PENOBSCOT SHOE COMPANY 1996 ANNUAL REPORT
14
DIRECTORS
IRVING KAGAN GERALD E. RUDMAN
Chairman of the Board Senior Partner,
Rudman & Winchell (Law firm)
JAMES L. MOODY, JR. FRANCIS J. GUTHRIE
Chairman of the Board Executive Vice President
Hannaford Bros. Co. Marketing and Sales
(Retail and wholesale Fortis Benefits Insurance Company
distribution of groceries)
JOHN I. RIDDLE PAUL HANSEN
Retail Real Estate and President and
Shopping Center Developer Chief Executive Officer
OFFICERS
PAUL HANSEN WILHELM PFANDER
President and Vice President-Manufacturing
Chief Executive Officer
DAVID L. KEANE JOHN R. FRENCH
Treasurer and Vice President
Vice President Management Information Systems
Finance and Administration
WILLIAM HOSKINS GERALD E. RUDMAN
Vice President-Sales Corporate Clerk
15
January 31, 1997
TO OUR SHAREHOLDERS...
Net sales for the fiscal year ended November 29, 1996, were $15,429,000, up 22%
from $12,681,000 last year. Net income for fiscal 1996 was $857,000, or $.59
per share, compared to $438,000, or $.30 per share, in fiscal 1995.
For the fourth quarter of fiscal 1996, net sales were $4,315,000, up 33% from
$3,234,000 a year ago. Net income for the current quarter was $406,000, or
$.29 per share, up from net income of $318,000, or $.21 per share in the
same quarter last year.
TROTTERS sales growth in 1996 was the result of several factors. Improved
product sell through, as indicated by a 26% increase in our in-stock
business, sales programs and expanded penetration into key retail segments
all contributed to this success.
Future growth will be dependent on further expansion of TROTTERS distribution
in the highly competitive women's footwear market and the strength of the
retail footwear environment.
Sincerely,
Irving Kagan Paul Hansen
Chairman of the Board President and Chief Executive Officer
16
STATEMENTS OF INCOME
For the Years Ended November 29, 1996,
November 24, 1995 and November 25, 1994
(In thousands, except for share data)
1996 1995 1994
Net Sales $ 15,429 $ 12,681 $ 14,506
Costs and operating expenses (Notes 1 and 3)
Cost of sales 10,291 8,218 9,536
Selling and administrative expenses 4,234 4,140 4,094
14,525 12,358 13,630
Operating income 904 323 876
Other income (expense), net (Note 7) 539 412 (44)
Income before taxes on income 1,443 735 832
Taxes on income (Notes 1 and 8) 586 297 322
Net income $ 857 $ 438 $ 510
Per common share:
Net income (Note 1) $ .59 $ .30 $ .34
Dividends declared $ .20 $ .20 $ .20
Weighted average share outstanding 1,458,568 1,482,117 1,480,548
STATEMENTS OF SHAREHOLDERS' EQUITY
For the Years Ended November 29, 1996,
November 24, 1995 and November 25, 1994
(In thousands, except for share data)
Additional
Common Stock Paid-in Retained Unrealized Treasury Stock
Shares Amount Capital Earnings Gains Shares Amount
Balance, November 26, 1993 1,533,042 $ 1,533 $ 1,109 $ 7,332 - 57,125 $ 310
Net income for the year - - - 510 - - -
Sale of treasury stock - - - (20) - (6,200) (40)
Less dividends on common
stock ($.20 per share) - - - (296) - - -
Balance, November 25, 1994 1,533,042 1,533 1,109 7,526 - 50,925 270
Net income for year - - - 438 - - -
Marketable Sec (note 1 ) - - - - 356 - -
Less dividends on common
stock ($.20 per share) - - - (297) - - -
Balance, November 24, 1995 1,533,042 1,533 1,109 7,667 356 50,925 270
Net income for year - - - 857 - - -
Purchase of treasury stock - - - (20) - 86,952 467
Marketable Sec (note 1 ) - - - - (1) - -
Less dividends on common
stock ($.20 per share) - - - (290) - - -
Balance, November 29, 1996 1,533,042 $ 1,533 $ 1,109 $ 8,234 355 137,877 $ 737
See accompanying notes to financial statements
PENOBSCOT SHOE COMPANY
17
BALANCE SHEETS
November 29, 1996 and November 24, 1995
(In thousands)
ASSETS 1996 1995
CURRENT ASSETS:
Cash and cash equivalents (Note 1) 548 1,301
Marketable securities (Notes 1 and 2) 3,299 3,271
Receivables (Note 8):
Trade, less allowances of $470 and $468 3,292 3,460
Refundable income taxes - -
Other 27 32
Inventories (Notes 1 and 3) 4,036 3,054
Prepaid expenses and other (Notes 4 and 8) 433 341
TOTAL CURRENT ASSETS 11,635 11,459
PROPERTY AND EQUIPMENT (Note 1):
Land 66 66
Land improvements 4 4
Buildings and improvements 1,417 1,413
Machinery and equipment 298 1,546
1,785 3,029
Less accumulated depreciation and amortization 1,584 2,660
NET PROPERTY ANDEQUIPMENT 201 369
TOTAL ASSETS $11,836 $11,828
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 502 $ 791
Accruals (Notes 1 and 6)
Salaries, wages and commissions 159 44
Retirement plan 183 189
Income taxes 188 105
Other 141 84
Dividends payable 70 74
TOTAL CURRENT LIABILITIES 1,243 1,287
DEFERRED INCOME TAXES (Notes 1 and 8) 99 146
COMMITMENTS AND CONTINGENCIES
(Notes 4, 5, 6 and 9)
SHAREHOLDERS' EQUITY (Note 9):
Common stock, $1 par - shares
authorized 2,000,000; issued 1,533,042 1,533 1,533
Additional paid-in capital 1,109 1,109
Retained earnings 8,234 7,667
10,876 10,309
Unrealized gain on marketable securities
(Note 1) 355 356
Less treasury stock, at cost,
137,877 and 50,925 shares 737 270
TOTAL SHAREHOLDERS' EQUITY 10,494 10,395
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $11,836 $11,828
