<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 April 30, 1997.
or
[_] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934NFor 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 02137-0037
Readville, (Boston),MA (Zip code)
(Address of principal executive offices)
(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 June 6, 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>
April 30, October 31,
1997 1996
------- -------
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents............. $ 4,108 $10,393
Accounts receivable, net.............. 22,535 16,853
Inventory, net........................ 18,127 12,175
Prepaid expenses...................... 14 127
Deferred tax asset.................... 952 730
------- -------
Total current assets...................... 45,736 40,278
Property and equipment, net............... 1,160 1,039
Trademarks................................ 5,316 5,500
Other assets.............................. 12 12
------- -------
$52,224 $46,829
======= =======
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable...................... $ 1,878 $ 880
Accrued expenses...................... 4,351 3,733
Current portion of capital lease
obligation.......................... 124 142
------- -------
Total current liabilities................. 6,353 4,755
Capital lease obligation.................. 414 469
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..................... 18,069 14,217
------- -------
Total stockholders' equity................ 45,457 41,605
------- -------
$52,224 $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 Six Months Ended
April 30, April 30,
<S> <C> <C> <C> <C>
1997 1996 1997 1996
------- ------- ------- -------
Net sales............................... $31,073 $26,774 $59,837 $50,479
Cost of sales........................... 21,912 20,857 43,416 38,742
------- ------- ------- -------
Gross profit............................ 9,161 5,917 16,421 11,737
Operating expenses:
Selling.............................. 2,040 1,305 3,810 2,453
General and administrative........... 3,442 2,290 6,235 4,731
------- ------- ------- -------
5,482 3,595 10,045 7,184
------- ------- ------- -------
Operating income........................ 3,679 2,322 6,376 4,553
Other expenses (income)
Interest............................. 20 10 27 20
Amortization of Trademarks........... 92 - 183 -
Other, net........................... 34 (155) (46) (275)
------- ------- ------- -------
146 (145) 164 (255)
------- ------- ------- -------
Income before income taxes.............. 3,533 2,467 6,212 4,808
Income taxes............................ 1,343 937 2,360 1,827
------- ------- ------- -------
Net income.............................. $ 2,190 $ 1,530 $ 3,852 $ 2,981
======= ======= ======= =======
Net income per share.................... $0.26 $0.19 $0.46 $0.36
======= ======= ======= =======
Shares used to compute net income per
share.................................. 8,422 8,221 8,398 8,221
</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>
Six Months
Ended
April 30,
__________________
1997 1996
------- -------
<S> <C> <C>
OPERATING ACTIVITIES
Net income.................................................... $ 3,852 $ 2,981
Adjustments to reconcile net income to net cash provided
(used) by operating activities
Depreciation and amortization............................ 319 118
Deferred income taxes.................................... (222) 85
Doubtful accounts provision.............................. 58 (61)
Changes in operating assets and liabilities:
Accounts receivable.................................. (5,740) 581
Inventory............................................ (5,952) (289)
Prepaid expenses..................................... 113 193
Accounts payable..................................... 998 80
Accrued income taxes................................. 66 0
Accrued expenses..................................... 551 162
------- -------
Net cash provided (used) by operating activities............. (5,957) 3850
INVESTING ACTIVITIES
Purchases of property and equipment.......................... (256) (45)
------- -------
Net cash used by investing activities........................ (256) (45)
FINANCING ACTIVITIES
Payments on capital lease obligations........................ (72) (85)
------- -------
Net cash used by financing activities........................ (72) (85)
------- -------
Net increase (decrease) in cash and
cash equivalents............................................ (6,285) 3,720
Cash and cash equivalents at beginning of year............... 10,393 6,685
------- -------
Cash and cash equivalents at end of quarter.................. $ 4,108 $10,405
======= =======
Interest paid................................................ $ 27 $ 20
======= =======
Income taxes paid............................................ $ 2,516 $ 1,651
======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
MAXWELL SHOE COMPANY INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
April 30, 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 on December
31, 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
quarter ended April 30, 1997 and 1996 of $0.03 and $0.01 per share,
respectively. For the six months ended April 30, 1997 and 1996, primary
earnings per share would increase $0.05 and $0.03 respectively 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. STOCK BASED COMPENSATION
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25), in accounting for
its stock-based compensation plans, rather than the alternative fair value
accounting method provided for under Financial Accounting Standards Board
Statement No. 123, "Accounting for Stock-Based Compensation." Under APB 25,
when the exercise price of options granted under these plans equals the
market price of the underlying stock on the date of the grant, no
compensation expense is recorded.
