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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
----------------
FORM 10-Q
(Mark One)
|X| Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the quarterly period ended July 31, 2002
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
P.O. Box 37
Hyde Park (Boston), MA 02137-0037
--------------------------------------- --------------------------------
(Address of principal executive offices) (Zip code)
(617) 364-5090
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(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 as of September 11, 2002:
Class A 14,435,805
----------------------------
Class B None
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
MAXWELL SHOE COMPANY INC.
BALANCE SHEETS
(Unaudited-In Thousands Except Per Share Amounts)
July 31, October 31,
2002 2001
--------- -----------
ASSETS
Current assets:
Cash and cash equivalents .................... $ 66,143 $ 58,256
Accounts receivable, trade (net of
allowance for doubtful accounts
and discounts of $905 in 2002
and $1,326 in 2001) ....................... 36,989 37,392
Inventory, net ............................... 22,221 18,289
Prepaid expenses ............................. 1,318 642
Deferred income tax asset .................... 1,651 1,538
-------- --------
Total current assets ............................. 128,322 116,117
Property and equipment, net ...................... 4,257 5,115
Trademarks, net .................................. 14,462 14,462
Other assets ..................................... 34 93
-------- --------
$147,075 $135,787
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ............................. $ 1,856 $ 1,354
Accrued expenses ............................. 9,453 7,378
Accrued income taxes ......................... 718 3,443
-------- --------
Total current liabilities ........................ 12,027 12,175
Long-term deferred income tax liability .......... 1,939 1,939
Stockholders' equity:
Class A common stock, par value $.01,
30,000 shares authorized, 14,332 shares
outstanding in 2002, 13,394 shares
outstanding in 2001 ....................... 143 134
Additional paid-in capital ................... 47,373 45,336
Deferred compensation ........................ (1,084) (1,325)
Retained earnings ............................ 86,677 77,528
-------- --------
Total stockholders' equity ....................... 133,109 121,673
-------- --------
$147,075 $135,787
======== ========
The accompanying notes are an integral part of these statements.
2
MAXWELL SHOE COMPANY INC.
STATEMENTS OF INCOME
(Unaudited-In Thousands Except Per Share Amounts)
Three Months Ended Nine Months Ended
July 31, July 31,
------------------- ---------------------
2002 2001 2002 2001
------- ------- -------- --------
Net sales ........................ $46,401 $44,906 $139,321 $129,063
Cost of sales .................... 34,065 32,568 101,203 93,102
------- ------- -------- --------
Gross profit ..................... 12,336 12,338 38,118 35,961
Operating expenses:
Selling ....................... 3,138 2,688 11,373 10,059
General and administrative .... 4,580 4,402 14,201 13,049
------- ------- -------- --------
7,718 7,090 25,574 23,108
------- ------- -------- --------
Operating income ................. 4,618 5,248 12,544 12,853
Other expenses (income)
Interest, net ................. (249) (429) (694) (1,718)
Amortization of trademarks .... - 92 - 275
Other, net .................... 9 84 (199) 101
------- ------- -------- --------
(240) (253) (893) (1,342)
------- ------- -------- --------
Income before income taxes ....... 4,858 5,501 13,437 14,195
Income taxes ..................... 1,351 2,102 4,289 5,579
------- ------- -------- --------
Net income ....................... $ 3,507 $ 3,399 $ 9,148 $ 8,616
======= ======= ======== ========
Net income per share
Basic ......................... $.25 $.26 $.66 $.65
Diluted ....................... $.23 $.23 $.62 $.59
Shares used to compute net income
per share:
Basic ......................... 14,111 13,226 13,788 13,214
Diluted ....................... 15,083 14,873 14,806 14,648
The accompanying notes are an integral part of these statements.
3
MAXWELL SHOE COMPANY INC.
