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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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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, 1999
or
[_] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from
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to
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Commission File Number 0-24026
MAXWELL SHOE COMPANY INC.
(Exact name of registration as specified in its charter)
Delaware 04-2599205
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
101 Sprague Street
P.O. 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
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 12, 1999:
Class A 8,795,899
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Class B None
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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)
<TABLE>
<CAPTION>
January 31, October 31,
ASSETS 1999 1998
---- ----
<S> <C> <C>
Current asset:
Cash and cash equivalents............. $14,423 $18,731
Accounts receivable, trade (net of
allowance for doubtful accounts
and discounts of $614 in 1999,
$581 in 1998)........................ 35,672 35,655
Inventory, net........................ 28,154 22,928
Prepaid expenses...................... 864 430
Prepaid income taxes.................. 387 1,177
Deferred income taxes................. 1,115 1,074
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Total current assets.................... 80,615 79,995
Property and equipment, net............. 6,205 6,231
Trademarks, net......................... 4,675 4,767
Other assets............................ 12 12
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$91,507 $91,005
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<CAPTION>
LIABILITIES AND
STOCKHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Accounts payable...................... $ 1,940 $ 3,824
Accrued expenses...................... 6,104 5,938
Deferred income taxes................. 362 306
Current portion of capital lease
obligations.......................... 125 125
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Total current liabilities............... 8,531 10,193
Long-term deferred income taxes......... 1,283 1,283
Capital lease obligation................ 189 220
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,
8,796 outstanding in 1999,
8,794 outstanding in 1998............ 88 88
Class B common stock, par value $.01,
10,000 shares authorized, none
outstanding in 1999 and 1998......... 0 0
Additional paid-in capital............ 43,027 43,015
Deferred compensation................. (290) (306)
Retained earnings..................... 38,679 36,512
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Total stockholders' equity.............. 81,504 79,309
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$91,507 $91,005
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</TABLE>
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)
<TABLE>
<CAPTION>
Three Months Ended
January 31,
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1999 1998
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<S> <C> <C>
Net sales............................... $35,906 $36,328
Cost of sales........................... 26,461 26,491
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Gross profit............................ 9,445 9,837
Operating expenses:
Selling............................... 2,225 2,378
General and administrative............ 3,735 3,802
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5,960 6,180
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Operating income........................ 3,485 3,657
Other expenses (income)
Interest.............................. 7 11
Amortization of trademarks............ 91 91
Other, net............................ (226) (42)
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(128) 60
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Income before income taxes.............. 3,613 3,597
Income taxes............................ 1,445 1,367
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Net income.............................. $ 2,168 $ 2,230
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Net income per share
Basic................................. $ .25 $ .29
Diluted............................... $ .23 $ .26
Shares used to compute net
income per share:
Basic................................. 8,795 7,588
Diluted............................... 9,547 8,702
</TABLE>
The accompanying notes are an integral part of these statements.
3
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MAXWELL SHOE COMPANY INC.
STATEMENTS OF CASH FLOW
(Unaudited--In Thousands)
<TABLE>
<CAPTION>
Three Months Ended
January 31,
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1999 1998
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<S> <C> <C>
Operating Activities
Net Income.............................. $ 2,168 $ 2,230
Adjustments to reconcile net income
to net cash provided (used) by
operating activities:
Depreciation and amortization........ 430 267
Deferred income taxes................ 15 172
Doubtful accounts provision.......... 38 31
Changes in operating assets and
liabilities:
Accounts receivable............... (55) (1,152)
Inventory......................... (5,226) (5,556)
Prepaid expenses.................. 371 (44)
Accounts payable.................. (1,884) 883
Income taxes payable.............. 0 597
Accrued expenses.................. 166 2,957
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Net cash (used) provided by operating
activities............................. (3,977) 385
Investing Activities
Purchases of property and equipment..... (312) (1,990)
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Net cash used by investing activities... (312) (1,990)
Financing Activities
Proceeds from exercise of stock option.. 12 0
Payments on capital lease obligations... (31) (31)
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Net cash used by financing activities... (19) (31)
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Net decrease in cash and cash
equivalents............................ (4,308) (1,636)
Cash and cash equivalents at
beginning of year...................... 18,731 3,129
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Cash and cash equivalents at end of
quarter................................ $14,423 $ 1,493
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Interest paid........................... $ 7 $ 11
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Income taxes paid....................... $ 639 $ 442
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</TABLE>
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, 1999
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 principals 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, 1998.
