<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X Quarterly Report pursuant to Section 13 or 15(d) of the Securities
- --- Exchange Act of 1934 For the quarterly period ended July 31, 1997.
or
Transition Report Pursuant to Section 13 or 15(d) of the Securities
- --- Exchange Act of 1934 For the transition period
from ______________________ to _____________________
Commission File number 0-24026
MAXWELL SHOE COMPANY INC.
(Exact name of registrant as specified in its charter)
Delaware 04-2599205
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification number)
101 Sprague Street, Box 37, Readville, (Boston), MA 02137-0037
(Address of principal executive offices) (Zip code)
(617) 364-5090
(Registrant's telephone number, including area code)
None
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed 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 reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Shares of common stock outstanding at September 10, 1997:
Class A 2,525,000
Class B 5,063,317
<PAGE>
- --------------------------------------------------------------------------------
PART I. FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
ITEM 1. FINANCIAL STATEMENTS
- ------
MAXWELL SHOE COMPANY INC.
BALANCE SHEETS
(Unaudited--In Thousands)
<TABLE>
<CAPTION>
July 31, October 31,
1997 1996
----------- -----------
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents .................................................................. $ 91 $ 10,393
Accounts receivable, net ................................................................... 29,060 16,853
Inventory, net ............................................................................. 26,432 12,175
Prepaid expenses ........................................................................... 88 127
Deferred tax asset ......................................................................... 889 730
----------- -----------
Total current assets ........................................................................... 56,560 40,278
Property and equipment, net .................................................................... 1,254 1,039
Trademarks ..................................................................................... 5,225 5,500
Other assets ................................................................................... 12 12
----------- -----------
$ 63,051 $ 46,829
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND
STOCKHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Bank borrowings ............................................................................ $ 5,775 $ 0
Accounts payable ........................................................................... 2,372 880
Accrued expenses ........................................................................... 5,984 3,733
Current portion of capital lease obligation ................................................ 124 142
----------- -----------
Total current liabilities ...................................................................... 14,255 4,755
Capital lease obligation ....................................................................... 375 469
Stockholders' equity:
Preferred stock, par value $.01, 1,000 shares authorized,
none outstanding ........................................................................... 0 0
Class A common stock, par value $.01, 20,000 shares authorized, 2,525
shares outstanding ......................................................................... 25 25
Class B common stock, par value $.01, 10,000 shares authorized, 5,063 shares
outstanding ................................................................................ 51 51
Additional paid-in capital ................................................................. 27,312 27,312
Retained earnings .......................................................................... 21,033 14,217
----------- -----------
Total stockholders' equity ..................................................................... 48,421 41,605
----------- -----------
$ 63,051 $ 46,829
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
2
<PAGE>
MAXWELL SHOE COMPANY INC.
STATEMENTS OF INCOME
(Unaudited -- In Thousands Except Per Share Amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
July 31, July 31,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales .............................................. $ 36,833 $ 30,222 $ 96,671 $ 80,701
Cost of sales .......................................... 26,660 23,213 70,076 61,955
-------- -------- -------- --------
Gross profit ........................................... 10,173 7,009 26,595 18,746
Operating expenses:
Selling ............................................. 2,260 1,626 6,070 4,079
General and administrative .......................... 3,019 2,505 9,254 7,235
-------- -------- -------- --------
5,279 4,131 15,324 11,314
-------- -------- -------- --------
Operating income ....................................... 4,894 2,878 11,271 7,432
Other expenses (income)
Interest ............................................ 27 11 54 31
Amortization of Trademarks .......................... 92 ---- 275 ----
Other, net .......................................... (7) (230) (52) (504)
-------- -------- -------- --------
112 (219) 277 (473)
-------- -------- -------- --------
Income before income taxes .......................... 4,782 3,097 10,994 7,905
Income taxes ........................................ 1,817 1,177 4,178 3,004
-------- -------- -------- --------
Net income .......................................... $ 2,965 $ 1,920 $ 6,816 $ 4,901
======== ======== ======== ========
Net income per share ................................ $ 0.35 $ 0.23 $ 0.80 $ 0.59
======== ======== ======== ========
Shares used to compute net income per share 8,569 8,310 8,476 8,257
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
MAXWELL SHOE COMPANY INC.
