $1.3 million to
$14.9 million due to a lower effective income tax rate and the 6% reduction in
pre-tax income. The provision for income taxes increased $4.1 million in fiscal
1999 as compared to 1998, an increase consistent with the higher pre-tax
earnings. The Company's effective income tax rate was 37.2% in 2000, 38.1% in
1999, and 36.6% in 1998.
Net Income
The Company earned $25.2 million in fiscal 2000, below fiscal 1999's net
income by $1.2 million or 4.7%. Excluding the nonrecurring items related to the
restructuring of the Company's administrative staff in fiscal 1999, net income
decreased 12% from last year, $24.9 million in fiscal 2000 compared to $28.4
million in 1999. The reduced earnings in fiscal 2000 resulted from the lower
level of net sales and the reduced gross profit percent during the year. In
fiscal 1999, the increased earnings were driven principally by the significant
improvement in profitability of the Tommy Hilfiger brand as compared to 1998,
as well as the closure of the Levi's footwear brand. The Company's after-tax
return on sales finished at 4.6% in both 2000 and 1999, above the 3.9% return
in 1998.
Liquidity and Capital Resources
At the end of fiscal 2000, the Company's balance sheet reflected a current
ratio of 2.6 with no long-term debt. The Company's cash and short-term
investments totaled $63 million at December 1, 2000, up $5.8 million from the
total cash and short-term investments of $57.2 million at the end of fiscal
1999. In addition, other assets included $12.2 million in 2000 and $11.2
million in 1999 of investments in intermediate-term, fixed income instruments.
During fiscal 2000, the Company's operations generated $30.2 million,
following operating cash flows of $60.2 million in fiscal 1999 and $21.7
million in fiscal 1998. The Company continued to make significant progress in
lowering the inventory levels required to support its business. Year-end
inventories totaled $105.9 million in 2000, a decline of $15.3 million or 12.6%
from the 1999 year-end level, with the largest reduction occurring in the Keds
brand, down 30% from 1999. The inventory reduction in fiscal 2000 followed a
decrease of $7.3 million in 1999. During fiscal 2000, the Company's inventory
turnover averaged 3.8 times compared to turnover rates of 3.2 in 1999 and 3.0
in 1998. As of December 1, 2000, accounts receivable totaled $54.4 million,
above the 1999 year-end level by $6.9 million or 14.5%. This increase followed
an accounts receivable decline of $9 million during fiscal 1999. The higher
year-end level of accounts receivable in 2000 was impacted to some extent by
the mix of sales among the various wholesale brands, as well as a general
slowdown of payment practices by larger retail customers in the second half of
fiscal 2000. At December 1, 2000, the Company's average day's sales outstanding
(DSO) totaled 52 days, unfavorable compared to the 1999 year-end statistic of
45 days, but comparable to the DSO of 52 days in 1998.
Additions to property and equipment totaled in $21.6 million in fiscal 2000
compared with $19.9 million in fiscal 1999 and $17.3 million in fiscal 1998.
Capital expenditures in 2000 included $9.1 million related to computer systems
as the Company continued its efforts to upgrade information systems
capabilities with the most significant project being a new customer order
management system that was completed during fiscal 2000. The Company also
expended $5.5 million in fiscal 2000 to expand its Huntington, Indiana
distribution facility. The additional capacity allowed the Company to transfer
the distribution for its Sperry brand to the Indiana facility during the fourth
quarter of fiscal 2000 and to terminate a higher-cost outsourcing arrangement.
In fiscal 2000, capital spending related to retail stores totaled $4.2 million
compared to retail expenditures of $3.0 million in 1999 and $2.7 million in
1998. During fiscal 2000, the Company opened 24 new retail stores compared to
16 store openings in 1999. The Company also closed 15 underperforming retail
locations in 2000. Going forward, the Company will continue to focus its
efforts on improving retail profitability by critically
13
evaluating underperforming locations and opening new Stride Rite concept stores
and manufacturers' outlets, where appropriate. In fiscal 2001, the Company
expects capital expenditures to be approximately $15 million. The Company
expects to open approximately 25 new stores in fiscal 2001 and also to test a
Keds retail store concept in four locations during the year. Funding for
capital expenditures will generally be provided from internal sources.
The Company returned $26.7 million to shareholders during fiscal 2000
through share repurchases and cash dividends. The Company expended $18 million
in 2000 to repurchase 3.1 million common shares under its share repurchase
program. Over the three-year period ended December 1, 2000, the Company
repurchased a total of 6.4 million common shares at an aggregate cost of $43.7
million. As of December 1, 2000, the Company has 2.1 million shares remaining
on its share repurchase authorization that the Board of Directors refreshed in
December 1999. The Company has paid a dividend to shareholders each quarter
since it became a public company in 1960. Cash used for dividends decreased to
$8.7 million in 2000 compared to $9.3 million in 1999 and $9.4 million in 1998
as a result of the reduction in outstanding shares. Funds for these stock
repurchases and dividends were provided from internal sources.
In addition to internal sources of capital, the Company maintains bank lines
of credit to satisfy any seasonal borrowing requirements that may be imposed by
the sales patterns which are characteristic of the footwear industry. During
fiscal 2000, the Company entered into a three-year, revolving credit agreement
with five banks providing for loans of up to $75 million. The revolving credit
agreement requires the Company to meet certain financial ratios and covenants
and to maintain a minimum consolidated tangible net worth. At year-end 2000,
the Company's borrowings under this credit line totaled $24 million, leaving
$51 million available for additional borrowings. During fiscal 2000, the
Company's borrowings averaged $23.4 million compared to the average borrowings
of $27.7 million in 1999 and $26.7 million in 1998.
Recent Accounting Pronouncements
Recent accounting pronouncements, which may impact the Company's financial
statements in the future, are described in Note 15 to the consolidated
financial statements.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 8. Financial Statements and Supplementary Data
The information required by this item is included on pages F-1 through F-19
and pages S-1 through S-2 hereto. An index to the Financial Statements appears
in Item 14 of this Annual Report on Form 10-K.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
14
PART III
Item 10. Directors and Executive Officers of the Registrant
Reference is made to the information set forth under the caption "Executive
Officers of the Registrant" in Item 1 of Part I of this report and to
information under the captions "Information as to Directors and Nominees for
Director" and "Meetings of the Board of Directors and Committees" in the
Registrant's definitive proxy statement relating to its 2001 Annual Meeting of
Stockholders, which will be filed with the Commission within 120 days after the
close of the Registrant's fiscal year ended December 1, 2000, all of which
information is incorporated herein by reference.
Item 11. Executive Compensation
Reference is made to the information set forth in the Registrant's
definitive proxy statement relating to its 2001 Annual Meeting of Stockholders
under the caption "Executive Compensation", which will be filed with the
Commission within 120 days after the close of the Registrant's fiscal year
ended December 1, 2000, which information is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Reference is made to the information set forth under the caption "Ownership
of Equity Securities" in the Registrant's definitive proxy statement relating
to its 2001 Annual Meeting of Stockholders, which will be filed with the
Commission within 120 days after the close of the Registrant's fiscal year
ended December 1, 2000, which information is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
None.
