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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 April 30, 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
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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 June 11, 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>
<S> <C> <C>
April 30 October 31,
ASSETS 2000 1999
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Current assets:
Cash and cash equivalents......................................... $ 54,144 $ 28,901
Restricted cash................................................ 25,000
Accounts receivable, trade (net of allowance for doubtful
accounts and discounts of $828 in 2000, $785 in 1999)............ 32,709 29,753
Inventory, net.................................................... 10,005 11,327
Prepaid expenses.................................................. 2,294 735
Prepaid Income taxes.............................................. 22 0
Deferred income taxes............................................. 830 739
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Total current assets................................................. 100,004 96,455
Property and equipment, net.......................................... 7,378 7,897
Trademarks........................................................... 4,217 4,400
Other assets......................................................... 12 12
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Total Assets......................................................... $ 111,611 $ 108,764
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LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................................. $ 1,653 $ 3,179
Accrued expenses.................................................. 6,047 5,346
Deferred income taxes............................................. 751 593
Current portion of capital lease obligation....................... 106 117
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Total current liabilities............................................ 8,557 9,235
Capital lease obligation............................................. 51 102
Long-term deferred income taxes...................................... 1,145 1,191
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 2000, and 1999.............................. 88 88
Additional paid-in capital........................................ 43,105 43,026
Deferred compensation............................................. (290) (244)
Retained earnings................................................. 58,955 55,366
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Total stockholders' equity........................................... 101,858 98,236
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Total Liabilities and Stockholders' Equity.......................... $ 111,611 $ 108,764
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</TABLE>
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MAXWELL SHOE COMPANY INC.
STATEMENTS OF INCOME
(Unaudited-In Thousands Except Per Share Amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
April 30, April 30,
-------------------------------- ---------------------------------
<S> <C> <C> <C> <C>
2000 1999 2000 1999
------------- ------------- -------------- -------------
Net sales.................................... $ 43,176 $ 36,247 $ 72,332 $ 72,153
Cost of sales................................ 31,379 25,709 53,504 52,169
------------- ------------- -------------- -------------
Gross profit................................. 11,797 10,538 18,828 19,984
Operating expenses:
Selling..................................... 3,582 2,734 5,913 4,959
General and administrative.................. 4,419 4,051 8,061 7,784
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8,001 6,785 13,974 12,743
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Operating income............................. 3,796 3,753 4,854 7,241
Other expenses (income)
Interest.................................... 6 7 13 13
Amortization of trademarks.................. 92 91 183 183
Other, net, principally interest income..... (583) (240) (1,324) (465)
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(485) (142) (1,128) (269)
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Income before income taxes................... 4,281 3,895 5,982 7,510
Income taxes................................. 1,712 1,558 2,393 3,003
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Net income................................... $ 2,569 $ 2,337 $ 3,589 $ 4,507
============= ============= ============== =============
Net income per share
Basic....................................... $.29 $.27 $.41 $.51
Diluted..................................... $.27 $.25 $.38 $.47
Shares used to compute net
income per share:
Basic....................................... 8,796 8,796 8,796 8,795
Diluted..................................... 9,420 9,461 9,417 9,504
</TABLE>
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MAXWELL SHOE COMPANY INC.
