<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 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, 1996.
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)
<TABLE>
<S> <C>
Delaware 04-2599205
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification number)
101 Sprague Street, Box 37, 02137-0037
Readville, (Boston),MA (Zip code)
(Address of principal
executive offices)
</TABLE>
(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 September 11, 1996:
Class A 2,525,000
Class B 5,063,317
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
- ------
MAXWELL SHOE COMPANY INC.
BALANCE SHEETS
(Unaudited--In Thousands)
<TABLE>
<CAPTION>
July 31, October 31,
1996 1995
ASSETS ________ ___________
Current Assets:
<S> <C> <C>
Cash and cash equivalents.......... $ 4,957 $ 6,685
Accounts receivable, net........... 24,550 17,834
Inventory, net..................... 14,708 12,394
Prepaid expenses................... 224 833
Deferred tax asset................. 998 970
________ _______
Total current assets................... 45,437 38,716
Property and equipment, net............ 1,056 1,180
Other assets........................... 12 12
________ _______
$46,505 $39,908
======== =======
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable...................... $ 1,186 $ 928
Accrued expenses...................... 4,078 2,509
Current portion of capital lease
obligation........................... 156 182
________ _______
Total current liabilities.............. 5,420 3,619
Capital lease obligation............... 500 605
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,
2,525 shares outstanding.......... 25 25
Class B common stock, par value
$.01, 10,000 shares authorized,
5,063 shares outstanding........... 51 51
Additional paid-in capital.......... 27,312 27,312
Retained earnings................... 13,197 8,296
________ _______
Total stockholders' equity.............. 40,585 35,684
________ _______
$46,505 $39,908
======== =======
</TABLE>
The accompanying notes are an integral part of these statements.
2
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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,
<S> <C> <C> <C> <C>
1996 1995 1996 1995
_______ _______ _______ _______
Net sales.............................. $30,222 $28,557 $80,701 $74,570
Cost of sales.......................... 23,213 21,678 61,955 55,246
_______ _______ _______ _______
Gross profit........................... 7,009 6,879 18,746 19,324
Operating expenses:
Selling................................ 1,626 1,467 4,079 3,675
General and administrative............. 2,505 2,147 7,235 6,393
_______ _______ _______ _______
4,131 3,614 11,314 10,068
_______ _______ _______ _______
Operating income....................... 2,878 3,265 7,432 9,256
Other expenses (income)
Interest.............................. 11 65 31 217
Other, net............................ (230) 325 (504) 379
_______ _______ _______ _______
(219) 390 (473) 596
_______ _______ _______ _______
Income before income taxes............. 3,097 2,875 7,905 8,660
Income taxes........................... 1,177 1,150 3,004 3,464
_______ _______ _______ _______
Net income............................ $ 1,920 $ 1,725 $ 4,901 $ 5,196
======= ======= ======= =======
Net income per share.................. $0.23 $0.21 $0.59 $0.62
======= ======= ======= =======
Shares used to compute
net income per share................. 8,310 8,289 8,257 8,326
</TABLE>
The accompanying notes are an integral part of these statements.
3
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MAXWELL SHOE COMPANY INC.