15
PART IV
Item 14. Exhibits, Financial Statements, Schedules and Reports on Form 8-K
(a)1. Financial Statements. The following financial statements and financial
statement schedules are contained herein or are incorporated herein:
Page
-----------
Consolidated Balance Sheets as of December 1, 2000 and December 3,
1999............................................................. F-1
Consolidated Statements of Income for the fiscal years ended
December 1, 2000, December 3, 1999 and November 27, 1998......... F-2
Consolidated Statements of Cash Flows for the fiscal years ended
December 1, 2000, December 3, 1999 and November 27, 1998......... F-3
Consolidated Statements of Changes in Stockholders' Equity for the
fiscal years ended December 1, 2000, December 3, 1999 and
November 27, 1998................................................ F-4
Notes to Consolidated Financial Statements........................ F-5 to F-17
Management's Report on Financial Condition........................ F-18
Report of Independent Accountants................................. F-19
(a)2. Financial Statement Schedule for the fiscal years ended December 1,
2000, December 3,
1999 and November 27, 1998:
Report of Independent Accountants on Financial Statement
Schedule......................................................... S-1
Schedule II--Valuation and Qualifying Accounts.................... S-2
Schedules other than those listed above are omitted because they are either
not required or the information is otherwise included.
(a)3. Exhibits. The following exhibits are contained herein or are
incorporated herein by reference:
Exhibit No. Description of Exhibit
----------- ----------------------
3(i) Restated Articles of Organization of the Registrant with
amendments thereto through November 28, 1986, incorporated by
reference from Exhibit 4(i) to the Registrant's Form S-8 filed on
October 25, 1996.
(ii) Articles of Amendment dated April 7, 1987 to Restated Articles of
Organization, incorporated by reference from Exhibit 4(i) to the
Registrant's Form S-8 filed on October 25, 1996.
(iii) Articles of Amendment dated December 16, 1987 to Restated Articles
of Organization of the Registrant, incorporated by reference from
Exhibit 4(i) to the Registrant's Form S-8 filed on October 25,
1996.
(iv) Articles of Amendment dated December 3, 1991 to the Restated
Articles of Organization of the Registrant, incorporated by
reference from Exhibit 4(i) to the Registrant's Form S-8 filed on
October 25, 1996.
(v) Certificate of Vote of Directors establishing a series of a Class
of Stock dated as of June 18, 1997.
(vi) By-laws of the Registrant, as amended. This document was filed as
Exhibit 3 of the Registrant's Form 10-Q for the fiscal period
ended June 1, 1990 and is incorporated herein by reference.
4(i) Reference is made to Exhibits 3(i), (ii), (iii) and (iv) referred
to above, which are expressly incorporated herein by reference.
16
Exhibit No. Description of Exhibit
----------- ----------------------
(ii) Rights Agreement dated June 18, 1997 between the Registrant and
BankBoston, N.A. This document was filed as Exhibit 1 to the
Registrant's Form 8-A dated July 1, 1997 and is incorporated
herein by reference.
10(i)* 1975 Executive Incentive Stock Purchase Plan of the Registrant.
This document was filed as Appendix A to the Registrant's
Prospectus relating to such Plan, dated April 18, 1986, which was
filed with the Commission pursuant to Rule 424(b) promulgated
under the Securities Act of 1933, as amended, and is incorporated
herein by reference.
(ii)* 1995 Long-Term Growth Incentive Plan of the Registrant. This
document was filed as Exhibit 10(vi) to the Registrant's Form 10-K
for the year ended December 2, 1994 and is incorporated herein by
reference.
(iii)* Form of executive termination agreement dated as of February 12,
1998. This document was filed as Exhibit 10(iii) to the
Registrant's Form 10-K for the year ended November 28, 1997 and is
incorporated herein by reference.
(iv)* Form of executive termination agreement dated as of February 12,
1998. This document was filed as Exhibit 10(iv) to the
Registrant's Form 10-K for the year ended November 28, 1997 and is
incorporated herein by reference.
(v)* Form of severance agreement dated February 22, 1995. This document
was filed as Exhibit 10(vi) to the Registrant's Form 10-K for the
year ended November 28, 1997 and is incorporated herein by
reference.
(vi)* Annual Incentive Compensation Plan amended and restated as of
December 11, 1997. This document was filed as Exhibit 10(viii) to
the Registrant's Form 10-K for the year ended November 28, 1997
and is incorporated herein by reference.
(vii)* 1998 Stock Option Plan of the Registrant (as amended). This
document was filed as Exhibit 10(xi) to the Registrant's Form 10-K
for the year ended November 27, 1998 and is incorporated herein by
reference.
(viii)* 1998 Non-Employee Director Stock Ownership Plan of the Registrant
(as amended). This document was filed as Exhibit 10(xii) to the
Registrant's Form 10-K for the year ended November 27, 1998 and is
incorporated herein by reference.
(ix)* Senior Executive Annual Incentive Compensation Plan of the
Registrant. This document was filed as Exhibit 10(xi) to the
Registrant's Form 10-K for the year ended November 28, 1997 and is
incorporated herein by reference.
(x)* Employment Agreement between the Registrant and David M.
Chamberlain dated November 4, 1999. This document was filed as
Exhibit 10(xi) to the Registrant's Form 10-K for the year ended
December 3, 1999 and is incorporated herein by reference.
(xi) Revolving Credit Agreement between the Registrant and BankBoston,
N.A., Bank of America, N.A., Bank One, NA, SunTrust Bank, The Bank
of New York, and BankBoston, N.A. with BancBoston Robertson
Stephens Inc., dated as of January 19, 2000. This document was
filed as Exhibit 10(xii) to the Registrant's Form 10-K for the
year ended December 3, 1999 and is incorporated herein by
reference.
(xii) Amended and Restated License Agreement between Registrant and
Tommy Hilfiger Licensing, Inc. This document was filed as Exhibit
10(xiii) to the Registrant's Form 10-K for the year ended December
3, 1999 and is incorporated herein by reference.
21 Subsidiaries of the Registrant
23 Consent of Independent Accountants
17
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended December 1,
2000.
- --------
*Denotes a management contract or compensatory plan or arrangement.
18
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized.
THE STRIDE RITE CORPORATION
/s/ David M. Chamberlain
_____________________________________
David M. Chamberlain
Chairman of the Board of Directors
and Chief Executive Officer
/s/ John M. Kelliher
_____________________________________
John M. Kelliher
Chief Financial Officer
(Principal Accounting Officer)
Date: February 8, 2001
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ David M. Chamberlain Chairman of the Board of February 8, 2001
