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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, 2000
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 March 9, 2000:
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 2000 1999
-------------- --------------
<S> <C> <C>
Current asset:
Cash and cash equivalents............................................ $ 48,845 $ 28,901
Restricted cash...................................................... 0 25,000
Accounts receivable, trade (net of allowance for doubtful
accounts and discounts of $827 in 2000, $785 in 1999)............ 27,679 29,753
Inventory, net....................................................... 19,271 11,327
Prepaid expenses..................................................... 2,666 735
Deferred income taxes................................................ 841 739
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Total current assets.................................................... 99,302 96,455
Property and equipment, net............................................. 7,758 7,897
Trademarks, net......................................................... 4,308 4,400
Other assets............................................................ 12 12
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Total Assets............................................................ $ 111,380 $ 108,764
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LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable..................................................... $ 3,726 $ 3,179
Accrued expenses..................................................... 6,342 5,346
Deferred income taxes................................................ 684 593
Current portion of capital lease obligation.......................... 117 117
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Total current liabilities............................................... 10,869 9,235
Long-term deferred income taxes......................................... 1,168 1,191
Capital lease obligation................................................ 72 102
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........................................... 43,026 43,026
Deferred compensation................................................ (229) (244)
Retained earnings.................................................... 56,386 55,366
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Total stockholders' equity.............................................. 99,271 98,236
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Total Liabilities and Stockholders' Equity.............................. $ 111,380 $ 108,764
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</TABLE>
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,
------------------------------------
2000 1999
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<S> <C> <C>
Net sales................................................................. $ 29,156 $ 35,906
Cost of sales............................................................. 22,125 26,461
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Gross profit.............................................................. 7,031 9,445
Operating expenses:
Selling................................................................ 2,331 2,225
General and administrative............................................. 3,642 3,735
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5,973 5,960
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Operating income.......................................................... 1,058 3,485
Other expenses (income)
Interest............................................................... 7 7
Amortization of trademarks............................................. 91 91
Other, net............................................................. (741) (226)
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(643) (128)
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Income before income taxes................................................ 1,701 3,613
Income taxes.............................................................. 681 1,445
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Net income................................................................ $ 1,020 $ 2,168
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Net income per share
Basic.................................................................. $ 0.12 $ 0.25
Diluted................................................................ $ 0.11 $ 0.23
Shares used to compute net
income per share:
Basic.................................................................. 8,796 8,795
Diluted................................................................ 9,414 9,547
</TABLE>
3
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MAXWELL SHOE COMPANY INC.
STATEMENTS OF CASH FLOW
(Unaudited-In Thousands)
<TABLE>
<CAPTION>
Three Months Ended
January 31,
--------------------------------------
2000 1999
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<S> <C> <C>
Operating activities
Net income.............................................................. $ 1,020 $ 2,168
Adjustments to reconcile net income to net cash
used by operating activities:
Depreciation and amortization........................................ 615 430
Deferred income taxes................................................ (34) 15
Doubtful accounts provision.......................................... 42 38
Deferred compensation................................................ 15
Changes in operating assets and liabilities:
Accounts receivable.............................................. 2,032 (55)
Inventory........................................................ (7,944) (5,226)
Prepaid expenses................................................. (1,931) 371
Accounts payable................................................. 547 (1,884)
Income taxes payable............................................. (296) 0
Accrued expenses................................................. 1,292 166
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Net cash used by operating activities................................... (4,642) (3,977)
Investing activities
Release of restricted cash.............................................. 25,000
Purchases of property and equipment..................................... (384) (312)
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Net cash provided (used) by investing activities........................ 24,616 (312)
Financing activities
Proceeds from exercise of stock option.................................. 0 12
Payments on capital lease obligations................................... (30) (31)
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Net cash used by financing activities................................... (30) (19)
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Net increase (decrease) in cash and cash equivalents.................... 19,944 (4,308)
Cash and cash equivalents at beginning of year.......................... 28,901 18,731
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Cash and cash equivalents at end of quarter............................. $ 48,845 $ 14,423
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Interest paid........................................................... $ 7 $ 7
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Income taxes paid....................................................... $ 1,075 $ 639
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</TABLE>
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MAXWELL SHOE COMPANY INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
January 31, 2000
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, 1999.
2. Restricted Cash
On July 9, 1999, the Company completed a transaction under which the
Company sold its license to manufacture and distribute Jones New York
footwear. The proceeds from the transaction were held for the account of
the Company by an independent intermediary pending future utilization for
acquisitions. Such funds were released from restriction in January 2000.
3. Net Income Per Share
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.
4. Accountings Pronouncements
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" (FAS 133) which provides for
the recognition and measurement of derivatives and hedging activities. In
May 1999, the FASB delayed the required implementation date by one year,
making it effective for all fiscal quarters of fiscal years beginning after
June 15, 2000. Management of the Company does not expect the adoption of
this Statement to have a material impact on the Company's financial
statements.