STATEMENTS OF CASH FLOW
(Unaudited-In Thousands)
Nine Months Ended
July 31,
-----------------------
2002 2001
------- -------
OPERATING ACTIVITIES
Net Income ........................................ $ 9,148 $ 8,616
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization ................. 1,455 1,858
Deferred income taxes ......................... (113) (701)
Deferred compensation ......................... 242 454
Doubtful accounts provision ................... 186 281
Loss on sale of equipment ..................... - 181
Changes in operating assets and liabilities:
Accounts receivable ........................ 217 (1,534)
Inventory .................................. (3,932) (8,230)
Prepaid expenses and other current assets .. (676) (599)
Other Assets ............................... 59 73
Accounts payable ........................... 502 (691)
Prepaid income taxes ....................... - 1,478
Income taxes payable ....................... (2,725) 3,807
Accrued expenses ........................... 2,075 619
------- -------
Net cash provided by operating activities ......... 6,438 5,612
INVESTING ACTIVITIES
Purchases of property and equipment ............... (597) (548)
Adjustment to Purchase Price of Trademark ......... - 591
------- -------
Net cash (used) provided by investing activities .. (597) 43
FINANCING ACTIVITIES
Proceeds from exercise of stock options ........... 2,046 124
Payments on capital lease obligations ............. - (76)
------- -------
Net cash provided by financing activities ......... 2,046 48
------- -------
Net increase in cash and cash equivalents ......... 7,887 5,703
Cash and cash equivalents at beginning of year .... 58,256 48,074
------- -------
Cash and cash equivalents at end of period ........ $66,143 $53,777
======= =======
Interest paid ..................................... $ - $ 60
======= =======
Income taxes paid ................................. $ 7,235 $ 995
======= =======
The accompanying notes are an integral part of these statements.
4
MAXWELL SHOE COMPANY INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
July 31, 2002
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, 2001.
2. 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
includes the effects of applying the treasury stock method to outstanding
stock options.
On April 18, 2002, the Board of Directors approved a 3 for 2 stock split of
the Class A Common Stock of Maxwell Shoe Company Inc. Additional stock
certificates were mailed on May 17, 2002 to stockholders of record at the
close of business on May 3, 2002. Cash was paid in lieu of fractional
shares. All per share and outstanding share data presented in this
Quarterly Report has been adjusted to take into account the 3 for 2 stock
split.
The presentation of share data and the computations of basic and diluted
earnings per share have been adjusted retroactively for all periods
presented.
3. Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board issued SFAS No. 141,
Business Combinations, and SFAS No. 142, Goodwill and Other Intangible
Assets, effective for fiscal years beginning after December 15, 2001. Under
the new standards, goodwill and intangible assets deemed to have indefinite
lives will no longer be amortized but will be subject to annual impairment
tests. Other intangible assets will continue to be amortized over their
useful lives.
The Company has applied the new standards on accounting for goodwill and
other intangible assets beginning in the first quarter of Fiscal 2002.
During Fiscal 2002, the Company has performed the required impairment tests
of goodwill and indefinite lived intangible assets and no impairment was
determined.
The adoption of this standard is expected to result in elimination of
approximately $0.2 million of goodwill amortization expense per quarter.
With goodwill amortization for the three months ended July 31, 2002,
diluted earnings per share would have been $0.22. With goodwill
amortization for the nine months ended July 31, 2002, diluted earnings per
share would have been $0.59.
5
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
The following table sets forth net sales by product line or category of
business:
Three Months Ended July 31,
---------------------------------------
2002 2001
--------------- ----------------
($ Millions)
Mootsies Tootsies $ 13.1 28.2% $ 13.4 29.8%
AK Anne Klein 14.5 31.3 11.4 25.4
Sam & Libby 6.0 12.9 6.9 15.4
Dockers Footwear for Women 2.5 5.4 4.3 9.6
Joan & David 2.3 5.0 - -
Private Label Footwear 8.0 17.2 8.9 19.8
------ ----- ------ -----
$ 46.4 100.0% $ 44.9 100.0%
====== ===== ====== ======
Nine Months Ended July 31,
---------------------------------------
2002 2001
--------------- ----------------
($ Millions)
Mootsies Tootsies $ 45.5 32.7% $ 45.9 35.6%
AK Anne Klein 40.5 29.1 33.0 25.6
Sam & Libby 17.2 12.3 17.0 13.2
Dockers Footwear for Women 8.6 6.2 11.8 9.1
Joan & David 5.4 3.9 - -
Private Label Footwear 22.1 15.8 21.4 16.5
------ ----- ------ -----
$139.3 100.0% $129.1 100.0%
====== ===== ====== ======
Three Months Ended July 31, 2002 Compared to Three Months Ended July 31, 2001
Net sales were $46.4 million for the three months ended July 31, 2002 compared
to $44.9 million for the same period in the prior year, an increase of 3.3%.
This increase was a result of a 27.2% increase in net sales for the AK Anne
Klein division and incremental Joan & David net sales of $2.3 million, offset by
a 41.9% decrease in net sales for the Dockers Footwear for Women division caused
by the loss of a major account, a 10.1% decrease in the private label division,
a 2.2% decrease in the Mootsies Tootsies division and a 13.0% decrease in the
Sam & Libby division.