______________________________________ Directors and Chief
David M. Chamberlain Executive Officer
/s/ Christine Cournoyer Director February 8, 2001
______________________________________
Christine Cournoyer
/s/ Donald R. Gant Director February 8, 2001
______________________________________
Donald R. Gant
/s/ Peter L. Harris Director February 8, 2001
______________________________________
Peter L. Harris
/s/ Frank R. Mori Director February 8, 2001
______________________________________
Frank R. Mori
/s/ Myles J. Slosberg Director February 8, 2001
______________________________________
Myles J. Slosberg
/s/ Diane M. Sullivan President, Chief Operating February 8, 2001
______________________________________ Officer and Director
Diane M. Sullivan
/s/ W. Paul Tippett, Jr. Director February 8, 2001
______________________________________
W. Paul Tippett, Jr.
/s/ Bruce Van Saun Director February 8, 2001
______________________________________
Bruce Van Saun
19
THE STRIDE RITE CORPORATION
CONSOLIDATED BALANCE SHEETS
2000 1999
--------- ---------
(In thousands,
except for share
data)
ASSETS
Current Assets:
Cash and cash equivalents.............................. $ 62,976 $ 57,186
Accounts and notes receivable, less allowances of
$12,665 in 2000 and $9,951 in 1999.................... 54,375 47,478
Inventories............................................ 105,917 121,167
Deferred income taxes.................................. 25,494 26,303
Prepaid expenses....................................... 6,365 4,895
--------- ---------
Total current assets................................. 255,127 257,029
Property and equipment, net............................ 76,240 67,425
Other assets, net...................................... 20,250 20,765
Goodwill, net.......................................... 856 973
--------- ---------
Total assets......................................... $ 352,473 $ 346,192
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Short-term debt........................................ 24,000 --
Accounts payable....................................... 32,570 41,557
Income taxes payable................................... 18,716 22,059
Accrued expenses and other liabilities................. 21,666 26,862
--------- ---------
Total current liabilities............................ 96,952 90,478
Deferred income taxes.................................. 5,929 5,219
Stockholders' Equity:
Preferred stock, $1 par value--1,000,000 shares
authorized; Issued--none.............................. -- --
Common stock, $.25 par value--135,000,000 shares
authorized;
Issued--56,946,544.................................... 14,237 14,237
Capital in excess of par value......................... 20,276 20,738
Retained earnings...................................... 371,821 355,158
--------- ---------
406,334 390,133
Less cost of 15,355,693 shares of common stock held in
treasury (12,312,461 in 1999)......................... (156,742) (139,638)
--------- ---------
Total stockholders' equity........................... 249,592 250,495
--------- ---------
Total liabilities and stockholders' equity........... $ 352,473 $ 346,192
========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
F-1
THE STRIDE RITE CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
Years Ended
----------------------------
2000 1999 1998
-------- -------- --------
(In thousands, except
for per share data)
Net sales....................................... $548,334 $572,696 $539,413
Cost of sales................................... 349,891 362,108 348,587
Selling and administrative expenses............. 160,854 166,689 161,279
Nonrecurring charges (income)................... (396) 3,254 --
-------- -------- --------
Operating income................................ 37,985 40,645 29,547
Investment income............................... 4,242 4,657 3,635
Interest expense................................ (1,881) (1,760) (1,730)
Other income (expense), net..................... (244) (886) 1,770
-------- -------- --------
Income before income taxes...................... 40,102 42,656 33,222
Provision for income taxes...................... 14,909 16,232 12,170
-------- -------- --------
Net income ..................................... $ 25,193 $ 26,424 $ 21,052
======== ======== ========
Net income per common share:
Diluted....................................... $ .58 $ .57 $ .44
======== ======== ========
Basic......................................... $ .59 $ .57 $ .45
======== ======== ========
Average common shares used in per share
computations:
Diluted....................................... 43,154 46,414 47,335
======== ======== ========
Basic......................................... 42,991 46,214 47,074
======== ======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
F-2
THE STRIDE RITE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended
----------------------------
2000 1999 1998
-------- -------- --------
(In thousands)
Cash was provided from (used for):
Operations:
Net income...................................... $ 25,193 $ 26,424 $ 21,052
Adjustments to reconcile to net cash provided
from operations:
Depreciation and amortization.................. 12,252 10,061 9,384
Deferred income taxes.......................... 1,519 (2,368) 3,793
Compensation expense (income) related to stock
plans......................................... (549) 621 112
Equity in loss (earnings) of affiliate......... 978 1,449 (813)
Gain related to long-term investments.......... (138) (265) (58)
Loss (gain) on disposals of property and
equipment..................................... 831 1,072 (3,199)
Changes in:
Accounts and notes receivable................. (6,897) 8,997 (4,767)
Inventories................................... 15,250 7,305 6,256
Prepaid expenses.............................. (1,470) 1,202 (975)
Long-term notes receivable.................... 31 120 92
Accounts payable, income taxes, accrued
expenses and other current liabilities....... (16,757) 5,603 (9,207)
-------- -------- --------
Net cash provided from operations............ 30,243 60,221 21,670
-------- -------- --------
Investments:
Short-term investments.......................... -- -- 9,417
Additions to property and equipment............. (21,595) (19,951) (17,323)
Proceeds from sales of property and equipment... -- -- 8,375
Distributions and dividends from long-term
investments ................................... 138 230 361
Purchase of noncurrent marketable securities.... (977) (755) (1,313)
Decrease (increase) in other assets............. 337 (3,858) (506)
-------- -------- --------
Net cash provided from (used for)
investments................................. (22,097) (24,334) (989)
-------- -------- --------
Financing:
Short-term borrowings........................... 24,000 -- --
Proceeds from sale of stock under stock plans... 390 1,328 1,777
Tax benefit in connection with stock plans...... -- 9 207
Repurchase of common stock...................... (18,049) (13,182) (12,453)
Cash dividends paid............................. (8,697) (9,283) (9,448)
-------- -------- --------
Net cash used for financing.................. (2,356) (21,128) (19,917)
-------- -------- --------
Net increase in cash and cash equivalents........ 5,790 14,759 764
Cash and cash equivalents at beginning of the
year............................................ 57,186 42,427 41,663
-------- -------- --------
Cash and cash equivalents at end of the year..... $ 62,976 $ 57,186 $ 42,427
======== ======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
THE STRIDE RITE CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Capital in
Common Excess of Retained Treasury
Stock Par Value Earnings Stock
------- ---------- -------- ---------
(In thousands, except for share data)
Balance, November 28, 1997............ $14,237 $22,289 $326,292 $(120,792)
Net income............................ 21,052
Issuance of 298,074 common shares
under stock plans.................... (433) 3,729
Tax benefit in connection with stock
plans................................ 207
Repurchase of 1,233,000 shares of
common stock......................... (12,453)
Cash dividends on common stock, $.20
per share............................ (9,401)
------- ------- -------- ---------
Balance, November 27, 1998............ 14,237 22,063 337,943 (129,516)
Net income............................ 26,424
Issuance of 83,720 common shares under
stock plans.......................... (230) 1,021
Issuance of 177,745 common shares
under employee stock plan............ (1,104) 2,039
Tax benefit in connection with stock
plans................................ 9
Repurchase of 2,008,400 shares of
common stock......................... (13,182)
Cash dividends on common stock, $.20
per share............................ (9,209)
------- ------- -------- ---------
Balance, December 3, 1999............. 14,237 20,738 355,158 (139,638)
Net income............................ 25,193
Issuance of 10,735 common shares under
stock plans.......................... (23) 116
Issuance of 77,133 common shares under
employee stock plan.................. (439) 829
Repurchase of 3,131,100 shares of
common stock......................... (18,049)
Cash dividends on common stock, $.20
per share............................ (8,530)
------- ------- -------- ---------
Balance, December 1, 2000............. $14,237 $20,276 $371,821 $(156,742)
======= ======= ======== =========
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
THE STRIDE RITE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Principles of Consolidation--The consolidated financial statements of The
Stride Rite Corporation include the accounts of the Company and all its wholly-
owned subsidiaries. Intercompany transactions between the Company and its
consolidated subsidiaries have been eliminated. The Company's investment in an
unconsolidated, 49.5% owned affiliate is accounted for in the consolidated
financial statements using the equity method of accounting. Under this method,
the Company's share of the affiliate's income or loss is included in the
consolidated statement of income. Earnings related to transactions between the
affiliate and the Company's consolidated subsidiaries are deferred until
merchandise is resold by those subsidiaries.