STATEMENTS OF CASH FLOWS
(Unaudited -- In Thousands)
<TABLE>
<CAPTION>
Nine Months
Ended
July 31,
________________
1996 1995
_______ ________
<S> <C> <C>
OPERATING ACTIVITIES
Net income............................ $ 4,901 $ 5,196
Adjustments to reconcile
net income to net cash
provided (used) by
operating activities
Depreciation and amortization....... 178 149
Deferred income taxes............... (28) (322)
Doubtful accounts provision......... (5) 40
Changes in operating assets and
liabilities:
Accounts receivable.............. (6,711) (6,325)
Inventory........................ (2,315) (3,546)
Prepaid expenses................. 609 (196)
Other assets..................... 0 560
Accounts payable................. 258 (1,394)
Accrued expenses................. 1,570 (74)
_______ _______
Net cash used by operating
activities............................ (1,543) (5,912)
INVESTING ACTIVITIES
Purchases of property and equipment... (54) (95)
_______ _______
Net cash used by
investing activities................. (54) (95)
FINANCING ACTIVITIES
Net proceeds on bank borrowings....... 0 5,875
Proceeds from capital lease........... 0 717
Payments on capital lease obligations. (131) (116)
_______ _______
Net cash provided (used)
by financing activities.............. (131) 6,476
_______ _______
Net increase (decrease) in cash
and cash equivalents................. (1,728) 469
Cash and cash equivalents
at beginning of year................. 6,685 618
Cash and cash equivalents
at end of quarter.................... $ 4,957 $ 1,087
======= =======
Interest paid......................... $ 31 $ 217
======= =======
Income taxes paid..................... $ 1,880 $ 4,175
======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
4
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MAXWELL SHOE COMPANY INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
July 31, 1996
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 for the year ended October 31, 1995
included in the Company's 10-K Annual Report for the fiscal year ended
October 31, 1995.
2. NET INCOME PER SHARE
Net income per share is computed based on the weighted
average number of common shares outstanding during the period adjusted
for incremental shares assumed issued for dilutive common stock
equivalents in the form of stock options.
3. STOCK BASED COMPENSATION
The Company has elected to follow Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" (APB 25), in
accounting for its stock-based compensation plans, rather than the
alternative fair value accounting method provided for under Financial
Accounting Standards Board Statement No. 123, "Accounting for Stock-
Based Compensation." Under APB 25, when the exercise price of options
granted under these plans equals the market price of the underlying
stock on the date of the grant, no compensation expense is required.
5
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
The following tables set forth net sales by product line or category of
business:
<TABLE>
<CAPTION>
Three Months Ended
July 31,
__________________________________
(in millions)
1996 1995
____ ____
<S> <C> <C> <C> <C>
Mootsies Tootsies $18.6 61.4% $19.2 67.1%
Jones New York Footwear 5.7 19.0 3.7 12.8
Private Label Footwear 5.1 16.9 3.3 11.6
Closeout .8 2.7 2.4 8.5
_____ _____ _____ _____
$30.2 100.0% $28.6 100.0%
Nine Months Ended
July 31
_________________________________
(in millions)
1996 1995
____ ____
Mootsies Tootsies $47.3 58.6% $49.2 65.9%
Jones New York Footwear 17.0 21.1 11.5 15.4
Private Label Footwear 12.3 15.2 8.6 11.6
Closeout 4.1 5.1 5.3 7.1
_____ _____ _____ _____
$80.7 100.0% $74.6 100.0%
</TABLE>
Three Months Ended July 31, 1996 Compared to Three Months Ended July
31, 1995
Net sales were $30.2 million for the three months ended July 31, 1996
compared to $28.6 million for the same period in the prior year, an increase of
5.8%. The net sales increase was due to a 57.2% increase in net sales of Jones
New York Footwear, and a 54.5% increase in net sales of private label footwear
over the same period of the prior year, offset by a decrease of 66.4% in
closeout net sales and a decrease of 3.2% in net sales generated by Mootsies
Tootsies.
Gross profits in the third quarter of fiscal 1996 were $7.0 million as
compared to $6.9 million in the third quarter of fiscal 1995, or 23.2% of net
sales as compared to 24.1% for the same quarter in 1995. The decrease in gross
margins for the third quarter of fiscal 1996 was largely due to the continued
soft retail market for dress type footwear.
Selling, general and administrative expenses increased $500,000 during the
third quarter of fiscal 1996. This increase was due to additional staffing
expenses added during the fourth quarter of fiscal 1995 which are now part of
the third fiscal quarter of 1996, and increased advertising and promotional
selling expenses. The increase in selling, general and administrative expenses
during the third quarter of fiscal 1996 also included less than $100,000 of
expenses relating to the acquisition by the Company of the Sam & Libby Inc.
trademarks and tradenames as well as additional personnel expenditures relating
to the startup costs of the Sam & Libby footwear division of Maxwell Shoe
Company Inc. The Company anticipates incurring additional expenses in the fourth
quarter of fiscal 1996 relating to the Sam & Libby footwear division and further
anticipates that the Company will not recognize meaningful net sales from the
Sam & Libby footwear division until Spring of 1997.
