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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 July 31, 2000
or
[X] 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 September 12, 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>
July 31, October 31,
ASSETS 2000 1999
-------------- --------------
<S> <C> <C>
Current assets:
Cash and cash equivalents............................................ $ 53,698 $ 28,901
Restricted cash...................................................... 0 25,000
Accounts receivable, trade (net of allowance for doubtful
accounts and discounts of $871 in 2000 and $785 in 1999)......... 35,511 29,753
Inventory, net....................................................... 18,056 11,327
Prepaid expenses..................................................... 1,954 735
Deferred income taxes................................................ 871 739
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Total current assets.................................................... 110,090 96,455
Property and equipment, net............................................. 7,121 7,897
Trademarks.............................................................. 4,125 4,400
Other assets............................................................ 14 12
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$ 121,350 $ 108,764
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LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable..................................................... $ 3,459 3,179
Accrued expenses..................................................... 10,805 5,346
Deferred income taxes................................................ 811 593
Current portion of capital lease obligation.......................... 102 117
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Total current liabilities............................................... 15,177 9,235
Capital lease obligation................................................ 26 102
Long-term deferred income taxes......................................... 1,122 1,191
Stockholders' equity:
Preferred stock, par value $.01, 1,000 shares
authorized, none outstanding..................................... 0 0
Class A common stock, par value $.01, 20,000 shares authorized,
8,796 outstanding in 2000, (8,796 outstanding in 1999)........... 88 88
Additional paid-in capital........................................... 43,105 43,026
Deferred compensation................................................ (275) (244)
Retained earnings.................................................... 62,107 55,366
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Total stockholders' equity.............................................. 105,025 98,236
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$ 121,350 $ 108,764
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</TABLE>
The accompanying notes are an integral part of these statements
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MAXWELL SHOE COMPANY INC.
STATEMENTS OF INCOME
(Unaudited -- In Thousands Except Per Share Amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
July 31, July 31,
----------------------------------- -------------------------------------
2000 1999 2000 1999
-------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C>
Net sales.................................... $ 39,588 $ 39,066 $ 111,920 $ 111,219
Cost of sales................................ 28,622 30,753 82,126 82,922
-------------- --------------- -------------- ---------------
Gross profit................................. 10,966 8,313 29,794 28,297
Operating expenses:
Selling..................................... 2,993 1,883 8,907 6,842
General and administrative.................. 3,640 4,376 11,701 12,160
-------------- --------------- -------------- ---------------
6,633 6,259 20,608 19,002
-------------- --------------- -------------- ---------------
Operating income............................. 4,333 2,054 9,186 9,295
Other expenses (income)
Interest.................................... 6 7 19 20
Amortization of trademarks.................. 92 92 275 275
Other, net.................................. (1,018) (19,952) (2,343) (20,417)
-------------- --------------- -------------- ---------------
(920) (19,853) (2,049) (20,122)
-------------- --------------- -------------- ---------------
Income before income taxes................... 5,253 21,907 11,235 29,417
Income taxes................................. 2,101 8,763 4,494 11,766
-------------- --------------- -------------- ---------------
Net income................................... $ 3,152 $ 13,144 $ 6,741 $ 17,651
============== =============== ============== ===============
Net income per share
Basic....................................... $0.36 $1.49 $0.77 $2.01
Diluted..................................... $0.33 $1.39 $0.71 $1.86
Shares used to compute net
income per share:
Basic....................................... 8,796 8,796 8,796 8,796
Diluted..................................... 9,471 9,434 9,435 9,480
</TABLE>
The accompanying notes are an integral part of these statements.
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MAXWELL SHOE COMPANY INC.