Fiscal Year--The Company's fiscal year ends on the Friday closest to
November 30 in each year. Fiscal years 2000, 1999, and 1998 ended on December
1, 2000, December 3, 1999 and November 27, 1998, respectively. The Company's
1999 fiscal year included 53 weeks.
Cash Equivalents, Short-Term Investments and Marketable Securities--Cash
equivalents represent highly liquid investments, with a maturity of three
months or less at the time of purchase. Short-term investments, representing
commercial paper with a high investment grade, bank certificates of deposit and
tax-exempt debt instruments with a maturity of between three months and one
year, are stated at cost, which, due to their short-term nature, approximates
fair value. Noncurrent marketable securities, representing funds invested in
intermediate-term, fixed income instruments with maturities greater than one
year, are stated at fair value.
Financial Instruments--Financial instruments consist principally of cash,
short-term investments, intermediate-term investments and trade receivables and
payables. The Company places its investments in highly rated financial
institutions and investment grade, short-term financial instruments, which
limits the amount of credit exposure. The Company sells footwear to numerous
retailers. Historically, the Company has not experienced significant losses
related to investments or trade receivables. The Company's exposure to foreign
exchange risk is limited through dollar denominated transactions. The only
derivative financial instruments which the Company utilizes are foreign
exchange forward contracts, which are generally immaterial. The Company does
not enter into material derivative financial instruments such as futures,
forward or option contracts. The Company calculates the fair value of all
financial instruments and includes this additional information in the
consolidated financial statements when the fair value is different from book
value. The Company uses quoted market prices, when available, to calculate
these fair values.
Inventory Valuation--Inventories are stated at the lower of cost or market.
The cost of inventories is determined on the last-in, first-out (LIFO) basis.
Property and Equipment--Property and equipment are stated at cost. The cost
of equipment includes the capitalization of certain associated computer
software costs. Depreciation, which is calculated primarily on the straight-
line method, is provided by periodic charges to expense over the estimated
useful lives of the assets. Leaseholds and leasehold improvements are amortized
over the terms of the related leases or their estimated useful lives, whichever
is shorter, using the straight-line method.
Goodwill and Trademarks--Goodwill represents the excess of the amount paid
over the fair value of net assets acquired. Trademark rights are stated at
acquisition cost. These assets are amortized on a straight-line basis primarily
over a 25-year period. The carrying value of these intangible assets is
periodically reviewed by the Company and, if necessary, impairments of values
are recognized. If there is a permanent impairment in the carrying value of
goodwill, trademarks or other intangible assets, the amount of such impairment
is computed by comparing the anticipated discounted future operating income of
the acquired business or trademark to the carrying value of the assets. In
performing this analysis, the Company considers current results and trends,
future prospects and other economic factors.
F-5
THE STRIDE RITE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Income Taxes--Deferred income taxes are provided for temporary differences
between financial and taxable income. Deferred taxes are also provided on
undistributed earnings of subsidiaries and affiliates located outside the
United States at rates expected to be applicable at the time of repatriation.
Advertising--The Company expenses advertising costs as incurred. Total
advertising expense amounted to $33,197,000, $37,270,000 and $34,385,000 for
2000, 1999 and 1998, respectively.
Estimates Included in Financial Statements--The 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 contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. 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.
Net Income per Common Share--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
fiscal years presented in the consolidated statements of income:
2000 1999 1998
------------- ------------- -------------
(In thousands, except for per share data)
Net income....................... $ 25,193 $ 26,424 $ 21,052
Weighted average common shares
outstanding (basic)............. 42,991 46,214 47,074
Dilutive effect of stock
options......................... 163 200 261
------------- ------------- -------------
Weighted average common shares
outstanding (diluted)........... 43,154 46,414 47,335
============= ============= =============
Earnings per common share:
Basic.......................... $ .59 $ .57 $ .45
Diluted........................ $ .58 $ .57 $ .44
2. Inventories
The cost of inventories, which consist primarily of finished product, at
December 1, 2000 and December 3, 1999 was determined on a last-in, first-out
(LIFO) basis. During 2000, the LIFO reserve increased by $575,000 to
$12,929,000 at December 1, 2000. The LIFO reserve decreased in 1999 and in
1998, by $2,252,000 and $3,684,000, respectively. If all inventories had been
valued on a first-in, first-out (FIFO) basis, net income would have been higher
by $362,000 (less than $.01 per share) in 2000 and would have been lower by
$1,420,000 ($.03 per share) in 1999 and $2,323,000 ($.05 per share) in 1998.
During 2000 and 1998, reductions in certain inventory quantities resulted in
the sale of products carried at costs prevailing in prior years which were
different from current costs. As a result of these inventory reductions, net
income was increased by $235,000 (less than $.01 per share) and $1,733,000
($.04 per share) in 2000 and 1998, respectively.
F-6
THE STRIDE RITE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
3. Property and Equipment
The components of property and equipment at December 1, 2000 and December 3,
1999 and the range of asset lives used in depreciation calculations for each
asset category are as follows:
Range of
Useful
Lives 2000 1999
----------- -------- --------
(In thousands)
Land and improvements...................... 10 years $ 2,635 $ 2,635
Buildings and improvements................. 10-40 years 16,573 12,542
Machinery, equipment, computer software and
fixtures.................................. 3-12 years 92,161 79,394
Leaseholds and leasehold improvements...... 5-15 years 19,470 17,085
-------- --------
130,839 111,656
Less accumulated depreciation and
amortization.............................. (54,599) (44,231)
-------- --------
$ 76,240 $ 67,425
======== ========
4. Other Assets
As of December 1, 2000 and December 3, 1999, other assets includes the
following:
2000 1999
------- -------
(In thousands)
Marketable securities....................................... $12,177 $11,200
Investment in joint venture manufacturing facility.......... 394 1,372
Trademark rights and other intangible assets, net........... 1,965 2,102
Other....................................................... 5,714 6,091
------- -------
$20,250 $20,765
======= =======
Marketable securities represent the noncurrent portion of intermediate-term,
fixed income investments. The cost basis of these investments was $12,211,000
in 2000 and $11,444,000 in 1999. Cash equivalents and short-term investments
include $203,000 in 2000 and $595,000 in 1999 representing the current portion
of this investment. During 1988 and 1989, the Company invested a total of
$1,948,000 in a joint venture, which is accounted for under the equity method,
with a foreign manufacturer to construct and operate a footwear manufacturing
facility in Thailand. The consolidated statements of income include a loss of
$978,000 in 2000, a loss of $1,449,000 in 1999, and income of $813,000 in 1998,
representing the Company's share of the joint venture's operating results in
those years.