STATEMENTS OF CASH FLOW
(Unaudited-In Thousands)
<TABLE>
<CAPTION>
Six Months Ended
April 30,
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<S> <C> <C>
2000 1999
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OPERATING ACTIVITIES
Net income.............................................................. $ 3,589 $ 4,507
Adjustments to reconcile net income to net cash provided
by operating activities
Depreciation and amortization........................................ 1,203 898
Deferred income taxes................................................ 21 138
Doubtful accounts provision.......................................... 43 54
Deferred compensation................................................ 33 0
Changes in operating assets and liabilities:
Accounts receivable.............................................. (2,999) 2,377
Inventory........................................................ 1,322 2,094
Prepaid expenses................................................. (1,559) (250)
Accounts payable................................................. (1,526) 0
Prepaid income taxes............................................. (22) (642)
Income taxes paid................................................ (695) 1,177
Accrued expenses................................................. 1,396 (3,740)
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Net cash provided by operating activities............................... 806 6,613
INVESTING ACTIVITIES
Release of restricted cash 25,000 0
Purchases of property and equipment..................................... (500) (1,097)
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Net cash (used) provided by investing activities........................ 24,500 (1,097)
FINANCING ACTIVITIES
Proceeds from sale of common stock...................................... 0 12
Payments on capital lease obligations................................... (63) (63)
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Net cash used by financing activities................................... (63) (51)
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Net increase in cash and cash equivalents............................... 25,243 5,465
Cash and cash equivalents at beginning of year.......................... 28,901 18,731
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Cash and cash equivalents at end of quarter............................. $ 54,144 $ 24,196
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Interest paid........................................................... $ 13 $ 13
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Income taxes paid....................................................... $ 3,156 $ 1,072
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</TABLE>
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MAXWELL SHOE COMPANY INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
April 30, 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 March 2000, the FASB issued Interpretation No. 44, Accounting for
Certain Transactions Involving Stock Compensation (the Interpretation).
This Interpretation clarifies how companies should apply the Accounting
Principles Board's Opinion No. 25, Accounting For Stock Issued to
Employees. At the present time, there are no awards granted by the Company
which would result in an adjustment at July 1, 2000 as a result of this
Interpretation.
In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin (SAB) 101, Revenue Recognition in Financial Statements.
SAB (101 clarifies the SEC staff's views on applying generally accepted
accounting principles to revenue recognition in financial statements. In
March 2000, the SEC issued an amendment, SAB 101A, which deferred the
effective date of SAB 101. The Company will adopt SAB 101 in the second
quarter of 2000 in accordance with the amendment. The adoption of this SAB
is not expected to have a significant 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 April 30,
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2000 1999
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($ Millions)
<S> <C> <C> <C> <C>
Mootsies Tootsies........... $ 20.6 47.7% $ 16.9 46.7%
A Line Anne Klein........... 8.5 19.7 0.0 0.0
Sam & Libby................. 6.7 15.5 5.0 13.8
Dockers Footwear for Women.. 2.9 6.7 0.0 0.0
Private Label Footwear...... 4.5 10.4 3.5 9.7
Jones New York Footwear..... 0.0 0.0 10.5 29.0
Closeout.................... 0.0 0.0 .3 .8
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$43.2 100.0% $36.2 100.0%
======= ======== ======= ========
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended April 30,
------------------------------------------
2000 1999
------------------ -------------------
($ Millions)
<S> <C> <C> <C> <C>
Mootsies Tootsies........... 35.0 48.4 $ 31.8 44.0%
Sam & Libby................. 10.5 14.5 10.0 13.9
A Line Anne Klein........... 10.2 14.1 0.0 0.0
Dockers Footwear for Women.. 4.8 6.6 0.0 0.0
Private Label Footwear...... 10.8 14.9 9.8 13.6
Jones New York Footwear..... 1.0 1.4 19.7 27.3
Closeout.................... 0.0 0.0 .9 1.2
---- -------- ------- --------
$72.3 100.0% $72.2 100.0%
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</TABLE>
Three Months Ended April 30, 2000 Compared to Three Months Ended April 30, 1999
Net sales were $43.2 million for the three months ended April 30, 2000 compared
to $36.2 million for the same period in the prior year, an increase of 19.3%.
The net sales increase was due to a 21.9% increase in net sales of Mootsies
Tootsies footwear, a 34.0% increase in net sales of Sam & Libby footwear, a
28.6% increase in net sales of private label footwear, and the incremental net
sales of A Line Anne Klein and Dockers Footwear for women.
Gross profits in the second quarter of fiscal 2000 were $11.8 million compared
to $10.5 million in the second quarter of fiscal 1999, or 27.3% of net sales as
compared to 29.1% for the same quarter in 1999. The decrease in gross margin
percentage for the second quarter of fiscal 2000 was due to a $.9 million
increase in the reserve for inventory markdown expense attributable to one
category of footwear.