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
April 30,
_______________________________________
(in millions)
1997 1996
----- -----
<S> <C> <C> <C> <C>
Mootsies Tootsies $17.5 56.3% $15.4 57.6%
Jones New York Footwear 6.7 21.6 6.5 24.2
Sam & Libby 3.8 12.3 - -
Private Label Footwear 2.7 8.6 2.7 10.0
Closeout .4 1.2 2.2 8.2
----- ----- ----- -----
$31.1 100.0% $26.8 100.0%
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended
April 30,
_______________________________________
(in millions)
1997 1996
----- -----
<S> <C> <C> <C> <C>
Mootsies Tootsies $32.8 54.9% $28.8 57.0%
Jones New York Footwear 14.6 24.4 11.2 22.3
Sam & Libby 6.1 10.2 - -
Private Label Footwear 5.3 8.8 7.2 14.2
Closeout 1.0 1.7 3.3 6.5
----- ----- ----- -----
$59.8 100.0% $50.5 100.0%
</TABLE>
Three Months Ended April 30, 1997 Compared to Three Months Ended April 30, 1996
Net sales were $31.1 million for the three months ended April 30, 1997
compared to $26.8 million for the same period in the prior year, an increase of
16.1%. The net sales increase was due to a 13.5% increase in net sales of
Mootsies Tootsies footwear, and a 3.6% increase in net sales of Jones New York
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.
Gross profits in the second quarter of fiscal 1997 were $9.2 million as
compared to $5.9 million in the second quarter of fiscal 1996, or 29.5% of net
sales as compared to 22.1% for the same quarter in 1996. The increase in gross
margins for the second 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
from private label sales which carry a lower gross margin.
Selling, general and administrative expenses increased $1.9 million during
the second quarter 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 brand and administrative charges which
are volume related. Expenses attributable to the formation and the initial
operation of the SLJ Retail joint venture during the second quarter of fiscal
1997 were $283,000.
6
<PAGE>
Other expense was $146,000 for the three months ended April 30, 1997
compared to other income of $145,000 for the same period in the prior year.
During the second fiscal quarter of 1997, amortization expense relating to the
acquisition of the Sam & Libby trademarks was $92,000. Losses of $50,000 were
from foreign exchange contracts realized during this period. 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 $20,000 for the three months ended
April 30, 1997 compared to $10,000 for the three months ended April 30, 1996.
Interest expense in the second quarter of fiscal 1997 was incurred for capital
leases and short term borrowing. The Company incurred no short term borrowing in
the second 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.
Six Months Ended April 30, 1997 Compared to Six Months Ended April 30, 1996
Net sales were $59.8 million for the six months ended April 30, 1997
compared to $50.5 million for the same period in the prior year, an increase of
18.5%. The net sales increase was due to a 29.5% increase in net sales of Jones
New York footwear, and a 14.2% increase in net sales of Mootsies Tootsies
footwear over the same period of the prior year, and the additional $6.1 million
in net sales of the new Sam & Libby divisions, offset by a decrease of 26.8% in
net sales generated by private label footwear.
Gross profits in the first six months of fiscal 1997 were $16.4 million as
compared to $11.7 million in the first six months of fiscal 1996, or 27.4% of
net sales as compared to 23.3% for the same period in 1996. The increase in
gross margins for the first six 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 $2.9 million during
the first six 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 brand and administrative charges which
are volume related.
Other expense was $164,000 for the six months ended April 30, 1997 compared
to other income of $255,000 for the same period in the prior year. During the
first six months of 1997, amortization expense relating to the acquisition of
the Sam & Libby trademark was $183,000 and losses of $61,000 were realized from
foreign exchange contracts. 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 six months ended April 30, 1997 compared to $20,000
for the six months ended April 30, 1996. Interest expense in the first six
months of fiscal 1997 was incurred for capital leases and short term borrowing.
The Company incurred no short term borrowing in 1996.
The Company has accrued an effective income tax rate of 38% for the
relevant periods in fiscal years 1997 and 1996.
At April 30, 1997 and 1996, the Company had unfilled customer orders
(backlog) of $61.3 million and $40.9 million respectively, an increase of
49.9%. 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 April
30, 1997 will be shipped within six 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 $6.0 million in the six month period ended April 30, 1997, as
compared to net cash provided of $3.9 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 volume and backlog. Working capital was $39.4
million at April 30, 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 April 30, 1997, total
outstanding letters of credit were $18.4 million and $6.6 million was available
for future borrowings.
Capital expenditures of warehouse and office equipment were minimal for the
six months ended April 30, 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 April 30, 1997, forward exchange contracts totaling $.9
million were outstanding with settlement dates ranging from July 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.