5. Debt
The Company utilizes borrowings under available lines of credit to finance
seasonal working capital requirements. In January 2000, the Company replaced
its previously uncommitted facility by entering into a new, three-year
revolving credit agreement with five banks providing for loans of up to $75
million. Under the revolving credit agreement, the Company may borrow at
interest rates which vary with LIBOR. In addition, the agreement calls for
facility fees of .375% per annum on the committed line. The revolving credit
agreement requires the Company to meet certain financial ratios and covenants
and to maintain a minimum consolidated tangible net worth. The interest rates
and facility fees in the agreement also vary dependent on a fixed charge
coverage ratio based on the Company's cash flow results. The revolving credit
agreement also contains other covenants, which restrict the payment of
dividends and common stock repurchases to $30 million per year. During fiscal
2000, 1999, and 1998, borrowings under the revolving credit facility and
uncommitted lines
F-7
THE STRIDE RITE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
averaged $23,437,000, $27,695,000 and $26,691,000, respectively, with a maximum
amount outstanding of $64,000,000 in 2000, $68,400,000 in 1999 and $52,800,000
in 1998. The weighted average interest rate paid on these borrowings during the
year was 6.9% in 2000, 6.2% in 1999 and 6.4% in 1998. Short-term borrowings
totaling $24 million were outstanding on December 1, 2000. No short-term
borrowings were outstanding at December 3, 1999. Interest payments amounted to
$1,617,000, $1,720,000 and $1,703,000 in 2000, 1999 and 1998, respectively.
6. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities at December 1, 2000 and
December 3, 1999 consist of the following:
2000 1999
------- -------
(In thousands)
Salaries, wages and commissions............................. $ 4,508 $ 5,463
Advertising................................................. 1,952 2,779
Pensions.................................................... 2,258 3,148
Dividends................................................... 2,080 2,247
Nonrecurring charges........................................ -- 1,517
Other liabilities........................................... 10,868 11,708
------- -------
$21,666 $26,862
======= =======
7. Nonrecurring Charges
In the third quarter of fiscal 1999, the Company recorded pre-tax
nonrecurring charges of $3,254,000 ($.04 per share after tax) related to a
restructuring of its administrative staff that was implemented to competitively
position itself for future expansion and increased profitability. Certain
merchandising, finance and operations functions were shifted from divisional to
centralized responsibility, resulting in termination of 75 associates and the
elimination of 50 unfilled positions from the Company's administrative staff.
The nonrecurring charges during 1999 included $2,358,000 related to severance
payments, $637,000 of other employee related costs and $259,000 of other costs
associated with the restructuring. During fiscal 2000, the Company paid
$1,121,000 of costs related to the restructuring actions taken in fiscal 1999.
In the fourth quarter of fiscal 2000, the Company recorded income of $396,000
($249,000 after tax or less than $.01 per share) related to the reversal of
prior year restructuring accruals.
In 1992 and 1995, the Company incurred nonrecurring charges related to
several major initiatives to reduce future operating costs and to realign
certain product lines and business units. The actions included the shift of the
Company's distribution functions to new facilities, the closure of domestic
manufacturing facilities, the shutdown of underperforming retail locations and
the elimination of certain administrative positions. During 1997 and 1998,
these restructuring actions were completed and the final costs related to these
initiatives were charged against the liabilities accrued in earlier years.
The following table summarizes activity during the three years ended
December 1, 2000 with respect to nonrecurring charges:
2000 1999 1998
------- ------- -------
(In thousands)
Balance at beginning of year...................... $ 1,517 -- $ 5,816
Nonrecurring charges (income)..................... (396) 3,254 --
Amounts charged against accrual................... (1,121) (1,737) (5,816)
------- ------- -------
Balance at end of year............................ -- $ 1,517 --
======= ======= =======
F-8
THE STRIDE RITE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
8. Leases
The Company leases office and retail store space and certain equipment. A
portion of the retail store space is sublet. Some of the leases have provisions
for additional rentals based on increased property taxes and the leases for
retail store space generally require additional rentals based on sales volume
in excess of certain levels. Some leases have renewal options.
Rent expense for operating leases for the three years in the period ended
December 1, 2000 was as follows:
2000 1999 1998
------- ------- -------
(In thousands)
Base rent......................................... $19,535 $18,011 $17,090
Additional rent................................... 1,321 1,364 1,091
Less rental from subleases........................ (570) (826) (1,051)
------- ------- -------
$20,286 $18,549 $17,130
======= ======= =======
The future minimum rental payments for all non-cancelable operating leases
and the amounts due from tenants on related subleases at December 1, 2000 are
as follows:
(In thousands)
--------------
2001.......................................................... $14,780
2002.......................................................... 13,697
2003.......................................................... 12,797
2004.......................................................... 10,604
2005.......................................................... 9,378
Later years................................................... 17,716
-------
78,972
Less rental due from subleases................................ (2,859)
-------
Total future minimum rental payments.......................... $76,113
=======
9. Benefit Plans
The Company has a non-contributory defined benefit pension plan covering
eligible associates. Pension costs are determined actuarially and are funded to
the extent that deductions are allowable under the United States Internal
Revenue Code. During 2000 and 1999, approximately 65% of the defined benefit
plan's assets were invested in equity investments with the remaining 35%
invested in fixed income securities. Salaried, management, sales and non-
production hourly associates accrued pension benefits based on the associate's
service and compensation. Production associates accrued pension benefits at a
fixed unit rate based on service.
F-9
THE STRIDE RITE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Pension expense, including amortization of prior service costs over the
remaining service periods of active associates and the remaining lives of
vested and retired associates, for the three years in the period ended December
1, 2000, consists of the following:
2000 1999 1998
------- ------- -------
(In thousands)
Service cost...................................... $ 1,403 $ 2,014 $ 2,002
Interest cost..................................... 2,918 2,800 2,688
Expected return on assets......................... (4,366) (4,002) (3,822)
Net gain recognized............................... (622) (59) (103)
Amortization of prior service cost................ 61 61 61
Transition asset recognized....................... (284) (287) (287)
------- ------- -------
Net periodic benefit cost (income)................ $ (890) $ 527 $ 539
======= ======= =======
The following provides a reconciliation of benefit obligations, plan assets,
the funded status, and various assumptions related to the Company's defined
benefit pension plan:
2000 1999
------- --------
(In thousands)
Change in benefit obligation:
Benefit obligation at beginning of year............... $40,610 $ 43,422
Service cost.......................................... 1,403 2,014
Interest cost......................................... 2,918 2,800
Actuarial gain........................................ (2,035) (5,517)
Benefits paid......................................... (2,258) (2,109)
------- --------
Benefit obligation at end of year..................... $40,638 $ 40,610
======= ========
Change in plan assets:
Fair value of plan assets at beginning of year........ 49,599 45,715
Actual return on plan assets.......................... (973) 5,993
Employer contributions................................ -- --
Benefits paid......................................... (2,258) (2,109)
------- --------
Fair value of plan assets at end of year.............. $46,368 $ 49,599
======= ========
Funded status:
Excess of assets over benefit obligation.............. 5,729 8,989
Unrecognized net gain................................. (8,152) (12,078)
Unrecognized prior service costs...................... 165 225
Unrecognized net transition asset..................... -- (284)
------- --------
Accrued pension cost.................................. $(2,258) $ (3,148)
======= ========
Assumptions:
Discount rate......................................... 7.75 % 7.50 %
Expected long-term return on assets................... 9.00 % 9.00 %
Compensation increase rate............................ 4.50 % 4.50 %
The Company also provides defined contribution plans for its associates. The
Company's defined contribution plans, which are qualified under Section 401(k)
of the Internal Revenue Code of 1986, as amended, enable eligible associates to
defer a portion of their salary to be held by the trustees of the plans. The
Company makes an additional contribution to the plans equal to a maximum of 50%
of the first 6% of savings
F-10
THE STRIDE RITE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
by each participant. Prior to July 1, 1998, the Company's contribution to the
plans equaled a maximum of 25% of the first 6% of savings for each participant.
