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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 JANUARY 31, 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)
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<S> <C>
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)
</TABLE>
(617) 364-5090
(Registrant's telephone number, including area code)
NONE
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(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 March 2, 1998:
Class A 2,535,770
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Class B 5,063,317
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PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
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MAXWELL SHOE COMPANY INC.
BALANCE SHEETS
(Unaudited--In Thousands)
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<CAPTION>
January 31, October 31,
A S S E T S 1998 1997
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<S> <C> <C>
Current assets:
Cash and cash equivalents............................ $ 1,493 $ 3,129
Accounts receivable.................................. 29,715 28,594
Inventory, net....................................... 25,696 20,141
Prepaid expenses..................................... 295 251
Deferred income taxes................................ 1,374 1,526
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Total current assets................................... 58,573 53,641
Property and equipment, net............................ 3,208 1,393
Trademarks............................................. 5,042 5,133
Other assets........................................... 12 12
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$66,835 $60,179
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L I A B I L I T I E S A N D
S T O C K H O L D E R S' E Q U I T Y
Current liabilities:
Accounts payable..................................... 3,080 2,197
Accrued expenses..................................... 10,322 6,767
Deferred income taxes................................ 131 111
Current portion of capital lease obligation.......... 125 125
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Total current liabilities.............................. 13,658 9,200
Capital lease obligation............................... 313 344
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, 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.................................... 25,476 23,247
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Total stockholders' equity............................. 52,864 50,635
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$66,835 $60,179
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The accompanying notes are an integral part of these statements.
2
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MAXWELL SHOE COMPANY INC.
STATEMENTS OF INCOME
(Unaudited--In Thousands Except Per Share Amounts)
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<CAPTION>
Three Months Ended
January 31,
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1998 1997
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<S> <C> <C>
Net sales..................................... $36,328 $28,764
Cost of sales................................. 26,491 21,503
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Gross profit.................................. 9,837 7,261
Operating expenses:
Selling..................................... 2,378 1,770
General and administrative.................. 3,802 2,793
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6,180 4,563
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Operating income.............................. 3,657 2,698
Other expenses (income)
Interest.................................... 11 7
Amortization of Trademarks.................. 91 91
Other, net.................................. (42) (80)
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60 18
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Income before income taxes.................... 3,597 2,680
Income taxes.................................. 1,367 1,018
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Net income.................................... $ 2,230 $ 1,662
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Net income per share
Basic....................................... $.29 $.22
Diluted..................................... $.26 $.20
Shares used to compute net income per share:
Basic....................................... 7,588 7,588
Diluted..................................... 8,702 8,358
</TABLE>
The accompanying notes are an integral part of these statements.
3
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MAXWELL SHOE COMPANY INC.
STATEMENTS OF CASH FLOWS
(Unaudited--In Thousands)
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<CAPTION>
Three Months Ended
January 31,
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1998 1997
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<S> <C> <C>
OPERATING ACTIVITIES
Net Income................................................ $ 2,230 $ 1,662
Adjustments to reconcile net income to net cash provided
(used) by operating activities
Depreciation and amortization........................... 267 157
Deferred income taxes................................... 172 (220)
Doubtful accounts provision............................. 31 30
Changes in operating assets and liabilities:
Accounts receivable.................................. (1,152) (9,225)
Inventory............................................ (5,556) (7,307)
Prepaid expenses..................................... (44) (94)
Accounts payable..................................... 883 2,022
Accrued income taxes................................. 597 1,514
Accrued expenses..................................... 2,957 2,731
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Net cash provided (used) by operating activities.......... 385 (8,730)
INVESTING ACTIVITIES
Purchases of property and equipment....................... (1,990) (146)
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Net cash used by investing activities..................... (1,990) (146)
FINANCING ACTIVITIES
Payments on capital lease obligations..................... (31) (41)
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Net cash used by financing activities..................... (31) (41)
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Net decrease in cash and cash equivalents................. (1,636) (8,917)
Cash and cash equivalents at beginning of year............ 3,129 10,393
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Cash and cash equivalents at end of quarter............... $ 1,493 $ 1,476
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Interest paid............................................. $ 11 $ 7
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Income taxes paid......................................... $ 442 $ 107
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The accompanying notes are an integral part of these statements.
4
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MAXWELL SHOE COMPANY INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
January 31, 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 for the year ended October 31, 1997 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.