STATEMENTS OF CASH FLOW
(Unaudited-In Thousands)
<TABLE>
<CAPTION>
Nine Months Ended
July 31,
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2000 1999
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OPERATING ACTIVITIES
<S> <C> <C>
Net Income.............................................................. $ 6,741 $ 17,651
Adjustments to reconcile net income to net cash provided
(used) by operating activities
Gain from sale of license............................................ 0 (19,500)
Depreciation and amortization........................................ 1,877 1,229
Deferred income taxes................................................ 17 207
Deferred compensation................................................ 48 46
Doubtful accounts provision.......................................... 86 841
Changes in operating assets and liabilities:
Accounts receivable.............................................. (5,844) 2,294
Inventory........................................................ (6,729) 2,908
Prepaid expenses and other current assets........................ (1,219) (161)
Accounts payable................................................. 280 (1,761)
Prepaid income taxes............................................. 0 (1,177)
Income taxes payable............................................. 1,046 0
Accrued expenses................................................. 4,413 5,067
Other assets..................................................... (2) 0
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Net cash provided by operating activities............................... 714 9,998
INVESTING ACTIVITIES
Proceeds from sale of license........................................... 0 25,000
Restricted cash......................................................... 25,000 (25,000)
Purchases of property and equipment..................................... (826) (1,831)
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Net cash provided (used) by investing activities........................ 24,174 (1,831)
FINANCING ACTIVITIES
Proceeds from exercise of stock options................................. 0 12
Payments on capital lease obligations................................... (91) (94)
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Net cash provided (used) by financing activities........................ (91) (82)
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Net increase in cash and cash equivalents............................... 24,797 8,085
Cash and cash equivalents at beginning of year.......................... 28,901 18,731
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Cash and cash equivalents at end of quarter $ 53,698 $ 26,816
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Interest paid........................................................... $ 19 $ 20
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Income taxes paid....................................................... $ 3,496 $ 1,072
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</TABLE>
The accompanying notes are an integral part of these statements.
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MAXWELL SHOE COMPANY INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
July 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 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
June 2000, the SEC issued an amendment, SAB 101B, which deferred the
effective date of SAB 101. The Company will adopt SAB 101 in the fourth
quarter of fiscal 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
------- 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 July 31,
---------------------------------------------
2000 1999
-------------------- --------------------
($ Millions)
<S> <C> <C> <C> <C>
Mootsies Tootsies.............. $ 15.0 37.9% $ 16.0 40.9%
A Line Anne Klein/Anne Klein2.. 7.6 19.2 - -
Sam & Libby.................... 7.1 17.9 5.0 12.8
Private Label Footwear......... 6.7 16.9 6.5 16.6
Dockers Footwear for Women..... 3.2 8.1 .6 1.5
Jones New York Footwear........ 0.0 0.0 10.5 26.9
Closeout....................... 0.0 0.0 .5 1.3
------- -------- ------- --------
$ 39.6 100.0% $ 39.1 100.0%
======= ======== ======= ========
</TABLE>
<TABLE>
Nine Months Ended July 31,
---------------------------------------------
2000 1999
-------------------- --------------------
($ Millions)
<S> <C> <C> <C> <C>
Mootsies Tootsies.............. $ 50.1 44.8% $ 47.8 43.0%
A Line Anne Klein/Anne Klein2.. 17.8 15.9 - -
Sam & Libby.................... 17.6 15.7 15.0 13.5
Private Label Footwear......... 17.4 15.6 16.4 14.7
Dockers Footwear for Women..... 8.0 7.1 .6 .5
Jones New York Footwear........ 1.0 .9 30.1 27.1
Closeout....................... 0.0 0.0 1.3 1.2
-------- -------- -------- --------
$ 111.9 100.0% $ 111.2 100.0%
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</TABLE>
Three Months Ended July 31, 2000 Compared to Three Months Ended July 31, 1999
Net sales were $39.6 million for the three months ended July 31, 2000 compared
to $39.1 million for the same period in the prior year. While year over year
total net sales were relatively flat, incremental net sales of A Line Anne
Klein, Anne Klein2 and increased Dockers Footwear for Women net sales offset the
loss of Jones New York footwear net sales. The Jones New York footwear license
was sold to Jones Apparel Group, Inc. in July 1999.
Gross profit in the third quarter of fiscal 2000 was $11.0 million compared to
$8.3 million in the third quarter of fiscal 1999. Gross profit as a percentage
of net sales was 27.7% for the third fiscal quarter of 2000 compared to 21.3%
for the same period in the prior year. This increase was due to the mix of net
sales. A significant portion of the Jones New York net sales in 1999 were
shipped at liquidation prices which generally approximated cost.