During fiscal 2000, 1999, and 1998 the Company's contribution to the plans
amounted to $769,000, $800,000 and $437,000, respectively.
10. Stock Purchase and Option Plans
The Company's Employee Stock Purchase Plan, permits eligible associates to
elect to subscribe for an aggregate of 5,640,000 shares of common stock of the
Company. Under the Plan, participating associates can authorize the Company to
withhold up to 10% of their earnings (limited to either 2.5% or 5% of their
earnings for a one or two-year payment period prior to November 1, 1999) during
consecutive six month payment periods for the purchase of shares. At the
conclusion of the period, associates can purchase shares at the lesser of 85%
of the market value of the Company's common stock on either their entry date
into the Plan or the last day of the payment period. For the payment period
which ended in June 2000, 77,133 shares were issued under the Plan for an
aggregate amount of $390,000. At December 1, 2000, a total of 5,318,209 shares
had been purchased under the Plan and 321,791 shares were available for
purchase by participating associates.
During 1998, the Company's shareholders approved The Stride Rite Corporation
1998 Non-Employee Director Stock Ownership Plan. Under the 1998 Director's
Plan, awards of common stock and options to purchase common stock are granted
to any director who is not an employee of the Company in accordance with the
provisions of the Plan. An aggregate of 300,000 shares is authorized for
issuance under the Plan. Options to purchase common stock are granted at a
price equal to the closing price of the Company's common stock on the date the
option is granted. Directors receive an annual grant of options to purchase
5,000 shares of common stock under the Plan. Options have a term of ten years
and are non-transferable. Under the Plan, options become exercisable over a
three-year period and must be paid for in full at the time of exercise. In
April 1999, the shareholders approved an amendment to the Plan which allowed
directors to receive their annual retainer either entirely in shares of common
stock or one-half in shares of common stock and one-half in cash at the
election of each director. Under the terms of the Plan, the Company awarded
7,935, 2,959 and 1,000 shares of common stock during 2000, 1999 and 1998,
respectively. In addition, directors may defer receipt of the stock and/or cash
portion of their annual retainer by electing to participate in the Company's
Deferred Compensation Plan for Directors. At December 1, 2000, the issuance of
74,587 shares has been deferred by participating directors.
During 1998, the Company's shareholders approved the 1998 Stock Option Plan.
The 1998 Stock Option Plan, which expires in April 2001, replaced a similar
long-term incentive plan which had been approved by the shareholders in 1995.
Under the Plan, as amended, options to purchase common stock and stock awards
of up to an aggregate of 3,900,000 shares of the Company's common stock may be
granted to officers and other key associates. The option price of the shares
may not be less than the fair market value of the Company's common stock at the
date of grant. Options under the Plan generally vest over a three-year period
and the rights to purchase common shares expire ten years following the date of
grant. Stock awards, which are limited to 200,000 shares in the Plan, generally
vest over a five-year period. During 1999, stock awards of 10,750 shares,
having an average fair market value of $8.58, were made under the Plan.
F-11
THE STRIDE RITE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
A summary of the activity in stock options with respect to all plans for the
three years in the period ended December 1, 2000 is as follows:
Weighted
Average
Number of Exercise
Options Price
---------- --------
Outstanding at November 28, 1997........................ 2,582,700 $10.11
Granted................................................. 1,054,650 11.11
Exercised............................................... (297,074) 5.98
Canceled................................................ (533,246) 10.23
---------- ------
Outstanding at November 27, 1998........................ 2,807,030 10.90
Granted................................................. 2,135,050 8.53
Exercised............................................... (70,011) 5.63
Canceled................................................ (1,224,616) 10.23
---------- ------
Outstanding at December 3, 1999......................... 3,647,453 9.84
Granted................................................. 1,089,500 5.62
Exercised............................................... (2,800) 0.25
Canceled................................................ (1,116,032) 10.74
---------- ------
Outstanding at December 1, 2000......................... 3,618,121 $ 8.30
========== ======
The following table summarizes information about stock options outstanding
at December 1, 2000:
Weighted
Average Weighted Weighted
Remaining Average Average
Number Contractual Exercise Number Exercise
Range of Exercise Prices Outstanding Life Price Exercisable Price
- ------------------------ ----------- ----------- -------- ----------- --------
$0.25 --$6.6875.......... 964,167 8.9 years $ 5.36 31,784 $ 0.81
$6.875--$9.25............ 1,366,920 8.1 years 7.60 624,128 7.56
$9.625--$14.50........... 1,287,034 6.2 years 11.23 1,054,767 11.24
--------- --------- ------ --------- ------
3,618,121 7.6 years $ 8.30 1,710,679 $ 9.71
========= ========= ====== ========= ======
At December 3, 1999, options to purchase 1,742,396 shares at an average
price of $10.81 per share were exercisable (1,178,671 shares at $11.01 per
share at November 27, 1998). On a cumulative basis through December 1, 2000,
stock awards, options to purchase shares and shares reserved for issuance under
deferred compensation plans totaling 7,758,019 shares had been granted under
all plans. Rights to purchase an additional 1,300,114 shares at December 1,
2000 (2,132,942 shares at December 3, 1999) could be granted under the plans.
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation" (SFAS 123), defines a fair-value method of accounting for
employee stock options or similar equity instruments and encouraged companies
to adopt that method of accounting. SFAS 123 also allows companies to continue
to use the intrinsic value method of accounting prescribed by Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
(APB 25) and to make proforma disclosures of the impact on net income and
earnings per share of applying SFAS 123. The Company has elected to continue to
account for stock options in accordance with APB 25 and related
interpretations. Accordingly, no compensation expense has been recorded in
connection with fair market value stock option grants under the Company's stock
option plans and its employee stock purchase plan. Compensation for stock
awards of $47,000, $121,000 and $12,000 was recorded in fiscal years 2000, 1999
and 1998, respectively.
F-12
THE STRIDE RITE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Proforma net income and earnings per share information included in the table
below, has been calculated as if the Company had accounted for stock options
and other stock as of the date of grant using the Black-Scholes option pricing
model with the following weighted average assumptions:
2000 1999 1998
---- ---- ----
Risk-free interest rate.................................... 6.21% 5.01% 5.76%
Dividend yield............................................. 3.2% 2.2% 1.5%
Volatility factor.......................................... 41% 40% 37%
Weighted average expected life of options (years).......... 4.5 4.5 4.5
Accordingly, the weighted average grant date fair values of stock awards and
stock options granted during 2000, 1999 and 1998 were estimated at $1.87,
$2.66, and $3.75, respectively. For purposes of proforma disclosure, the
estimated fair value is amortized to expense on a straight-line basis over the
options vesting periods. A comparison of reported and proforma earnings is as
follows for the three years in the period ended December 1, 2000:
2000 1999 1998
-------------------------- -------------
(In thousands except for per share data)
Net income
As reported..................... $ 25,193 $ 26,424 $ 21,052
Proforma........................ 23,562 24,642 19,412
Net income per diluted share of
common stock
As reported..................... .58 .57 .44
Proforma........................ .55 .53 .41
The Black-Scholes option pricing model was developed for use in estimating
the fair value of traded options that have no vesting restrictions and are
fully transferable. In addition, option pricing models require the use of
highly subjective assumptions, including the expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
assumptions can materially affect the fair value estimates, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options and other stock-based
compensation.