2. Net Income Per Share
In 1997, the Financial Accounting Standards Board (FASB) 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 for dilutive common stock equivalents in the form of stock options.
3. Accounting Pronouncements
Effective November 1, 1998, the Company adopted 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.
For the three months ended January 31, 1999 and 1998, total comprehensive
income is equal to net income.
In June 1998, the FASB issued Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (FAS 133), which provides for accounting
of foreign exchange contracts. This Statement is effective for the Company
in fiscal 2000 and is not expected to have a material impact on the
Company's financial statements based on current and expected levels of
foreign exchange activity.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
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Results of Operations
The following table sets forth net sales by product line or category of
business:
<TABLE>
<CAPTION>
Three Months Ended January 31,
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1999 1998
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($ Millions)
<S> <C> <C> <C> C>
Mootsies Tootsies............. $14.9 41.5% $15.9 43.8%
Jones New York Footwear....... 9.2 25.6 9.4 25.9
Sam & Libby................... 5.0 13.9 3.3 9.1
Private Label Footwear........ 6.3 17.5 6.7 18.5
Closeout...................... .5 1.5 1.0 2.7
------ ----- ----- -----
$35.9 100.0% $36.3 100.0%
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</TABLE>
Three Months Ended January 31, 1999 Compared to Three Months Ended January 31,
1998
Net sales were $35.9 million for the three months ended January 31, 1999
compared to $36.3 million for the same period in the prior year.
Gross profits in the first quarter of fiscal 1999 were $9.4 million
compared to $9.8 million in the first quarter of fiscal 1998, or 26.3% of net
sales as compared to 27.1% for the same quarter in 1998. The decrease in gross
profits for the first quarter of fiscal 1999 was due to the relatively flat net
sales base and promotional pricing which was the result of excess inventory at
retail.
Selling, general and administrative expenses decreased $.2 million during
the first quarter of fiscal 1999 due to operating efficiencies.
The Company has accrued an effective income tax rate of 40% and 38%,
respectively, for the relevant periods in fiscal years 1999 and 1998. This was
due to changes in state tax allocations.
At January 31, 1999 and 1998, the Company had unfilled customer orders
(backlog) of $60.8 million and $59.4 million respectively, an increase of 2.4%.
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 January 31, 1999 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 used by operating activities totaled
approximately $4.0 million in the three month period ended January 31, 1999, as
compared to net cash provided of $.4 million for the same period in 1998. The
increase in cash used in operations from the prior year was due to the reduced
levels of accrued expenses and accounts payable. Working capital was $72.1
million at January 31, 1999 as compared to $69.8 million at October 31, 1998.
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 in place with a financial institution a $35.0
million discretionary demand credit facility in favor of the Company. A portion
of the revolving credit facility can be utilized to issue letters of credit to
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guarantee payment of the Company's purchases of footwear manufactured overseas.
As of January 31, 1999, total outstanding letters of credit were $8.9 million
and $26.1 million was available for future borrowings.
Capital expenditures were $.3 million for the three months ended January
31, 1999. The Company is in the process of installing new software for the
Company's computer needs. The estimated total cost of capital expenditures for
these projects in fiscal 1999 is between $1.5 to $2.0 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 recognize a date using "00" as
the year 1900 rather than the year 2000 and fail to operate properly in 1999 or
2000 if the software is not reprogrammed or replaced (the "Year 2000 Problem").