Net sales for the three months ended July 31, 2002 were impacted by actions
taken by the Company in anticipation of a potential west coast longshoremen's
strike. The Company received goods at a port on the east coast, resulting in
additional in-transit time for some of its inventory. This resulted in
anticipated third quarter sales shifting into the fourth quarter of 2002.
Gross profit in the third quarter of fiscal 2001 and 2002 was $12.3 million.
Gross profit as a percentage of net sales was 26.6% for the third fiscal quarter
of 2002 compared to 27.5% for the same period in the prior year. This reduced
percentage of gross profit was a result of promotional activity at retail during
the later quarter.
Selling, general and administrative expenses were $7.7 million during the third
quarter of fiscal 2002, compared to $7.1 million in the same period in fiscal
2001. As a percent of net sales, selling, general and
6
administrative expenses for the third quarter of fiscal 2002 were 16.6% compared
to 15.8% in the same period in 2001. General and administrative expenses
increased in the third quarter of fiscal 2002 as compared to fiscal 2001 due to
incremental expenses for the new Circa Joan & David division.
Other income was $0.2 million for the three months ended July 31, 2002 compared
to other income of $0.3 million for the same period in the prior year. In 2001,
other income was comprised of interest income and royalty income. In 2002,
interest income decreased as a result of lower interest rates and the investment
by the Company in tax free instruments. The Company's effective tax rate was
27.8% for the three months ended July 31, 2002 compared to 38.2% for the three
months ended July 31, 2001. This decrease was due to an investment in tax free
instruments and tax benefits realized by the exercise of employee stock options.
Income tax expense for the quarter ended July 31, 2002 was adjusted to reflect
the annual rate.
Nine Months Ended July 31, 2002 Compared to Nine Months Ended July 31, 2001
Net sales were $139.3 million for the nine months ended July 31, 2002 compared
to $129.1 million for the same period in the prior year, an increase of 7.9%.
This increase primarily was a result of a 22.7% increase in net sales for the
AK Anne Klein division and incremental Joan & David net sales of $5.4 million,
offset by a 27.1% decrease for the Dockers Footwear for Women division.
Gross profit in the first nine months of fiscal 2002 was $38.1 million as
compared to $36.0 million in the first nine months of fiscal 2001, or 27.4% of
net sales as compared to 27.9% for the same period in 2001. The decrease in
gross profit percentage in 2002 was a result of promotional activity at retail
during the later period.
Selling, general and administrative expenses were $25.6 million for the nine
months ended July 31, 2002, compared to $23.1 million in the same period in
fiscal 2001. Selling, general and administrative expenses as a percentage of net
sales increased to 18.4% in the nine months ended July 31, 2002, compared to
17.9% during the same period in fiscal 2001. Selling, general and administrative
expenses increased $2.4 million due to incremental expenses for the new Circa
Joan & David division and expenses related to overall net sales increases.
The Company is recording an anticipated effective annual income tax rate of
31.9% for fiscal year 2002, compared to 39.3% for fiscal 2001 as of July 31.
The decrease was due to investment in tax free instruments and tax benefits
realized by the exercise of employee stock options.
At July 31, 2002 and 2001, the Company had unfilled customer orders (backlog) of
$83.7 million and $70.6 million respectively, an increase of 18.6%. 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, 2002 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
$6.4 million in the nine month period ended July 31, 2002, as compared to net
cash provided of $5.6 million for the same period in 2001. The increase in cash
provided by operations in the first nine months of fiscal 2002 was primarily a
result of the decreased growth in inventory compared to the same period in the
prior year. Working capital was $116.3 million at July 31, 2002 as compared to
$103.9 million at October 31, 2001. Working capital may vary from time to time
as a result of seasonal
7
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. 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, 2002, total
outstanding letters of credit were $24.8 million, and $10.2 million was
available for future borrowings.
Capital expenditures were $0.6 million for the nine months ended July 31, 2002.
The Company from time to time enters into forward exchange contracts in
anticipation of future purchases of inventory denominated in foreign currency,
principally the Euro. As of July 31, 2002 the Company had $2.0 million in such
contracts ranging from August 1, 2002 to November 29, 2002. The Company has at
this time forward purchase commitments in Euros in an amount equal to or greater
than its forward contract commitment.
The Company anticipates that it will be able to satisfy its cash requirements
for the remainder of fiscal 2002, including its expected growth, primarily with
existing cash balances and cash flow from operations.