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
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
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CONDITION AND RESULTS OF OPERATIONS
Results of Operations
The following table sets forth net sales by product line or category of
business:
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<CAPTION>
Three Months Ended January 31,
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1998 1997
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($ Millions)
<S> <C> <C> <C> <C>
Mootsies Tootsies.................. $15.9 43.8% $15.4 53.4%
Jones New York Footwear............ 9.4 25.9 7.9 27.4
Sam & Libby........................ 3.3 9.1 2.3 8.0
Private Label Footwear............. 6.7 18.5 2.6 9.0
Closeout........................... 1.0 2.7 .6 2.2
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$36.3 100.0% $28.8 100.0%
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Three Months Ended January 31, 1998 Compared to Three Months Ended January 31,
1997
Net sales were $36.3 million for the three months ended January 31, 1998
compared to $28.8 million for the same period in the prior year, an increase of
26.3%. The net sales increase was due primarily to a $4.1 million increase in
the net sales of private label footwear and a $3.0 million increase in the net
sales of the Company's branded footwear as compared to the same period in the
prior year.
Gross profits in the first quarter of fiscal 1998 were $9.8 million
compared to $7.3 million in the first quarter of fiscal 1998, or 27.1% of net
sales as compared to 25.2% for the same quarter in 1997. The increase in gross
margins for the first quarter of fiscal 1998 was due to improved gross margins
in the branded lines of footwear.
Selling, general and administrative expenses increased $1.6 million during
the first 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. Advertising expense increased by $0.3 million due
to increased activity and in store point of sale promotion items.
The Company has accrued an effective income tax rate of 38% for the
relevant periods in fiscal years 1998 and 1997.
At January 31, 1998 and 1997, the Company had unfilled customer orders
(backlog) of $59.4 million and $47.1 million respectively, an increase of 26.1%.
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 January 31, 1998
will be shipped within six months from such date.
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 provided by operating activities totaled
approximately $.4 million in the three month period ended January 31, 1998, as
compared to net cash used of $8.7 million for the same period in 1997. The
decrease in cash used in operations from the prior year was due to the absence
of significant growth in accounts receivable which occurred in 1997. Working
capital was $44.9 million at January 31, 1998
6
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as compared to $44.4 million at October 31, 1997. 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 January 31, 1998, total
outstanding letters of credit were $10.7 million and $14.3 million was available
for future borrowings.
Capital expenditures were $2.0 million for the three months ended January
31, 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 utilizes operating leases for substantially all of its management
information systems.
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 which is intended to, among other things, address the Year 2000
Problem. The Company plans to fund this expenditure through borrowings under
its revolving credit facility 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 current 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, the Company
anticipates future inventory purchases which will utilize such foreign currency.
The Company anticipates that it will be able to satisfy its cash
requirements for the remainder of fiscal 1998, 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 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.
7
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PART II. OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS.
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None.
ITEM 2: CHANGES IN SECURITIES.
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None.
ITEM 3: DEFAULTS UPON SENIOR SECURITIES.
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None.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
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None.
ITEM 5: OTHER INFORMATION.
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None.
ITEM 6: EXHIBITS AND REPORTS ON FROM 8-K:
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(a) Reports on Form 8-K
There were no reports on Form 8-K during the three months ended
January 31, 1998.
8
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SIGNATURES
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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: March 2, 1998 By: /s/ Richard J. Bakos
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Richard J. Bakos
Vice President, Finance and
Chief Financial Officer
9
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> JAN-31-1998
<CASH> 1,493
<SECURITIES> 0
<RECEIVABLES> 30,476
<ALLOWANCES> 761
<INVENTORY> 25,696
<CURRENT-ASSETS> 58,573
<PP&E> 5,033
<DEPRECIATION> 1,825
<TOTAL-ASSETS> 66,835
<CURRENT-LIABILITIES> 13,658
<BONDS> 0
76
0
<COMMON> 0
<OTHER-SE> 52,788
<TOTAL-LIABILITY-AND-EQUITY> 66,835
<SALES> 36,328
<TOTAL-REVENUES> 36,328
<CGS> 26,491
<TOTAL-COSTS> 26,491
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 31
<INTEREST-EXPENSE> 11
<INCOME-PRETAX> 2,680
<INCOME-TAX> 1,018
<INCOME-CONTINUING> 1,662
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,662
<EPS-PRIMARY> 0.29
<EPS-DILUTED> 0.26
</TABLE>
