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 April 30, 2004
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 incorporation or organization) |
(IRS Employer 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 ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). 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 10, 2004:
| Class A |
14,861,431 | |
| Class B |
None |
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
MAXWELL SHOE COMPANY INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited –In Thousands Except Per Share Amounts)
| April 30, 2004 |
October 31, 2003 |
|||||||
| ASSETS |
||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 104,982 | $ | 97,063 | ||||
| Accounts receivable, trade (net of allowance for doubtful accounts and discounts of $1,072 in 2004 and $973 in 2003) |
43,142 | 42,411 | ||||||
| Inventory, net |
16,253 | 14,227 | ||||||
| Prepaid expenses |
774 | 601 | ||||||
| Deferred income taxes |
1,648 | 1,648 | ||||||
| Total current assets |
166,799 | 155,950 | ||||||
| Property and equipment, net |
2,456 | 2,609 | ||||||
| Trademarks, net |
14,462 | 14,462 | ||||||
| Other assets |
1 | 1 | ||||||
| $ | 183,718 | $ | 173,022 | |||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ | 2,743 | $ | 1,462 | ||||
| Accrued expenses |
11,210 | 9,507 | ||||||
| Accrued income taxes |
820 | 1,274 | ||||||
| Total current liabilities |
14,773 | 12,243 | ||||||
| Long-term deferred income taxes |
2,448 | 2,448 | ||||||
| Stockholders’ equity: |
||||||||
| Preferred Stock, 1,000 shares authorized, 0 shares outstanding in 2004 and 2003 |
||||||||
| Class A common stock, par value $.01, 20,000 shares authorized, 14,861 shares outstanding in 2004, 14,821 shares outstanding in 2003 |
148 | 148 | ||||||
| Additional paid-in capital |
53,068 | 52,845 | ||||||
| Deferred compensation |
(212 | ) | (417 | ) | ||||
| Retained earnings |
113,493 | 105,755 | ||||||
| Total stockholders’ equity |
166,497 | 158,331 | ||||||
| $ | 183,718 | $ | 173,022 | |||||
See the accompanying notes to the consolidated financial statements
1
MAXWELL SHOE COMPANY INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited–In Thousands Except Per Share Amounts)
| Three Months Ended April 30, |
Six Months Ended April 30, |
|||||||||||||||
| 2004 |
2003 |
2004 |
2003 |
|||||||||||||
| Net sales |
$ | 73,745 | $ | 57,791 | $ | 127,362 | $ | 103,505 | ||||||||
| Cost of sales |
53,915 | 41,497 | 93,218 | 74,799 | ||||||||||||
| Gross profit |
19,830 | 16,294 | 34,144 | 28,706 | ||||||||||||
| Operating expenses: |
||||||||||||||||
| Selling |
4,543 | 4,898 | 8,832 | 8,675 | ||||||||||||
| General and administrative |
4,900 | 4,830 | 9,730 | 9,780 | ||||||||||||
| 9,443 | 9,728 | 18,562 | 18,455 | |||||||||||||
| Operating income |
10,387 | 6,566 | 15,582 | 10,251 | ||||||||||||
| Other expenses (income) |
||||||||||||||||
| Interest income, net |
(274 | ) | (198 | ) | (521 | ) | (457 | ) | ||||||||
| Other, net |
(28 | ) | (93 | ) | (58 | ) | (203 | ) | ||||||||
| Costs related to unsolicited tender offer |
3,264 | — | 3,264 | — | ||||||||||||
| 2,962 | (291 | ) | 2,685 | (660 | ) | |||||||||||
| Income before income taxes |
7,425 | 6,857 | 12,897 | 10,911 | ||||||||||||
| Income taxes |
2,970 | 2,744 | 5,159 | 4,365 | ||||||||||||
| Net income |
$ | 4,455 | $ | 4,113 | $ | 7,738 | $ | 6,546 | ||||||||
| Net income per share |
||||||||||||||||
| Basic |
$ | .30 | $ | .28 | $ | .52 | $ | .45 | ||||||||
| Diluted |
$ | .28 | $ | .27 | $ | .49 | $ | .43 | ||||||||
| Shares used to compute net income per share: |
||||||||||||||||
| Basic |
14,846 | 14,719 | 14,838 | 14,667 | ||||||||||||
| Diluted |
15,728 | 15,134 | 15,649 | 15,101 | ||||||||||||
See the accompanying notes to the consolidated financial statements
2
MAXWELL SHOE COMPANY INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited–In Thousands)
| Six Months Ended April 30, |
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| 2004 |
2003 |
|||||||
| Operating activities |
||||||||
| Net income |
$ | 7,738 | $ | 6,546 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
| Depreciation |
667 | 895 | ||||||
| Deferred income taxes |
— | — | ||||||
| Doubtful accounts provision |
125 | 125 | ||||||
| Deferred compensation |
205 | 275 | ||||||
| Changes in operating assets and liabilities: |
||||||||
| Accounts receivable |
(856 | ) | (305 | ) | ||||
| Inventory |
(2,026 | ) | 908 | |||||
| Prepaid expenses |