This could result in system failures or miscalculations leading to disruptions
in the Company's operations, including, among other things, a temporary
inability to process transactions, receive inventory from suppliers, ship
inventory to customers, or engage in similar business activities. The Company
believes that many of its customers and suppliers also have Year 2000 Problems
which could adversely affect the Company. One area in which customers' Year 2000
Problems could adversely impact the Company and its operations relates to
electronically received orders for the Company's products through Electronic
Data Interchange (EDI). Significant customers and suppliers have been identified
and the Company has opened communication with them in regards to the Year 2000
Problem. Correspondence has been sent to all significant customers and suppliers
and the Company has been told by a large majority that they expect to be Year
2000 compliant prior to the creation of material Year 2000 Problems. The Company
plans to perform follow-up inquiries with these significant customers and
suppliers. In the event some customers and suppliers are not Year 2000
compliant, the Company's contingency plan includes utilization of existing
manual order receiving capabilities and increasing inventory. The Company
currently receives approximately 15-20% of orders for its products through EDI.
The Company intends to spend up to $1.0 million in fiscal 1999 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. Although, 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,
expectations about future year 2000-related costs are subject to various
uncertainties that could cause the actual results to differ materially from the
Company's expectations, including the success of the Company in identifying
systems and programs that are not Year 2000 ready, the nature and amount of
programming required to upgrade or replace each of the affected programs, the
availability, rate and magnitude of related labor and consulting costs and the
success of the Company's business partners, vendors and clients in addressing
the Year 2000 issue.
Although the Company anticipates that by September 1999 no material
business disruption will occur as a result of the Year 2000 issue, the Year 2000
issue is unique and failure to correct a material Year 2000 issue could result
in an interruption, or a failure of, certain normal business activities or
operations, such as loss of communications with store locations, inability to
process transactions, inability for malls to operate, and the disruption of the
supply of product and distribution channel. Such failures could materially and
adversely affect the Company's results of operations, liquidity and financial
condition. Due to general uncertainty inherent in the Year 2000 Problem,
resulting from the uncertainty of the Year 2000 readiness of third parties, the
Company is unable to determine at this time whether the consequences of Year
2000 failures will have a material impact on the Company's results of
operations, liquidity or financial condition. The Company's Year 2000 Plan is
expected to significantly reduce the Company's level of uncertainty about the
Year 2000 issue and the readiness of its material third parties. The Company
believes that with the completion of the Plan as scheduled, the possibility of
significant interruptions of normal operations should be reduced.
The Company from time to time enters into forward exchange contracts in
anticipation of future purchases of inventory denominated in foreign currency,
principally the Spanish peseta. As of January 31, 1999 the Company did not have
any forward exchange contracts.
The Company anticipates that it will be able to satisfy its cash
requirements for the remainder of fiscal 1999, including its expected growth,
primarily with 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
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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.
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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 Form 8-K:
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(a) The following reports on Form 8-K were filed during the three
months ended January 31, 1999:
(1) Form 8-K filed on November 6, 1998 relating to the adoption
of a stockholder rights plan by the Company.
(2) Form 8-K/A filed on November 12, 1998 relating to the
adoption of a stockholder rights plan by the Company.
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SIGNATURES
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Pursuant to the requirements of the Securities 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 12, 1999 By: /s/ Richard J. Bakos
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Richard J. Bakos
Vice President, Finance and
Chief Financial Officer
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-START> NOV-01-1998
<PERIOD-END> JAN-31-1999
<CASH> 14,423
<SECURITIES> 0
<RECEIVABLES> 36,286
<ALLOWANCES> 614
<INVENTORY> 28,154
<CURRENT-ASSETS> 80,615
<PP&E> 9,040
<DEPRECIATION> 2,835
<TOTAL-ASSETS> 91,507
<CURRENT-LIABILITIES> 8,531
<BONDS> 0
0
0
<COMMON> 88
<OTHER-SE> 81,416
<TOTAL-LIABILITY-AND-EQUITY> 91,507
<SALES> 35,906
<TOTAL-REVENUES> 35,906
<CGS> 26,461
<TOTAL-COSTS> 26,461
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 38
<INTEREST-EXPENSE> 7
<INCOME-PRETAX> 3,613
<INCOME-TAX> 1,445
<INCOME-CONTINUING> 2,168
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,168
<EPS-PRIMARY> .25
<EPS-DILUTED> .23
</TABLE>