Selling, general and administrative expenses were $6.6 million during the third
quarter of fiscal 2000, compared to $6.3 million in the same period in fiscal
1999. As a percent of net sales, selling, general and administrative expenses
for the third quarter of fiscal 2000 was 16.8% compared to 16.0% in the same
period in 1999. The increase in selling, general and administrative expenses
was due to increased advertising expenses of $1.0 million, some of which was
required for the A Line Anne Klein, Anne
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Klein2 and Dockers Footwear for Women divisions offset by reduced bad debt
expense of $.7 million in the third fiscal quarter of 2000 as compared to the
same period in fiscal 1999.
Other income was $1.0 million for the three months ended July 31, 2000 compared
to other income of $19.9 for the same period in the prior year. In 2000, other
income was comprised of interest income and royalty income realized. In 1999,
other income was comprised of $25.0 million paid by Jones Apparel Group to the
Company for the sale of the Company's Jones New York footwear license, reduced
by $5.5 million for expenses related to the transaction, accounts receivable and
inventory liquidation.
Nine Months Ended July 31, 2000 Compared to Nine Months ended July 31, 1999
Net sales were $111.9 million for the nine months ended July 31, 2000 compared
to $111.2 million for the same period in the prior year. All divisions
increased net sales during the nine months ended July 31, 2000 over the same
period in the prior year. This increase in net sales was offset by the loss of
Jones New York footwear net sales, due to the sale of the Jones New York
footwear license and the elimination of the closeout/job lot business in fiscal
1999.
Gross profits in the first nine months of fiscal 2000 was $29.8 million as
compared to $28.3 million in the first nine months of fiscal 1999, or 26.6% of
net sales as compared to 25.4% for the same period in 1999. This increase was
due to the mix of net sales. Gross profit was affected by 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. A significant portion of the Jones New York net sales
in 1999 were shipped at liquidation prices which generally approximated cost.
Selling, general and administrative expenses were $20.6 million for the nine
months ended July 31, 2000, compared to $19.0 million in the same period is
fiscal 1999. Selling, general and administrative expenses as a percentage of
net sales increased to 18.4% in the nine months ended July 31, 2000, compared to
17.1% during the same period in fiscal 1999. Selling expenses increased $2.1
million in fiscal 2000 as a result of advertising expenses attributable to A
Line Anne Klein, Anne Klein2 and the Dockers' divisions and increased sales
commissions due to net sales increases of these divisions. General and
administrative expenses decreased $.5 million as the Company realized cost
efficiencies from its new distribution systems and reduced bad debt expense,
which offset increased depreciation expense in fiscal 2000.
The Company has recorded an anticipated effective annual income tax rate of 40%
for fiscal year 2000, the same as fiscal 1999.
At July 31, 2000 and 1999, the Company had unfilled customer orders (backlog) of
$54.9 million and $43.5 million respectively. Excluding Jones New York and
closeout orders from the July 31, 1999 backlog, the comparable backlogs for July
31, 2000 and 1999, are $54.9 million and $39.6 million, respectively, an
increase of 38.6%. 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 July
31, 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 $.7
million in the nine month period ended July 31, 2000, as compared to net cash
provided of $10.0 million for the same period in 1999. The decrease in cash
provided by operations in the first nine months of fiscal 2000 was primarily a
result of the increase in inventory levels and accounts
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receivable balances compared to the same period in the prior year when viewed to
the relative year end balances. This was a result of the addition of the A Line
Anne Klein/Anne Klein 2 and Dockers Footwear for Women brands. Investing
activities in 1999 and 2000 reflect cash held and released by an independent
intermediary. For tax reasons, proceeds from the sale of the Jones New York
footwear license were restricted for any acquisition initiated within six months
of the sale. Because an acquisition was not initiated within the six months, the
funds were released in January 2000. Working capital was $94.9 million at July
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 July 31, 2000, total outstanding letters of credit were $16.0 million, and
$19.0 million was available for future borrowings.
Capital expenditures were $.8 million for the nine months ended July 31, 2000.
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 July 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
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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None
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: September 12, 2000 By: /s/ Richard J. Bakos
---------------------------------
Richard J. Bakos
Vice President, Finance and
Chief Financial Officer
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