<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
--------------------
FORM 10-Q
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED APRIL 30, 1998
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 (IRS Employer
incorporation or organization) Identification Number)
101 SPRAGUE STREET
PO BOX 37
HYDE PARK (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 June 1, 1998:
Class A 7,674,348
---------------------------
Class B 0
---------------------------
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<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
- -------
MAXWELL SHOE COMPANY INC.
BALANCE SHEETS
(Unaudited-In Thousands)
<TABLE>
<CAPTION>
April 30, October 31,
ASSETS 1998 1997
-------------- --------------
<S> <C> <C>
Current asset:
Cash and cash equivalents............................................ $ 19,374 $ 3,129
Accounts receivable.................................................. 29,622 28,594
Inventory, net....................................................... 19,342 20,141
Prepaid expenses..................................................... 1,811 251
Deferred income taxes................................................ 1,312 1,526
Total current assets.................................................... 71,461 53,641
Property and equipment, net............................................. 4,626 1,393
Trademarks.............................................................. 4,950 5,133
Other assets............................................................ 14 12
-------------- --------------
$ 81,051 $ 60,179
============== ==============
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable..................................................... $ 2,676 2,197
Accrued expenses..................................................... 7,304 6,767
Deferred income taxes................................................ 179 111
Current portion of capital lease obligation.......................... 125 125
-------------- --------------
Total current liabilities............................................... 10,284 9,200
Capital lease obligation................................................ 282 344
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,
7,675 outstanding in 1998, (2,525 outstanding in 1997)........... 77 25
Class B common stock, par value $.01, 10,000 shares authorized,
none outstanding in 1998, (5,063 outstanding in 1997)............ 0 51
Additional paid-in capital........................................... 41,787 27,312
Retained earnings.................................................... 28,621 23,247
-------------- --------------
Total stockholders' equity.............................................. 70,485 50,635
-------------- --------------
$ 81,051 $ 60,179
============== ==============
</TABLE>
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,
------------------------------------ ------------------------------------
1998 1997 1998 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales.................................... $ 39,786 $ 31,073 $ 76,114 $ 59,837
Cost of sales................................ 28,862 21,912 55,353 43,416
------------- ------------- ------------- -------------
Gross profit................................. 10,924 9,161 20,761 16,421
Operating expenses:
Selling..................................... 2,647 2,040 5,025 3,810
General and administrative.................. 3,765 3,442 7,567 6,235
------------- ------------- ------------- -------------
6,412 5,482 12,592 10,045
------------- ------------- ------------- -------------
Operating income............................. 4,512 3,679 8,169 6,376
Other expenses (income)
Interest.................................... 10 20 21 27
Amortization of Trademarks.................. 92 92 183 183
Other, net.................................. (53) 34 (95) (46)
------------- ------------- ------------- -------------
49 146 109 164
------------- ------------- ------------- -------------
Income before income taxes................... 4,463 3,533 8,060 6,212
Income taxes................................. 1,318 1,343 2,685 2,360
------------- ------------- ------------- -------------
Net income................................... $ 3,145 $ 2,190 $ 5,375 $ 3,852
============= ============= ============= =============
Net income per share
Basic....................................... $.41 $.29 $.70 $.51
Diluted..................................... $.35 $.26 $.61 $.46
Shares used to compute net
income per share:
Basic....................................... 7,675 7,588 7,632 7,588
Diluted..................................... 8,882 8,422 8,788 8,398
</TABLE>
3
<PAGE>
MAXWELL SHOE COMPANY INC.