11. Preferred Stock Purchase Rights
In June 1997, the Company's Board of Directors adopted a Stockholder Rights
Plan to replace a similar plan which was due to expire in July 1997. In
connection with the Plan, the Board declared a dividend of one Preferred Share
Purchase Right for each outstanding share of common stock of the Company,
payable to stockholders of record on July 17, 1997.
The Rights have certain anti-takeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire the Company
on terms not approved by the Company's Board of Directors, except pursuant to
an offer conditioned on a substantial number of Rights being acquired. The
Rights should not interfere with any merger or other business combination
approved by the Board of Directors. The Rights may be redeemed by the Company
at a price of $.01 per Right prior to the time that a person or group has
acquired beneficial ownership of 10% or more of the common shares.
Each Right entitles the holder to purchase from the Company one one-
hundredth of a share of Series A Junior Participating Preferred Stock at a
price of $68 per one one-hundredth of a Preferred Share. Each preferred share
is entitled to minimum quarterly dividends of $1.00 per share, a minimum
preferential
F-13
THE STRIDE RITE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
liquidation payment of $100 per share and each preferred share will have 100
votes, voting together with the common shares. The Rights, which may be amended
by the Board of Directors of the Company under most circumstances, become
exercisable at the earlier of ten days following a public announcement that a
person or group ("Acquiring Person") has acquired beneficial ownership of 10%
or more of the Company's outstanding common stock or ten business days
following the commencement of, or announcement of an intention to make, a
tender or exchange offer which would result in the beneficial ownership by an
Acquiring Person of 10% or more of the outstanding common shares. In the event
that the Company is acquired in a merger or other business combination
transaction, or 50% or more of its assets or earnings power are sold after a
person has acquired beneficial ownership of 10% or more of the Company's
outstanding common stock, the holders of the Rights will have the right to
receive upon exercise that number of shares of common stock of the Acquiring
Person having a market value of two times the exercise price of the Right. In
the event that any person or group becomes an Acquiring Person, the holders of
the Rights, other than the Acquiring Person, will have the right to receive on
exercise that number of shares of Company common stock having a market value of
two times the exercise price of the Right. The Board of Directors of the
Company may also exchange the Rights, in whole or in part, at an exchange ratio
of one common share or one one-hundredth of a preferred share, at any time
after a person or group becomes an Acquiring Person and prior to the
acquisition of 50% or more of the Company's common stock by such Acquiring
Person. The Rights, which have no voting power, expire on July 17, 2007.
Preferred Stock Purchase Rights outstanding under the Plan totaled 41,590,851
and 44,634,083 as of December 1, 2000 and December 3, 1999, respectively.
12. Litigation
The Company is a party to various litigation arising in the normal course of
business. Having considered available facts and opinions of counsel handling
these matters, management of the Company does not believe the ultimate
resolution of such litigation will have a material adverse effect on the
Company's financial position or results of operations.
13. Income Taxes
The provision for income taxes consists of the following for the three years
in the period ended December 1, 2000:
2000 1999 1998
------- ------- -------
(In thousands)
Current:
Federal......................................... $11,995 $16,965 $ 7,390
State........................................... 1,395 1,635 987
------- ------- -------
Total current provision....................... 13,390 18,600 8,377
------- ------- -------
Deferred:
Federal......................................... 1,711 (2,013) 3,783
State........................................... (192) ( 355) 10
------- ------- -------
Total deferred provision (benefit)............ 1,519 (2,368) 3,793
------- ------- -------
Provision for income taxes.................... $14,909 $16,232 $12,170
======= ======= =======
F-14
THE STRIDE RITE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Net deferred tax assets as of December 1, 2000 and December 3, 1999 have the
following significant components:
2000 1999
------- -------
(In thousands)
Deferred tax assets:
Inventory valuation reserves.............................. $ 6,868 $ 6,768
Accounts receivable allowances............................ 5,142 3,861
Compensation and pension accruals......................... 3,070 3,605
Nonrecurring charges...................................... -- 705
Other accounting reserves and accruals.................... 10,414 11,364
------- -------
Total deferred tax assets............................... 25,494 26,303
------- -------
Deferred tax liabilities:
Depreciation and amortization............................. 5,563 4,498
Other items............................................... 366 721
------- -------
Total deferred tax liabilities.......................... 5,929 5,219
------- -------
Net deferred tax assets................................. $19,565 $21,084
======= =======
A valuation allowance has not been assigned to the Company's deferred tax
assets since management believes it is more likely than not that the Company
will fully realize the benefits of such tax assets.
The effective income tax rate differs from the statutory federal income tax
rate as follows:
2000 1999 1998
---- ---- ----
Statutory federal tax rate............................ 35.0 % 35.0 % 35.0 %
State income taxes, net of federal tax benefit........ 2.0 2.0 2.0
Tax provision (benefit) related to company--owned life
insurance program ................................... 0.5 2.2 (5.3)
Other................................................. (0.3) (1.1) 4.9
---- ---- ----
Effective income tax rate............................. 37.2 % 38.1 % 36.6 %
==== ==== ====
In 2000, 1999 and 1998, the Company paid income taxes of $18,587,000,
$12,681,000 and $17,666,000, respectively.
14. Operating Segments and Related Information
Effective November 28, 1998, the Company adopted SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information". SFAS No. 131
establishes new standards for the way public business enterprises report
information about operating segments and also requires certain disclosures
about products and services, geographic areas of business and major customers.
The adoption of SFAS No. 131 did not affect the Company's consolidated
financial position or results of operations.
The Company operates in one industry segment, the footwear industry.
Operating segments of the Company are based on, among other things, the way the
Company's management organizes the components of the Company's business for the
purposes of allocating resources and assessing performance. The Company designs
and markets footwear under various brand names, which represent the operating
segments of the Company. Products for all of the Company's brands are generally
manufactured using similar processes. The
F-15
THE STRIDE RITE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Company's products also share similar distribution methods and are marketed and
sold to the same customer types. Operating results are assessed on an aggregate
basis to make decisions about resources to be allocated among the brands.
Consequently, because the brands have similar product, distribution, marketing
and economic conditions, the Company's operating segments have been aggregated
into one reportable segment for financial statement purposes as permitted by
the provisions of SFAS 131. The Company presently focuses its brands on the
domestic footwear market. No individual country other than the United States
accounted for more than 10% of consolidated net sales or assets.
15. Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard No. 133, "Accounting for Derivative
Instruments and Hedging Activities". SFAS 133 establishes accounting and
reporting standards requiring that every derivative instrument be recorded in
the balance sheet as either an asset or liability measured at its fair value.
This statement also requires that changes in the derivative's fair value be
recognized currently in earnings unless specific hedge accounting criteria are
met. SFAS 133 is effective for fiscal years beginning after June 30, 1999.