(173 | ) | (477 | ) | ||||
| Prepaid income taxes |
— | 1,513 | ||||||
| Other assets |
— | 14 | ||||||
| Accounts payable |
1,281 | 1,510 | ||||||
| Income taxes payable |
(454 | ) | — | |||||
| Accrued expenses |
1,703 | (2,738 | ) | |||||
| Net cash provided by operating activities |
8,210 | 8,266 | ||||||
| Investing activities |
||||||||
| Purchases of property and equipment |
(514 | ) | (278 | ) | ||||
| Net cash used by investing activities |
(514 | ) | (278 | ) | ||||
| Financing activity |
||||||||
| Proceeds from exercise of stock options |
223 | 976 | ||||||
| Net cash provided by financing activities |
223 | 976 | ||||||
| Net increase in cash and cash equivalents |
7,919 | 8,964 | ||||||
| Cash and cash equivalents at beginning of period |
97,063 | 70,518 | ||||||
| Cash and cash equivalents at end of period |
$ | 104,982 | $ | 79,482 | ||||
See the accompanying notes to the consolidated financial statements
3
MAXWELL SHOE COMPANY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
April 30, 2004
| 1. | Basis of Presentation |
The accompanying unaudited consolidated 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 Annual Report on Form 10-K for the fiscal year ended October 31, 2003.
| 2. | Net Income Per Share |
Basic income per share is computed by dividing net income by the weighted average number of common shares outstanding during the period. The denominator used to compute diluted income per share includes the effects of applying the treasury stock method to outstanding stock options, which assumes that all dilutive options are exercised. Options to purchase 22,500 and 202,500 shares of Common Stock were outstanding as of April 30, 2004 and 2003, respectively, but were not included in the calculation of diluted earnings per share because the options’ exercise prices were greater than the average market price of the Common Shares during the periods and, therefore, the effect would be anti-dilutive.
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. | Stock-Based Awards |
We account for stock-based awards to employees and directors using the intrinsic value method of accounting in accordance with Accounting Principles Board Opinion No. 25 (“APB 25”), “Accounting for Stock Issued to Employees.” Under the intrinsic value method, when the exercise price of employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized in the consolidated statements of operations. Restricted stock and discounted stock option awards, which are granted at less than fair market value, result in the recognition of deferred compensation. Deferred compensation is shown as a reduction of stockholders’ equity and is amortized to operating expenses over the vesting period of the stock award. We amortize deferred compensation for each vesting layer of a stock award using the straight-line method.
The following table is a reconciliation of net earnings and earnings per share had we adopted the fair value recognition provisions of SFAS 123.
| Three Months Ended April 30, |
Six Months Ended April 30, |
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| 2004 |
2003 |
2004 |
2003 |
|||||||||||||
| Net income as reported |
$ | 4,455 | $ | 4,113 | $ | 7,738 | $ | 6,546 | ||||||||
| Add: Stock-based employee compensation Expense included in reported net earnings, net of tax |
62 | 82 | 123 | 165 | ||||||||||||
| Deduct: Total stock based compensation expense determined under fair value based method for all awards, net of tax |
(298 | ) | (182 | ) | (553 | ) | (432 | ) | ||||||||
| Net income – pro forma |
$ | 4,219 | $ | 4,013 | $ | 7,308 | $ | 6,279 | ||||||||
| Net income per share |
||||||||||||||||
| Basic – as reported |
$ | .30 | $ | .28 | $ | .52 | $ | .45 | ||||||||
| Basic – pro forma |
$ | .28 | $ | .27 | $ | .49 | $ | .43 | ||||||||
| Diluted – as reported |
$ | .28 | $ | .27 | $ | .49 | $ | .43 | ||||||||
| Diluted – pro forma |
$ | .27 | $ | .27 | $ | .47 | $ | .42 | ||||||||
4
The fair value of the stock compensation used to calculate the pro forma net income and earnings per share amounts above was estimated using the Black-Scholes options pricing model.
| 4. | Jones Apparel Group Inc.’s Unsolicited Tender Offer for Maxwell Shoe Company’s Common Stock |
On February 25, 2004 Jones Apparel Group, Inc. (“Jones”) announced an unsolicited proposal to acquire all of Maxwell Shoe Company’s common stock for $20.00 per share in cash. At a board meeting held on March 11, 2004, the Company’s Bo