STATEMENTS OF CASH FLOW
(Unaudited In Thousands)
<TABLE>
<CAPTION>
Six Months Ended
April 30,
------------------------------
1998 1997
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net Income.................................................. $ 5,375 $ 3,852
Adjustments to reconcile net income to net cash provided
(used) by operating activities
Depreciation and amortization............................ 533 319
Deferred income taxes.................................... 282 (222)
Doubtful accounts provision.............................. 62 58
Changes in operating assets and liabilities:
Accounts receivable.................................. (1,090) (5,740)
Inventory............................................ 799 (5,952)
Prepaid expenses..................................... (1,560) 113
Other assets......................................... (2) 0
Accounts payable..................................... 478 998
Accrued income taxes................................. 0 66
Accrued expenses..................................... 537 551
------------ ------------
Net cash provided (used) by operating activities............ 5,414 (5,957)
INVESTING ACTIVITIES
Purchases of property and equipment......................... (3,583) (256)
------------ ------------
Net cash used by investing activities....................... (3,583) (256)
FINANCING ACTIVITIES
Sale of common stock proceeds............................... 13,237 -
Stock option proceeds....................................... 1,239 -
Payments on capital lease obligations....................... (62) (72)
------------ ------------
Net cash provided (used) by financing activities............ 14,414 (72)
------------ ------------
Net increase (decrease) in cash and cash equivalents........ 16,245 (6,285)
Cash and cash equivalents at beginning of year.............. 3,129 10,393
------------ ------------
Cash and cash equivalents at end of quarter $ 19,374 $ 4,108
============ ============
Interest paid............................................... $ 21 $ 27
============ ============
Income taxes paid........................................... $ 4,027 $ 2,516
============ ============
</TABLE>
4
<PAGE>
MAXWELL SHOE COMPANY INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
April 30, 1998
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 included in the Company's 10-K Annual Report for the fiscal
year ended October 31, 1997.
2. NET INCOME PER SHARE
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, Earnings per Share. Statement 128
replaced the previously reported primary and fully diluted earnings per
share with basic and diluted earnings per share. Unlike primary earnings
per share, basic earnings per share excludes any dilutive effects of
options, warrants, and convertible securities. Diluted earnings per share
is very similar to the previously reported fully diluted earnings per
share. All earnings per share amounts for all periods have been presented,
and where necessary, restated to conform to the Statement 128 requirements.
Basic income per share is computed based on the weighted average number of
common shares outstanding during the period. Diluted income per share is
computed based on basic shares outstanding increased by incremental shares
assumed issued for dilutive common stock equivalents in the form of stock
options.
3. ACCOUNTINGS PRONOUNCEMENTS
In June 1997, the FASB issued Statement No. 130, "Reporting Comprehensive
Income" (FAS 130) and Statement No. 131, "Disclosure About Segments of an
enterprise and Related Information" (FAS 131). FAS 130 establishes
standards for reporting and displaying comprehensive income and its
components. FAS 131 establishes standards for public companies to report
information about operating segments in financial statements, and
supersedes FAS 14, "Financial Reporting for Segments of a Business
Enterprise," but retains the requirements to report information about major
customers. FAS 130 and FAS 131 are effective for the Company in fiscal
1999. The Company does not believe the adoption of these Statements will
have a material effect on the Company's financial statements.
5
<PAGE>
MAXWELL SHOE COMPANY INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
April 30, 1998
4. PUBLIC STOCK OFFERING
On April 27, 1998, the Company completed a public stock offering of an
aggregate of 6,145,792 shares of Class A Common Stock at $17.50 per share.
Of the shares sold, 5,044,167 Class A shares were sold by members of the
Blum family and a trust for their benefit upon conversion of a like number
of Class B shares and exercise of stock options, and 300,000 Class A shares
were sold by the Company Chairman and CEO pursuant to the exercise of stock
options. The Company did not receive any proceeds from the sale of shares
by the selling stockholders. In addition, the Company sold 801,625 shares
of Class A Common Stock pursuant to the full exercise of an over-allotment
option granted by the Company to the underwriters. The Company received
$13.2 million from the exercise of the over-allotment option and $1.2
million from the exercise of stock options. The Company no longer has any
Class B shares outstanding. The Company expensed $.5 million of costs
related to the sale of shares by the selling stockholders pursuant to prior
contractual obligations of the Company.
The exercise of the CEO's options resulted in a tax benefit of $.9 million
for 1998. The benefit results from the realization of a portion of a
deferred tax asset previously recorded and fully reserved in connection
with the granting of the options in 1994. The Company's effective tax rate
for 1998 is anticipated to be 33%. The effective tax rate for the three
months ended April 30, 1998 is 29% because the benefit from the exercise of
options was not reflected in the Company's tax provision recorded for the
three months ended January 31, 1998.