6
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Other income was $230,000 for the three months ended July 31, 1996 compared
to other expenses of $325,000 for the same period in the prior year. This
account in the third quarter of fiscal 1996 comprises principally net gains from
forward exchange contracts entered into in anticipation of future purchases of
inventory denominated in foreign currencies and interest income from the
investment of cash equivalents. During the third quarter of fiscal 1995 expenses
of approximately $315,000 were recognized as non-recurring costs arising from
terminated discussions relating to the possible sale of the Company.
Interest expense was $11,000 for the three months ended July 31, 1996
compared to $65,000 for the three months ended July 31, 1995. Interest expense
in the third quarter of fiscal 1996 was incurred only for capital leases, as the
Company incurred no short term borrowing in the third quarter of fiscal 1996.
The Company has accrued an effective income tax rate of 38% for fiscal 1996
as compared to 40% in fiscal 1995. The decrease is attributable to the prior
year's tax liability being less than amounts estimated for financial reporting
purposes.
Nine Months Ended July 31, 1996 Compared to Nine Months Ended July 31, 1995
Net sales were $80.7 million for the nine months ended July 31, 1996
compared to $74.6 million for the same period in the prior year, an increase of
8.2%. The net sales increase was due to an increase of 48.4% in net sales of
Jones New York Footwear, and a 42.5% increase in net sales of private label
footwear over the same period of the prior year, offset by a 3.8 % decrease in
net sales of Mootsies Tootsies and a 22.9% decrease in net sales of closeouts.
Gross profits in the nine months ended July 31, 1996 were $18.7 million as
compared to $19.3 million in the nine months ended July 31, 1995 or 23.2% of net
sales as compared to 25.9% for the same period in 1995. The decrease in gross
margin was due to the continued soft retail market for dress type footwear.
Selling, general and administrative expenses were $11.3 million for the
nine months ended July 31, 1996 compared to $10.1 million for the same period in
the prior year. The increase was due to additional staffing expenses added
during the fourth quarter of fiscal 1995 which are now part of the first nine
months of 1996, and increased advertising and promotional expenses. The increase
in selling, general and administrative expenses during the third quarter of
fiscal 1996 also included less than $100,000 of expenses relating to the
acquisition by the Company of the Sam & Libby Inc. trademarks and tradenames as
well as additional personnel expenditures relating to the startup costs of the
Sam & Libby footwear division of Maxwell Shoe Company Inc.. The Company
anticipates incurring additional expenses in the fourth quarter of fiscal 1996
relating to the Sam & Libby footwear division and further anticipates that the
Company will not recognize meaningful net sales from the Sam & Libby footwear
division until Spring of 1997.
Other income was $504,000 for the nine months ended July 31, 1996 compared
to other expense of $379,000 for the same period in the prior year. This account
comprises principally net gains from forward exchange contracts entered into in
anticipation of future purchases of inventory denominated in foreign currencies
and interest income from the investment of cash equivalents. During the third
quarter of fiscal 1995 expenses of approximately $315,000 were recognized as non
recurring costs arising from terminated discussions relating to the possible
sale of the Company.
Interest expense was $31,000 for the nine months ended July 31, 1996
compared to $217,000 for the nine months ended July 31, 1995. Interest expense
for the nine months ended July 31,1996, related only to capital leases, as the
Company incurred was no short term borrowing in the first nine months of fiscal
1996.
At July 31, 1996 and 1995, the Company had unfilled customer orders
(backlog) of $32.3 million and $31.9 million respectively. 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
7
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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, 1996 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 totaled
approximately $1.5 million in the nine month period ended July 31 1996, as
compared to net cash used of $5.9 million for the same period in 1995. Despite a
lower net income in 1996, working capital was $40.0 million at July 31,1996 as
compared to $35.1 million at October 31, 1995. 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.