STATEMENTS OF CASH FLOWS
(Unaudited -- In Thousands)
<TABLE>
<CAPTION>
Nine Months
Ended
July 31,
----------------------------
1997 1996
------------ ------------
Operating activities
<S> <C> <C>
Net income ................................................................................. $ 6,816 $ 4,901
Adjustments to reconcile net income to net cash provided (used) by operating activities
Depreciation and amortization .......................................................... 489 178
Deferred income taxes .................................................................. (159) (28)
Doubtful accounts provision ............................................................ 85 (5)
Changes in operating assets and liabilities:
Accounts receivable ............................................................... (12,292) (6,711)
Inventory ......................................................................... (14,257) (2,315)
Prepaid expenses .................................................................. 39 609
Accounts payable .................................................................. 1,492 258
Accrued income taxes .............................................................. 333 0
Accrued expenses .................................................................. 1,918 1,570
------------ ------------
Net cash used by operating activities ...................................................... (15,536) (1,543)
Investing activities
Purchases of property and equipment ........................................................ (429) (54)
------------ ------------
Net cash used by investing activities ...................................................... (429) (54)
Financing activities
Net proceeds on bank borrowings ............................................................ 5,775 0
Payments on capital lease obligations ...................................................... (112) (131)
------------ ------------
Net cash provided (used) by financing activities ........................................... 5,663 (131)
------------ ------------
Net decrease in cash and cash equivalents .................................................. (10,302) (1,728)
Cash and cash equivalents at beginning of year ............................................. 10,393 6,685
------------ ------------
Cash and cash equivalents at end of quarter ................................................ $ 91 $ 4,957
============ ============
Interest paid .............................................................................. $ 54 $ 31
============ ============
Income taxes paid .......................................................................... $ 4,004 $ 1,880
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
MAXWELL SHOE COMPANY INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
July 31, 1997
1. Basis of Presentation
The accompanying unaudited financial statements of Maxwell Shoe Company
Inc. (the "Company") have been prepared in accordance with generally
accepted accounting principles for interim financial information and with
the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments, consisting only
of normal recurring adjustments, considered necessary for a fair
presentation have been included. The results of the interim periods
presented herein are not necessarily indicative of the results to be
expected for any other interim period or the full year. These financial
statements should be read in conjunction with the financial statements and
notes thereto for the year ended October 31, 1996 included in the Company's
10-K Annual Report for the fiscal year ended October 31, 1996.
2. Net Income Per Share
Net income per share is computed based on the weighted average number of
common shares outstanding during the period adjusted for incremental shares
assumed issued for dilutive common stock equivalents in the form of stock
options.
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings per Share," which is required to be adopted by the
Company commencing after December 15, 1997. At that time, the Company will
be required to change the method currently used to compute earnings per
share and to restate all prior periods. Under the new requirements for
calculating primary earnings per share, the dilutive effect of stock
options will be excluded. The impact is expected to result in an increase
in primary earnings per share for the quarters ended July 31, 1997 and 1996
of $0.04 and $0.02 per share, respectively. For the nine months ended July
31, 1997 and 1996, primary earnings per share would increase $0.10 and
$0.06 per share. The impact of Statement 128 on the calculation of fully
diluted earnings per share for these quarters is not expected to be
material.
3. Impact of Recently Issued Accounting Standards
In June 1997, the FASB issued Statement No. 130, "Reporting Comprehensive
Income", and Statement No. 131, "Disclosures About Segments of an
Enterprise and Related Information". Statement No. 130 establishes
standards for the reporting and display of comprehensive income and its
components. Statement No. 131 establishes standards for the way that public
companies report information about operating segments in financial
statements. This Statement supersedes Statement No. 14, "Financial
reporting for Segments of a Business Enterprise," but retains the
requirements to report information about major customers. Statements 130
and 131 are effective for the Company in fiscal 1999. The Company does not
believe that the adoption of these Statements will have a material effect
on the Company's financial statements.
5
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
The following tables set forth net sales by product line or category
of business:
<TABLE>
<CAPTION>
Three Months Ended
July 31,
-------------------------------------------------
(in millions)
1997 1996
---- ----
<S> <C> <C> <C> <C>
Mootsies Tootsies $ 19.2 52.2% $ 18.6 61.4%
Jones New York Footwear 8.6 23.4 5.7 19.0
Sam & Libby 3.8 10.3 -- --
Private Label Footwear 4.7 12.8 5.1 16.9
Closeout .5 1.3 .8 2.7
-------- ----- -------- -----
$ 36.8 100.0% $ 30.2 100.0%
<CAPTION>
Nine Months Ended
July 31,
-------------------------------------------------
(in millions)
1997 1996
---- ----
<S> <C> <C> <C> <C>
Mootsies Tootsies $ 52.1 53.8% $ 47.3 58.6%
Jones New York Footwear 23.1 24.0 17.0 21.1
Sam & Libby 10.0 10.3 -- --
Private Label Footwear 10.0 10.3 12.3 15.2
Closeout 1.5 1.6 4.1 5.1
-------- ----- -------- -----
$ 96.7 100.0% $ 80.7 100.0%
</TABLE>
Three Months Ended July 31, 1997 Compared to Three Months Ended July 31, 1996
Net sales were $36.8 million for the three months ended July 31, 1997
compared to $30.2 million for the same period in the prior year, an increase of
21.9%. The net sales increase was due to a 50.6% increase in net sales of Jones
New York footwear, a 3.6% increase in net sales of Mootsies Tootsies footwear
over the same period of the prior year, and the additional $3.8 million in net
sales generated by the new Sam & Libby division, offset by a decrease of 8.2% in
net sales generated by private label footwear.