6
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
- ------- CONDITION AND RESULTS OF OPERATIONS
Results of Operations
The following table sets forth net sales by product line or category of
business:
<TABLE>
<CAPTION>
Three Months Ended April 30,
---------------------------------------------
1998 1997
-------------------- --------------------
($ Millions)
<S> <C> <C> <C> <C>
Mootsies Tootsies.............. $ 20.8 52.2% $ 17.5 56.3%
Jones New York Footwear........ 9.8 24.8 6.7 21.6
Sam & Libby.................... 4.1 10.2 3.8 12.3
Private Label Footwear......... 4.4 11.1 2.7 8.6
Closeout....................... .7 1.7 .4 1.2
------- -------- ------- --------
$39.8 100.0% $31.1 100.0%
======= ======== ======= ========
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended April 30,
---------------------------------------------
1998 1997
-------------------- --------------------
($ Millions)
<S> <C> <C> <C> <C>
Mootsies Tootsies.............. $ 36.7 48.2% $ 32.8 54.9%
Jones New York Footwear........ 19.2 25.2 14.6 24.4
Sam & Libby.................... 7.4 9.7 6.1 10.2
Private Label Footwear......... 11.1 14.6 5.3 8.8
Closeout....................... 1.7 2.3 1.0 1.7
------- -------- ------- --------
$76.1 100.0% $59.8 100.0%
======= ======== ======= ========
</TABLE>
Three Months Ended April 30, 1998 Compared to Three Months Ended April 30, 1997
Net sales were $39.8 million for the three months ended April 30, 1998 compared
to $31.1 million for the same period in the prior year, an increase of 28.0%.
The net sales increase was due to an 18.7% increase in net sales of Mootsies
Tootsies footwear, a 47.1% increase in net sales of Jones New York footwear, and
a 65.3% increase in net sales of private label footwear.
Gross profit in the second quarter of fiscal 1998 was $10.9 million compared to
$9.2 million in the second quarter of fiscal 1997, or 27.5% of net sales as
compared to 29.5% for the same quarter in 1997. The decrease in gross margins
for the second quarter of fiscal 1998 was due to an increased proportion of net
sales from private label which carry a lower gross margin.
Selling, general and administrative expenses increased $.9 million during the
second quarter of fiscal 1998 due to increased selling commissions and shipping
expenses related to the increased net sales volume and start up costs of new
warehouse facilities. As a percent of net sales, S.G.&A. expense for the second
quarter of fiscal 1998 was 16.1% compared to 17.6% in the same period in 1997.
Other expense was $49,000 for the three months ended April 30, 1998 compared to
other expense of $146,000 for the same period in the prior year. In 1998, the
Company received $.5 million in management fees from its unconsolidated
subsidiary SLJ Retail LLC offset by $.5 million in expenses related to the
public offering.
7
<PAGE>
Six Months Ended April 30, 1998 Compared to Six Months ended April 30, 1997
Net sales were $76.1 million for the six months ended April 30, 1998 compared to
$59.8 million for the same period in the prior year, an increase of 27.2%. The
net sales increase was due to a 111.0% increase in net sales of private label
footwear, a 31.7% increase in net sales of Jones New York footwear and an 11.7%
increase in net sales of Mootsies Tootsies footwear.
Gross profit in the first six months of fiscal 1998 was $20.8 million as
compared to $16.4 million in the first six months of fiscal 1997, or 27.3% of
net sales as compared to 27.4% for the same period in 1997.
Selling, general and administrative expenses increased $2.5 million during the
first six months of fiscal 1998 due to increased selling commissions and
advertising expenses as a result of the higher net sales in the first six months
of fiscal 1998 compared to the same period in fiscal 1997. Distribution
expenses increased due to both volume increases and start up expenses of the new
warehouse facility in Brockton, Massachusetts.
The Company has accrued an anticipated effective annual income tax rate of 33%
(29% for the second fiscal quarter) for fiscal year 1998, compared to 38% for
fiscal year 1997. The anticipated effective tax rate for 1998 and the second
fiscal quarter tax rate reflects a $.9 million tax benefit from the exercise of
300,000 stock options by the Company's Chairman and CEO. The benefit results
from the realization of a portion of a deferred tax asset previously recorded
and fully reserved in connection with the granting of the options in 1994.
At April 30, 1998 and 1997, the Company had unfilled customer orders (backlog)
of $74.4 million and $61.2 million respectively, an increase of 21.4%. 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, 1998 will
be shipped within six months from such date.