The Company announced on April 14, 1997 it had completed a transaction to
own and operate approximately 130 retail women's footwear stores through a joint
venture, SLJ Retail LLC, which will sell a complete selection of women's
footwear under the Sam & Libby and Jones New York brand names. The joint
venture will be initially 49% owned by the Company, which will account for its
ownership under the equity method, and 51% by the Butler Group Inc., a wholly
owned subsidiary of General Electric Capital Corporation. The Company holds an
option through Febrauary 1, 2000 to purchase additional equity in the joint
venture to increase its equity ownership to 55%. In the event the Company
exercises such option, it would be required to consolidate its financial
statements with those of the joint venture.
On April 14, 1997 the Company and Jones Investment Co., Inc. ("Jones")
entered into the Second Amendment to License Agreement (the "Second Amendment").
The Second Amendment (i) extends the current term through December 31, 2002 and,
subject to certain minimum net sales amounts, grants to the Company three, five-
year options through December 31, 2017; (ii) extends the license to cover the
retail sale of Jones New York women's footwear ("Jones Footwear") by SLJ Retail
LLC; (iii) requires the Company to pay royalties of (A) five percent (5%) of
wholesale net sales of Jones Footwear equal to $30 million or less during any
annual period and (B) four percent (4%) of wholesale net sales of Jones Footwear
greater than $30 million during any annual period; (iv) requires SLJ Retail LLC
to pay royalties of (A) two and one-half percent (2-1/2%) of retail net sales of
Jones Footwear through January 31, 1998 and (B) three percent (3%) of retail net
sales of Jones Footwear thereafter; and
8
<PAGE>
(v) permits Jones to terminate retail license rights if the Company is no longer
the managing member of SLJ Retail LLC or SLJ Retail LLC defaults on any royalty
payments.
On April 1, 1997 the Company entered into a license agreement with J.G.
Hook, Inc. in which the Company has received the right to design, manufacture
and sell women's and children's shoes under the J.G. Hook and Hook Sport brand
names for an initial 18 month period ending September 30, 1998, with two one-
year option periods.
Certain statements contained in this Form 10-Q 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.
9
<PAGE>
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.
---------------------------------------------------
(a) The Company's Annual Meeting of Stockholders was held
on March 20, 1997.
(b) The following directors were elected to serve until the 1998 Annual
Meeting of Stockholders or until their successors have been duly
elected and qualified. Of the 2,525,000 shares (1 vote per share) of
class A common stock and the 5,063,317 shares (10 votes per share) of
class B common stock outstanding, the directors were elected by the
following votes:
<TABLE>
<CAPTION>
NAME NUMBER OF VOTES RECEIVED
---- ------------------------
FOR WITHHELD AUTHORITY
--- ------------------
<S> <C> <C>
Maxwell V. Blum 52,864,716 4300
Mark J. Cocozza 52,864,716 4300
Betty Ann Blum 52,864,716 4300
Marjorie W. Blum 52,864,716 4300
Stephen A. Fine 52,864,716 4300
Jonathan K. Layne 52,864,716 4300
Malcolm L. Sherman 52,864,716 4300
</TABLE>
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 April 14, 1997 in which it reported the consummation
of a joint venture between itself, certain of the Company's
affiliates and The Butler Group Inc., a wholly owned subsidiary
of General Electric Capital Corporation. The Company filed a
second 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 the
aforementioned joint venture.
10
<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: June 6, 1997 By:/s/ Richard J. Bakos
--------------------
Richard J. Bakos
Vice President Finance and
Chief Financial Officer
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-01-1996
<PERIOD-END> APR-30-1997
<CASH> 4,108
<SECURITIES> 0
<RECEIVABLES> 23,323
<ALLOWANCES> 788
<INVENTORY> 18,127
<CURRENT-ASSETS> 45,830
<PP&E> 2,741
<DEPRECIATION> 1,581
<TOTAL-ASSETS> 52,318
<CURRENT-LIABILITIES> 6,447
<BONDS> 0
0
0
<COMMON> 76
<OTHER-SE> 45,381
<TOTAL-LIABILITY-AND-EQUITY> 52,318
<SALES> 59,837
<TOTAL-REVENUES> 59,837
<CGS> 43,416
<TOTAL-COSTS> 43,416
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 63
<INTEREST-EXPENSE> 27
<INCOME-PRETAX> 6,212
<INCOME-TAX> 2,360
<INCOME-CONTINUING> 3,852
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,852
<EPS-PRIMARY> 0.46
<EPS-DILUTED> 0.46
</TABLE>