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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:
<TABLE>
<CAPTION>
Three Months Ended January 31,
----------------------------------------------------
2000 1999
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($Millions)
<S> <C> <C> <C> <C>
Mootsies Tootsies................................... $14.4 49.3% $14.9 41.5%
Jones New York Footwear............................. 1.0 3.4 9.2 25.6
Sam & Libby......................................... 4.0 13.7 5.0 13.9
A Line Anne Klein................................... 1.7 5.9 - -
Dockers Footwear for Women.......................... 2.0 6.8 - -
Private Label Footwear.............................. 6.1 20.9 6.3 17.5
Closeout............................................ - - .5 1.5
----- ----- ----- -----
$29.2 100.0% $35.9 100.0%
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</TABLE>
Three Months Ended January 31, 2000 Compared to Three Months Ended January 31,
1999
Net sales were $29.2 million for the three months ended January 31, 2000
compared to $35.9 million for the same period in the prior year. The net sales
decrease was primarily due to the $8.2 million decrease in net sales for Jones
New York Footwear for the fiscal quarter ended January 31, 2000, as compared to
the fiscal quarter ended January 31, 1999. The Jones New York footwear net
sales of $1.0 million in the first quarter of fiscal 2000 were the final net
shipments completing the liquidation of the Company's Jones New York footwear
inventory. The license to manufacture and distribute Jones New York footwear
was sold to Jones Apparel Group, Inc. on July 9, 1999.
Gross profits in the first quarter of fiscal 2000 were $7.0 million
compared to $9.4 million in the first quarter of fiscal 1999, or 24.1% of net
sales as compared to 26.3% for the same quarter in 1999. The decrease in gross
profits for the first quarter of fiscal 2000 was due to Jones New York footwear
net sales at no gross margin and the mix of net sales. In the first quarter of
fiscal 2000 there was a higher percentage of private label sales which generate
a lower gross margin than branded footwear.
Selling, general and administrative expenses as a percentage of net sales
was 20.5% for the quarter ended January 31, 2000, as compared to 16.6% for the
same quarter in fiscal 1999. This was a result of savings from operating
efficiencies offset by increased depreciation expense on a lower net sales
base.
Other income was $.7 million for the three months ended January 31, 2000,
compared to other income of $.2 million for the same period in the prior year.
This was a result of an increase in interest income.
The Company's effective tax rate for fiscal year 2000 is the same as 1999
at 40%.
At January 31, 2000 and 1999, the Company had unfilled customer orders
(backlog), excluding Jones New York and closeout as of January 31, 1999, of
$49.8 million and $42.2 million, respectively, an increase of 18%. 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, 2000 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
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totaled approximately $4.6 million in the three month period ended January 31,
2000, as compared to net cash used of $4.0 million for the same period in 1999.
Working capital was $88.7 million at January 31, 2000 as compared to $87.2
million at October 31, 1999. 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
guarantee payment of the Company's purchases of footwear manufactured overseas.
As of January 31, 2000, total outstanding letters of credit were $12.7 million
and $22.3 million was available for future borrowings.
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, 2000 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 2000, including its expected growth,
primarily with cash flow from operations.
As of the date of this filing, March 9, 2000, the Company has not incurred
any significant business disruptions as a result of year 2000 issues (as defined
below). However, while no such occurrence has developed as of the date of this
filing, year 2000 issues that may arise related to material third parties (as
defined below) may not become apparent immediately and therefore, there is no
assurance that the Company will not be affected by third party noncompliance in
the future. The Company will continue to monitor the issue vigilantly and work
to remediate any issues that may arise.
The year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Such software and
devices with embedded technology may recognize a date using "00" as the year
1900 rather than the year 2000. 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 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 could
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 although there have been no reported problems to date,
the Company maintains an open line of communication with them in regards to the
Year 2000 Problem and its effects going forward. Prior to January 1, 2000,
correspondence was sent to all significant customers and suppliers and the
Company was told by a large majority that they expected to be Year 2000
compliant prior to the development of material Year 2000 Problems. Although
there have been no disruptions to date, the Company is following up with
inquiries with these significant customers and suppliers. In the event some
customers and suppliers experience problems or disruptions that could have an
adverse impact on the Company, the Company will implement its contingency plan.
The Company's contingency plan includes the utilization of existing manual order
receiving capabilities and increasing inventory. The Company currently receives
approximately 15-20% of orders for its products through EDI.
Although the Company has not experienced any Year 2000 Problems to date,
there is still uncertainty as Year 2000 Problems may still occur in the future.
In the event of a Year 2000 Problem, it is not possible at present to quantify
the financial effect of the Year 2000 Problem if it is not timely resolved.
Although, the cost of fixing the Year 2000 Problem did 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
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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 no material business disruption will
occur as a result of the Year 2000 issue, the Year 2000 issue is unique and the
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 the
completion of its Plan helps reduce the possibility of significant interruptions
of normal 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, 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.
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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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None
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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 9, 2000 By: /s/ Richard J. Bakos
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Richard J. Bakos
Vice President, Finance and
Chief Financial Officer
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-2000
<PERIOD-START> NOV-01-1999
<PERIOD-END> JAN-31-2000
<CASH> 48,845
<SECURITIES> 0
<RECEIVABLES> 28,508
<ALLOWANCES> 827
<INVENTORY> 19,271
<CURRENT-ASSETS> 99,302
<PP&E> 12,428
<DEPRECIATION> 4,670
<TOTAL-ASSETS> 111,380
<CURRENT-LIABILITIES> 10,869
<BONDS> 0
88
0
<COMMON> 0
<OTHER-SE> 99,186
<TOTAL-LIABILITY-AND-EQUITY> 111,380
<SALES> 29,156
<TOTAL-REVENUES> 29,156
<CGS> 22,125
<TOTAL-COSTS> 22,125
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 38
<INTEREST-EXPENSE> 7
<INCOME-PRETAX> 1,701
<INCOME-TAX> 681
<INCOME-CONTINUING> 1,020
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,020
<EPS-BASIC> .12
<EPS-DILUTED> .11
</TABLE>