Selling, general and administrative expenses increased $1.2 million during the
second quarter of fiscal 2000 due to increased depreciation expense as a result
of the infrastructure improvements placed in service in fiscal year 1999 and
volume related expenses in the current period. As a percent of net sales,
selling, general and administrative expense for the second quarter of fiscal
2000 was 18.5% compared to 18.7% in the same period in 1999.
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Other income was $.5 million for the three months ended April 30, 2000 compared
to other income of $.1 million for the same period in the prior year. In 2000,
the Company's improved cash position resulted in an increase in interest income.
Six Months Ended April 30, 2000 Compared to Six Months ended April 30, 1999
Net sales were $72.3 million for the six months ended April 30, 2000 compared to
$72.2 million for the same period in the prior year, basically flat. Net sales
increased in the six months ended April 30, 2000 by 10.1% in the net sales of
Mootsies Tootsies footwear, 10.2% in the net sales of private label footwear and
5.0% in the net sales of Sam & Libby footwear. These increases combined with
the incremental net sales of A Line Anne Klein and Dockers Footwear for women
offset the net sales of Jones New York and closeout footwear during the same
period in fiscal 1999. Jones New York accounted for $1.0 million in net sales
in the six months ended April 30, 2000, the final liquidation net sales as a
result of the sale of the Jones New York license to Jones Apparel Group Inc. in
July 1999.
Gross profits in the first six months of fiscal 2000 were $18.8 million as
compared to $20.0 million in the first six months of fiscal 1999, or 26.0% of
net sales as compared to 27.7% for the same period in 1999. The decrease in
gross profit was due to an increase in the reserve for markdowns of $.9 million
in the second quarter of 2000 and $1.0 million in net sales of Jones New York
footwear at no gross margin in the first fiscal quarter of 2000.
Selling, general and administrative expenses increased $1.2 million during the
second quarter of fiscal 2000 due to increased depreciation expense as a result
of the infrastructure improvements placed in service in fiscal year 1999 and
volume related expenses in the current period. As a percent of net sales,
selling, general and administrative expense for the first six months of fiscal
2000 was 19.3% compared to 17.7% in the same period in 1999.
The Company has recorded an anticipated effective annual income tax rate of 40%
for fiscal year 2000, the same as fiscal 1999.
At April 30, 2000 and 1999, the Company had unfilled customer orders (backlog)
of $67.7 million and $67.9 million respectively. Excluding Jones New York and
closeout orders from the April 30, 1999 backlog, the comparable backlogs for
April 30, 2000 and 1999, are $67.7 million and $48.6 million, respectively, an
increase of 39.3%. 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, 2000 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
borrowings under its revolving credit facility to finance its operations and
expansion. Net cash provided by operating activities totaled approximately $.8
million in the six month period ended April 30, 2000, as compared to net cash
provided of $6.6 million for the same period in 1999. The decrease in cash
provided by operations in the first six months of fiscal 2000 was caused by an
increase in receivables. Working capital was $91.4 million at April 30, 2000 as
compared to $87.2 million at October 31, 1999. The increase is due primarily to
the increase in receivables. 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.
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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 April 30, 2000, total outstanding letters of credit were $13.8 million,
and $21.2 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 April 30, 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
existing cash balance 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, 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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(a) The Company's Annual Meeting of Stockholders was held on April 13,
2000.
(b) The following directors were elected to serve until the 2001 Annual
Meeting of Stockholders or until their successors have been duly
elected and qualified. Of the 8,795,899 shares of Class A common
stock, the directors were elected by the following votes:
<TABLE>
<CAPTION>
Number of Votes Received
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Name For Abstain
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<S> <C> <C>
Mark J. Cocozza 8,278,430 37,450
James J. Tinagero 8,278,430 37,450
Maxwell V. Blum 8,278,430 37,450
Stephen A. Fine 8,278,430 37,450
Malcolm L. Sherman 8,278,430 37,450
Anthony J. Tiberii 8,278,430 37,450
</TABLE>
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ITEM 5: OTHER INFORMATION.
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None.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K.
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None
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: June 11, 2000 By: /s/ Richard J. Bakos
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Richard J. Bakos
Vice President, Finance and
Chief Financial Officer
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