"Forward-looking statements," within the meaning of the Private Securities
Litigation Reform Act of 1995 ("the Act"), include certain written and oral
statements made, or incorporated by reference, by the Company or its
representatives in this report, other reports, filings with the Securities and
Exchange Commission ("the S.E.C."), press releases, conferences, or otherwise.
Such forward-looking statements include, without limitation, any statement that
may predict, forecast, indicate, or imply future results, performance, or
achievements, and may contain the words "believe," "anticipate," "expect,"
"estimate," "intend," "plan," "project," "will be," "will continue," "will
likely result," or any variations of such words with similar meaning. These
statements are not guarantees of future performance and are subject to certain
risks, uncertainties and assumptions that are difficult to predict; therefore,
actual results may differ materially from those expressed or forecasted in any
such forward-looking statements. Investors should carefully review the risk
factors set forth in other reports or documents the Company files with the
S.E.C., including Forms 10-Q, 10-K and 8-K.
Some of the other risks and uncertainties that should be considered include, but
are not limited to, the following: international, national and local general
economic and market conditions; the inability to source the Company's products
because of adverse political or economic factors or the imposition of trade or
duty restrictions; changing consumer preferences; changing fashion trends;
intense competition among other footwear brands; demographic changes; risk of
the Company's licensors of trademarks or other intellectual property rights
filing bankruptcy and potentially rejecting license agreements to which the
Company is a party; popularity of particular designs and products; seasonal and
geographic demand for the Company's products; fluctuations and difficulty in
forecasting operating results, including, without limitation, the ability of the
Company to continue, manage or forecast its growth and inventories; risk of
unavailability or price increase in raw materials needed to make the Company's
products; new product development and commercialization; the ability to secure
and protect trademarks; performance and reliability of products; customer
service; adverse publicity; the loss of significant customers or suppliers;
dependence on distributors, buying agents and independent contractors; increased
cost of freight and transportation to meet delivery deadlines; changes in
business strategy or development plans; general risks of doing business outside
the United States; including without limitation, import duties, tariffs, quotas
and political and economic instability; changes in government regulations;
liability and other claims asserted against the Company; the ability to attract
and retain qualified personnel; the risk of the Company's customers filing
bankruptcy and other factors referenced or incorporated by reference in this
report and other reports.
8
The Company operates in a very competitive and rapidly changing environment. New
risk factors can arise and it is not possible for management to predict all such
risk factors, nor can it assess the impact of all such risk factors on the
Company's business or the extent to which any factor, or combination of factors,
may cause actual results to differ materially from those contained in any
forward-looking statements. Given these risks and uncertainties, investors
should not place undue reliance on forward-looking statements.
Investors should also be aware that while the Company does, from time to time,
communicate with securities analysts, it is against the Company's policy to
disclose to them any material non-public information or other confidential
commercial information. Accordingly, investors should not assume that the
Company agrees with any statement or report issued by any analyst irrespective
of the content of the statement or report.
Furthermore, the Company has a policy against issuing or confirming financial
forecasts or projections issued by others. Thus, to the extent that reports
issued by securities analysts contain any projections, forecasts or opinions,
such reports are not the responsibility of the Company.
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.
9
PART II. OTHER INFORMATION
Item 1: Legal Proceedings.
None.
Item 2: Changes in Securities.
None.
Item 3: Defaults Upon Senior Securities.
None.
Item 4: Submission of Matters to a Vote of Security Holders.
None
Item 5: Other Information.
None.
Item 6: Exhibits and Reports on Form 8-K:
(a) Exhibits
99.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to the Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K
None
SIGNATURES
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, 2002 By: /s/ Richard J. Bakos
----------------------------------
Name: Richard J. Bakos
Title: Vice President, Finance and
Chief Financial Officer
10
CERTIFICATION
Certification of Chief Executive Officer
I, Mark J. Cocozza, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Maxwell Shoe Company
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report.
Date: September 12, 2002 By: /s/ Mark J. Cocozza
--------------------------------
Name: Mark J. Cocozza
Title: Chairman of the Board and
Chief Executive Officer
CERTIFICATION
Certification of Chief Financial Officer
I, Richard J. Bakos, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Maxwell Shoe Company
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report.
Date: September 12, 2002 By: /s/ Richard J. Bakos
----------------------------------
Name: Richard J. Bakos
Title: Vice President, Finance and
Chief Financial Officer
11
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
99.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to the Sarbanes-Oxley Act of 2002