Gross profits in the third quarter of fiscal 1997 were $10.2 million
as compared to $7.0 million in the third quarter of fiscal 1996, or 27.6% of net
sales as compared to 23.2% for the same quarter in 1996. The increase in gross
margins for the third quarter of fiscal 1997 was due to improved gross margins
in the branded lines of footwear and a decrease in the proportion of net sales
derived from private label sales which carry a lower gross margin.
Selling, general and administrative expenses increased $1.2 million
during the third quarter of fiscal 1997 due to discretionary advertising
spending increases of $292,000 and increases of selling and administrative
charges, which are related to increased net sales and improved profitability.
Other expense was $112,000 for the three months ended July 31, 1997
compared to other income of $219,000 for the same period in the prior year.
During the third fiscal quarter of 1997, amortization expense
6
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relating to the acquisition of the Sam & Libby trademarks was $92,000. In 1996,
the account comprised principally net gains from forward exchange contracts
entered into in anticipation of future purchases of inventory denominated in
foreign currencies and interest income from the investment of cash equivalents.
Included in other expense was interest expense of $27,000 for the three months
ended July 31, 1997 compared to $11,000 for the three months ended July 31,
1997. Interest expense in the third quarter of fiscal 1997 was incurred for
capital leases and short-term borrowing. The Company incurred no short term
borrowing in the third quarter of fiscal 1996.
The Company has accrued an effective income tax rate of 38% for the
relevant periods in fiscal years 1997 and 1996.
Nine Months Ended July 31, 1997 Compared to Nine Months Ended July 31, 1996
Net sales were $96.7 million for the nine months ended July 31, 1997
compared to $80.7 million for the same period in the prior year, an increase of
19.8%. The net sales increase was due to a 36.6% increase in net sales of Jones
New York footwear, and a 10.1% increase in net sales of Mootsies Tootsies
footwear over the same period of the prior year, and the additional $10.0
million in net sales generated by the new Sam & Libby division, offset by a
decrease of 19.1% in net sales generated by private label footwear.
Gross profits in the first nine months of fiscal 1997 were $26.6
million as compared to $18.7 million in the first nine months of fiscal 1996, or
27.5% of net sales as compared to 23.2% for the same period in 1996. The
increase in gross margins for the first nine months of fiscal 1997 was due to
improved gross margins in the branded lines of footwear and a decrease in net
sales of private label sales which carry a lower gross margin.
Selling, general and administrative expenses increased $4.0 million
during the first nine months of fiscal 1997 due to an increase in aggregate
compensation and corresponding fringe benefits added as a result of new
personnel associated with launching the Company's Sam & Libby division and
administrative charges which are related to increased net sales and improved
profitability.
Other expense was $277,000 for the nine months ended July 31, 1997
compared to other income of $473,000 for the same period in the prior year.
During the first nine months of 1997, amortization expense relating to the
acquisition of the Sam & Libby trademark was $275,000 and losses of $62,000 were
realized from foreign exchange contracts, offset by $124,000 of interest income
from cash equivalents. In 1996, the account comprised principally net gains from
forward exchange contracts entered into in anticipation of future purchases of
inventory denominated in foreign currencies and interest income from the
investment of cash equivalents. Included in other expense was interest expense
of $54,000 for the nine months ended July 31, 1997 compared to $31,000 for the
nine months ended July 31, 1996. Interest expense in the first nine months of
fiscal 1997 was incurred for capital leases and short term borrowing. The
Company incurred no short term borrowing in the first nine months of fiscal
1996.
The Company has accrued an effective income tax rate of 38% for the
relevant periods in fiscal years 1997 and 1996.
At July 31, 1997 and 1996, the Company had unfilled customer orders
(backlog) of $52.9 million and $32.3 million respectively, an increase of 63.8%.
The increase was in all branded footwear and the new Sam & Libby footwear lines.
The backlog at a particular time is affected by a number of factors, including
seasonality and the scheduling of manufacturing and shipment of products. Orders
generally may be canceled by customers without financial penalty. Accordingly, a
comparison of backlog from period to period is not necessarily meaningful and
may not be indicative of eventual actual shipments to customers. The Company
expects that substantially all of its backlog at July 31, 1997 will be shipped
within nine months from such date.