On August 20, 1996 the Company expended $5.3 million towards the purchase
of all the worldwide rights to the trademarks and tradenames of Sam & Libby,
Inc. This transaction was completed utilizing internally generated cash.
The Company currently has a $25.0 million revolving credit facility,
renewable under certain conditions annually, which is secured by substantially
all of the assets 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. Amounts available under the
revolving credit facility are based on eligible accounts receivable, inventory,
and a portion of the open letters of credit. As of July 31, 1996, total
outstanding letters of credit were $6.5 million and $18.5 million was available
for future borrowings.
Capital expenditures of warehouse and office equipment were minimal for the
nine months ended July 31, 1996. The Company utilizes operating leases for
substantially all of its management information systems and related equipment.
The Company anticipates that it will be able to satisfy its cash
requirements for the remainder of fiscal 1996, including its expected growth,
primarily with cash flow from operations, supplemented by borrowings under its
revolving credit facility.
8
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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 From 8-K:
---------------------------------
(a) Reports on Form 8-K
There were no reports filed on Form 8-K during the three months
ended July 31, 1996.
(b) Exhibits:
99 -- Press release issued by the Company on August 20,
1996.
9
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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 11, 1996 By:/s/ Richard J. Bakos
--------------------------------
Richard J. Bakos
Vice President Finance and
Chief Financial Officer
10
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EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION PAGE
<S> <C> <C>
99 Press Release Issued by the Company August 20, 1996 12
</TABLE>
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> NOV-01-1995
<PERIOD-END> JUL-31-1996
<CASH> 4,957
<SECURITIES> 0
<RECEIVABLES> 25,398
<ALLOWANCES> 848
<INVENTORY> 14,708
<CURRENT-ASSETS> 45,437
<PP&E> 2,438
<DEPRECIATION> 1,382
<TOTAL-ASSETS> 46,505
<CURRENT-LIABILITIES> 5,420
<BONDS> 0
0
0
<COMMON> 76
<OTHER-SE> 40,509
<TOTAL-LIABILITY-AND-EQUITY> 46,505
<SALES> 80,701
<TOTAL-REVENUES> 80,701
<CGS> 61,955
<TOTAL-COSTS> 61,955
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 63
<INTEREST-EXPENSE> 31
<INCOME-PRETAX> 7,905
<INCOME-TAX> 3,004
<INCOME-CONTINUING> 4,901
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,901
<EPS-PRIMARY> 0.59
<EPS-DILUTED> 0.59
</TABLE>
<PAGE>
PRESS RELEASE
For More Information, Call:
Richard J. Bakos; Chief Financial Officer For Immediate Release
Phone: (617) 333-4007
MAXWELL SHOE COMPANY INC.
ANNOUNCES COMPLETION OF ACQUISITION OF
SAM & LIBBY TRADEMARKS AND TRADENAMES
Readville, MA-- August 20, 1996-- MAXWELL SHOE COMPANY INC. (NASDAQ: MAXS) today
announced the completion of the acquisition by Maxwell Shoe from Sam & Libby,
Inc. of all worldwide rights to Sam & Libby's trademarks and tradenames for $5.5
million, following approval of the terms of the transaction by the shareholders
of Sam & Libby at a meeting held late last week.
Maxwell V. Blum, Chairman of the Board and Chief Executive Officer of Maxwell
Shoe Company stated: "We are enthusiastic about the acquisition of the Sam &
Libby brand names. The positive reaction from retailers regarding the
acquisition which began earlier this summer has continued with the introduction
of our product at the recent New York and Las Vegas Shoe Shows."
Mark J. Cocozza, President and Chief Operating Officer of Maxwell Shoe Company
said: "We continue to believe that this acquisition will allow us to achieve our
strategic objective of increasing our share of the casual and dress footwear
market."
Maxwell Shoe Company Inc. design, develops and markets moderately priced casual
and dress footwear for women under the Mootsies Tootsies brand name as well as
for children under the Mootsies Kids brand name. The Company also designs,
develops and markets "better" and "upper moderate" women's casual and dress
footwear under the Jones New York and Jones New York Sport brand names.