Liquidity and Capital Resources
The Company has relied upon internally generated cash flows from operations, and
financing activities from the proceeds of the sale of stock, stock options, and
borrowings under its revolving credit facility to finance its operations and
expansion. Net cash provided by operating activities totaled approximately $5.4
million in the six month period ended April 30, 1998, as compared to net cash
used of $6.0 million for the same period in 1997. The increase in cash provided
by operations in the first six months of fiscal 1998 was caused by the decrease
in inventory levels and smaller increases in accounts receivable balances
compared to the same period in the prior year. Net cash provided from financing
activities consisted of $13.2 million from the sale of stock and $1.2 million
from the exercise of stock options. Working capital was $61.1 million at April
30, 1998 as compared to $44.4 million at October 31, 1997. The increase is due
primarily to the increase in cash from the sale of stock and exercise of stock
options. 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
8
<PAGE>
eligible accounts receivable, inventory, and a portion of the open letters of
credit. As of April 30, 1998, total outstanding letters of credit were $23.6
million and $1.4 million was available for future borrowings.
Capital expenditures were $3.6 million for the six months ended April 30, 1998.
The Company is in the process of installing a computerized warehouse management
system in its Brockton, Massachusetts facility, as well as new hardware and
software for the Company's computer needs. The estimated total cost of capital
expenditures for these projects in fiscal 1998 is $6.0 million. The Company is
dependent upon complex computer systems for certain phases of its operations,
including sales, distribution and delivery. Since many of the Company's older
computer software programs recognize only the last two digits of the year in any
date (e.g., "97" for "1997"), some software may fail to operate properly in 1999
or 2000 if the software is not reprogrammed or replaced (the "Year 2000
Problem"). The Company believes that many of its customers also have Year 2000
Problems which could adversely affect the Company. The Company intends to spend
up to $3.0 million in fiscal 1998 (which is included in the $6.0 million
expenditure referred to above) to upgrade its computer systems and address the
Year 2000 Problem. The Company plans to fund this expenditure with current cash
resources or equipment financing arrangements. It is not possible at present to
quantify the financial effect of the Year 2000 Problem if it is not timely
resolved. However, the Company presently believes that the cost of fixing the
Year 2000 Problem will not have a material effect on the Company's financial
condition or results of operations.
The Company regularly enters into forward exchange contracts in anticipation of
future purchases of inventory denominated in foreign currency, principally the
Spanish peseta. As of the date of this report, future inventory purchases
required 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 1998, including its expected growth, with current
cash resources and cash flow from operations.
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 or retailers, 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
April 2, 1998.
(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 2,535,770 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>
Number of Votes Received
-----------------------------
Withheld
Name For Authority
------------------ ------------- -------------
<S> <C> <C>
Maxwell V. Blum 53,079,294 400
Mark J. Cocozza 53,079,294 400
Betty Ann Blum 53,079,294 400
Marjorie W. Blum 53,079,294 400
Stephen A. Fine 53,079,294 400
Jonathan K. Layne 53,079,294 400
Malcolm L. Sherman 53,079,294 400
</TABLE>
(c) An amendment to the 1994 Stock Incentive Plan was approved by the
stockholders by the following votes:
<TABLE>
<CAPTION>
Class A Votes Class B Votes
----------------- ----------------
<S> <C> C>
Votes For 89,596 50,633,170
Votes Against 80,356 -
Votes Abstaining 15,100 -
</TABLE>
10
<PAGE>
ITEM 5: OTHER INFORMATION.
- -------
None.
ITEM 6: EXHIBITS AND REPORTS ON FROM 8-K:
- ------
(a) Reports on Form 8-K
There were no reports on Form 8-K during the three months ended
April 30, 1998. However, the Company filed a report on Form 8-K
dated May 4, 1998 regarding the fact that the Company is no
longer controlled by Maxwell V. Blum or any member of the Blum
family as a result of the consummation of the common stock public
offering noted elsewhere in this Form 10-Q.
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 1, 1998 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-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> APR-30-1998
<CASH> 19,374
<SECURITIES> 0
<RECEIVABLES> 30,412
<ALLOWANCES> 790
<INVENTORY> 19,342
<CURRENT-ASSETS> 71,461
<PP&E> 6,626
<DEPRECIATION> 2,000
<TOTAL-ASSETS> 81,051
<CURRENT-LIABILITIES> 10,284
<BONDS> 0
0
0
<COMMON> 77
<OTHER-SE> 70,408
<TOTAL-LIABILITY-AND-EQUITY> 81,051
<SALES> 76,114
<TOTAL-REVENUES> 76,114
<CGS> 55,353
<TOTAL-COSTS> 55,353
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 62
<INTEREST-EXPENSE> 21
<INCOME-PRETAX> 8,060
<INCOME-TAX> 2,685
<INCOME-CONTINUING> 5,375
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,375
<EPS-PRIMARY> 0.70
<EPS-DILUTED> 0.61
</TABLE>