7
<PAGE>
Liquidity and Capital Resources
The Company has relied primarily upon internally generated cash flows
from operations and borrowings under its revolving credit facility to finance
its operations and expansion. Net cash used by operating activities totaled
approximately $15.5 million in the nine month period ended July 31, 1997, as
compared to net cash used of $1.5 million for the same period in 1996. The
increase in use of cash was the result of increased accounts receivable and
inventory due to the increased sales volume and backlog. Working capital was
$42.3 million at July 31, 1997 as compared to $35.5 million at October 31, 1996.
Working capital may vary from time to time as a result of seasonal requirements,
the timing of early factory shipments and the Company's in-stock position, which
requires increased inventories, and the timing of accounts receivable
collections.
The Company currently has a $25.0 million revolving credit facility,
renewable under certain conditions annually, which is secured by substantially
all of the assets of the Company. A portion of the revolving credit facility can
be utilized to issue letters of credit to guarantee payment of the Company's
purchases of footwear manufactured overseas. Amounts available under the
revolving credit facility are based on eligible accounts receivable, inventory,
and a portion of the open letters of credit. As of July 31, 1997, total
borrowings were $5.8 million, total outstanding letters of credit were $11.1
million and $8.1 million was available for future borrowings.
Capital expenditures of warehouse and office equipment were minimal
for the nine months ended July 31, 1997. The Company utilizes operating leases
for substantially all of its management information systems and related
equipment.
The Company has entered into forward exchange contracts in
anticipation of future purchases of inventory denominated in foreign currency,
principally the Spanish peseta. At July 31, 1997, forward exchange contracts
totaling $1.2 million were outstanding with settlement dates ranging from August
1, 1997 through January 31, 1998. The Company expects that future inventory
purchases will require sufficient foreign currency to meet these commitments.
The Company anticipates that it will be able to satisfy its cash
requirements for the remainder of fiscal 1997, including its expected growth,
primarily with cash flow from operations, supplemented by borrowings under its
revolving credit facility.
Certain statements contained in this Form 10-Q Quarterly Report
regard matters that are not historical facts and are forward looking statements
(as such term is defined in the rules promulgated pursuant to the Securities Act
of 1933, as amended (the "Securities Act")). Because such forward looking
statements include risks and uncertainties, actual results may differ materially
from those expressed in or implied by such forward looking statements. Factors
that could cause actual results to differ materially include, but are not
limited to; changing consumer preference, competition from other footwear
manufacturers, loss of key employees, general economic conditions and adverse
factors impacting the retail footwear industry, and the inability by the Company
to source its products due to political or economic factors or the imposition of
trade or duty restrictions. The Company undertakes no obligation to release
publicly the results of any revisions to these forward looking statements that
may be made to reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events.
8
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PART II. OTHER INFORMATION
ITEM 1: Legal Proceedings.
-----------------
None.
ITEM 2: Changes in Securities.
---------------------
None.
ITEM 3: Defaults Upon Senior Securities.
-------------------------------
None.
ITEM 4: Submission of Matters to a Vote of Security Holders.
---------------------------------------------------
None.
ITEM 5: Other Information.
-----------------
None.
ITEM 6: Exhibits and Reports on From 8-K:
--------------------------------
(a) Reports on Form 8-K
The Company filed a current Report on Form 8-K (Items 5 and
7(c)) on May 5, 1997 in which it filed as exhibits certain of
the principal documents to which the company is a party
relating to its joint venture with the Butler Group, Inc.
9
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Maxwell Shoe Company Inc.
Date: September 10, 1997 By:/s/ Richard J. Bakos
--------------------
Richard J. Bakos
Vice President Finance and
Chief Financial Officer
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-01-1996
<PERIOD-END> JUL-31-1997
<CASH> 91
<SECURITIES> 0
<RECEIVABLES> 28,245
<ALLOWANCES> 815
<INVENTORY> 26,432
<CURRENT-ASSETS> 56,560
<PP&E> 2,914
<DEPRECIATION> 1,660
<TOTAL-ASSETS> 63,051
<CURRENT-LIABILITIES> 14,255
<BONDS> 0
0
0
<COMMON> 76
<OTHER-SE> 48,345
<TOTAL-LIABILITY-AND-EQUITY> 63,051
<SALES> 96,671
<TOTAL-REVENUES> 96,671
<CGS> 70,076
<TOTAL-COSTS> 70,076
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 94
<INTEREST-EXPENSE> 54
<INCOME-PRETAX> 10,994
<INCOME-TAX> 4,178
<INCOME-CONTINUING> 6,816
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,816
<EPS-PRIMARY> .90
<EPS-DILUTED> .80
</TABLE>