However, Statement of Accounting Standard No. 137, "Deferral of the Effective
Date of "SFAS 133" was issued in July of 1999 and delayed the effective date of
SFAS 133 to fiscal years beginning after June 15, 2000. Therefore, SFAS 133
will not be implemented by the Company until fiscal 2001. Since the Company's
current international operations are not significant and the cost of
merchandise sourced from factories outside the United States is generally
denominated in U.S. dollars, management expects minimal effect from this new
standard.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial
Statements." SAB 101, as amended, summarizes certain of the SEC's views in
applying generally accepted accounting principles to revenue recognition in
financial statements and provides guidance on revenue recognition issues in the
absence of authoritative literature addressing a specific arrangement or a
specific industry. The Company will adopt SAB 101 in the first quarter of
fiscal year 2001. Adoption of this guidance is not expected to have a material
effect on the Company's financial position or results of operations.
In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation" an interpretation of APB Opinion No. 25 ("APB 25"), "Accounting
for Stock Issued to Employees". Interpretation 44 clarifies guidance for
certain issues that arose in the application of APB 25. Areas of focus within
Interpretation 44 include repricings, modifications to extend the option term,
change of grantee status, modifications to accelerate vesting and options
exchanged in a purchase business combination. Should these types of
transactions occur, the Company will account for them under APB 25 as clarified
by Interpretation 44.
F-16
THE STRIDE RITE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
16. Quarterly Data (unaudited)
The following table provides quarterly data for the fiscal years ended
December 1, 2000 and December 3, 1999.
First Second Third Fourth
-------- -------- -------- --------
(In thousands, except for per share
data)
2000
Net sales............................... $151,663 $156,533 $144,760 $ 95,378
Gross profit............................ 54,897 57,864 52,060 33,622
Net income (loss)....................... 7,487 10,609 7,782 (685)
Per diluted common share:
Net income (loss)..................... .17 .24 .18 (.02)
Dividends............................. .05 .05 .05 .05
1999
Net sales............................... $148,184 $166,253 $155,952 $102,307
Gross profit............................ 54,507 61,241 57,795 37,045
Net income.............................. 6,149 9,763 10,113 399
Per diluted common share:
Net income............................ .13 .21 .22 .01
Dividends............................. .05 .05 .05 .05
In the third quarter of fiscal 1999, the Company recorded pre-tax,
nonrecurring charges of $3,254,000 ($.04 per share after tax), associated with
its decision to restructure the Company's administrative staff.
F-17
MANAGEMENT'S REPORT ON FINANCIAL INFORMATION
To Our Stockholders:
Management of The Stride Rite Corporation is responsible for the preparation
and integrity of the financial information included in this annual report. The
financial statements have been prepared in accordance with generally accepted
accounting principles. Where required, the financial statements reflect our
best estimates and judgments.
It is the Company's policy to maintain a control-conscious environment
through an effective system of internal accounting controls supported by formal
policies and procedures communicated throughout the Company. These controls are
adequate to provide reasonable assurance that assets are safeguarded against
loss or unauthorized use and to produce the records necessary for the
preparation of financial information. There are limits inherent in all systems
of internal control based on the recognition that the costs of such systems
should be related to the benefits to be derived. We believe the Company's
systems provide this appropriate balance.
The control environment is complemented by the Company's internal audit
function which performs audits and evaluates the adequacy of and the adherence
to these controls, policies and procedures. In addition, the Company's
independent accountants have developed an understanding of our accounting and
financial controls and have conducted such tests as they consider necessary to
support their report on the Company's financial statements.
The Board of Directors pursues its oversight role for the financial
statements through the Audit Committee, which consists solely of independent
directors who are financially literate. In accordance with its Charter, the
Audit Committee meets regularly with management, the corporate internal
auditors and the Company's independent accountants, PricewaterhouseCoopers LLP,
to review management's process of implementation and administration of internal
accounting controls, the independence of the auditors and auditing and
financial reporting matters. The independent and internal auditors have
unrestricted access to the Audit Committee.
The Company maintains high standards in selecting, training and developing
personnel to help ensure that management's objectives of maintaining strong,
effective internal controls and unbiased, uniform reporting standards are
attained. We believe it is essential for the Company to conduct its business
affairs in accordance with the highest ethical standards as expressed in The
Stride Rite Corporation's Code of Ethics.
/s/ John M. Kelliher
_____________________________________
John M. Kelliher
Chief Financial Officer
/s/ David M. Chamberlain
_____________________________________
David M. Chamberlain
Chairman of the Board of Directors
and Chief Executive Officer
F-18
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Directors of
The Stride Rite Corporation:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income and stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of The Stride
Rite Corporation and its subsidiaries at December 1, 2000 and December 3, 1999,
and the results of their operations and their cash flows for each of the three
years in the period ended December 1, 2000, in conformity with accounting
principles generally accepted in the United States of America. These financial
statements are the responsibility of The Stride Rite Corporation's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
__________________________________________
PricewaterhouseCoopers LLP
Boston, Massachusetts
January 9, 2001
F-19
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE
To the Stockholders and Directors of
The Stride Rite Corporation:
Our audits of the consolidated financial statements referred to in our
report dated January 9, 2001 appearing on page F-19 of the 2000 Annual Report
on Form 10-K of The Stride Rite Corporation also included an audit of the
financial statement schedule listed in Item 14(a)(2) of this Form 10-K. In our
opinion, this financial statement schedule presents fairly, in all material
respects, the information set forth therein when read in conjunction with the
related consolidated financial statements.
/s/ PricewaterhouseCoopers LLP
_____________________________________
PricewaterhouseCoopers LLP
Boston, Massachusetts
January 9, 2001
S-1
THE STRIDE RITE CORPORATION
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
Additions
Balance at Charged to
Beginning Costs and Balance at
Description Period Expenses Deductions End of Period
- ----------- ---------- ---------- ---------- -------------
Fiscal year ended November 27,
1998:
Deducted from assets:
Allowance for doubtful
accounts.................. $3,742 $1,402 $1,246(a) $ 3,898
Allowance for sales
discounts................. 5,264 2,329 1,920(b) 5,673
------ ------ ------ -------
$9,006 $3,731 $3,166 $ 9,571
====== ====== ====== =======
Fiscal year ended December 3,
1999:
Deducted from assets:
Allowance for doubtful
accounts.................. 3,898 1,125 1,336(a) 3,687
Allowance for sales
discounts................. 5,673 2,490 1,899(b) 6,264
------ ------ ------ -------
$9,571 $3,615 $3,235 $ 9,951
====== ====== ====== =======
Fiscal year ended December 1,
2000:
Deducted from assets:
Allowance for doubtful
accounts.................. 3,687 1,040 1,638(a) 3,089
Allowance for sales
discounts................. 6,264 4,685 1,373(b) 9,576
------ ------ ------ -------
$9,951 $5,725 $3,011 $12,665
====== ====== ====== =======
- --------
(a) Amounts written off as uncollectible.
(b) Amounts charged against the reserve.
S-2
THE STRIDE RITE CORPORATION
ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 1, 2000
Index to Exhibits
Exhibit No. Description of Exhibit Page No.
----------- ---------------------- --------
21 Subsidiaries of the Registrant E-2
23 Consent of Independent Accountants E-3
E-1