See accompanying notes to financial statements
PENOBSCOT SHOE COMPANY
18
STATEMENT OF CASH FLOWS
For the Years Ended November 29, 1996,
November 24, 1995 and November 25, 1994
(In thousands)
1996 1995 1994
Cash flows from operating activities:
Net income $ 857 $ 438 $ 510
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation and amortization 87 128 133
Provision for losses on accounts receivable 132 67 44
Gain on sale of marketable securities (226) (178) (65)
(Gain) loss on sale property and equipment 20 - (2)
Deferred income taxes (48) (11) 67
Changes in operating assets and liabilities:
Receivables 41 183 227
Inventories (982) (585) (260)
Prepaid expenses and other (90) (65) (70)
Accounts payable (289) 261 (303)
Accruals 249 29 (208)
Dividends payable (4) - -
Total adjustments (1,110) (171) (437)
Net cash provided (used) by operating activities(253) 267 73
Cash flows from investing activities:
Proceeds from sale of marketable securities 1,554 949 1,143
Purchase of marketable securities (1,358) (890) (1,124)
Proceeds from sale of property and equipment 81 - 2
Purchase of property and equipment (20) (36) (24)
Net cash provided (used) by investing activities 257 23 (3)
Cash flows from financing activities:
Dividends paid (290) (297) (296)
Purchase (sale) of treasury stock (467) - 20
Net cash (used) by investing activities (757) (297) (276)
Net increase (decrease) in cash and cash
equivalents (753) (7) (206)
Cash and cash equivalents at beginning of year 1,301 1,308 1,514
Cash and cash equivalents at end of year $548 $1,301 $1,308
Supplemental Disclosure of Cash Flow Information
Payments for income taxes amounted to $553,000, $284,000 and $465,000 in
1996, 1995 and 1994, respectively. Cash paid for interest expense in 1996 and
1994 was $3,000. Unrealized gains on marketable securities were $594,000 and
$596,000 in 1996 and 1995, respectively.
See accompanying notes to financial statements
PENOBSCOT SHOE COMPANY
19
NOTES TO FINANCIAL STATEMENTS
(1) Summary of Business Operations and Significant Accounting Policies
Business Operations:
The Company is engaged in the design, importing and sale of women's casual,
sport and leisure footwear, including fashion boots and sandals, for the
retail market throughout North America.
Fiscal Year:
The Company's fiscal year ends on the last Friday in November. Fiscal 1996
included 53 weeks while the years 1995 and 1994 each included 52 weeks.
Use of Estimates:
The preparation of financial statements in conformity with generally accepted
accounting principals requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Marketable Securities:
Effective November 26, 1994, the Company accounts for investments in debt and
equity securities under the provisions of Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" ("SFAS No. 115"). Previously, the Company accounted for these
investments at the lower of aggregate cost or market. Upon the adoption of
SFAS No. 115, the Company recorded an unrealized gain of $133,604, net of
tax, as a separate component of stockholders' equity. During fiscal 1995 the
unrealized gain increased by $222,755, and during 1996 the gain decreased by
$1,517 to a year end balance of $354,842, net of tax. The Company classifies
the debt and equity securities as available-for-sale securities, and therefore
records them at fair market value.
The cost of securities sold is based on the first-in, first-out method in the
determination of realized gains and losses. Unrealized gains and losses are
recorded as a separate component of stockholders' equity. Realized gains and
losses are recognized in the results of operations.
Inventories:
Inventories are stated at cost, not in excess of market. Cost is determined
on a last-in, first-out ("LIFO") basis.
Property, Equipment and Depreciation:
Property and equipment are stated at cost. Depreciation is computed using
the straight line method over the following estimated useful lives:
Years
Land improvements 10
Buildings and improvements 10-33
Machinery and equipment 3-10
Retirement Plan:
The Company has a defined benefit retirement plan covering substantially all
employees. The Company's policy is to fund retirement cost as accrued. Plan
assets consist principally of equity securities and corporate and US
Government obligations. The plan was fully funded at November 29, 1996.
Financial Instruments and Concentrations of Credit Risk:
The fair values of debt securities and equity investments are based
on quoted market prices at the reported date for those investments. The
estimated fair value of the Company's other financial instruments, which
include cash, trade receivables and accounts payable, approximate their
carrying value. At November 29, 1996 and November 24, 1995, the Company's
trade recievables were primarily due from the retail trade. The Company
performs periodic credit evaluations of its customers' financial condition and
generally does not require collateral. Credit losses relating to customers
have consistently been within management's expectations.
Income Per Share:
Net income per share amounts are based on the weighted average number of
common shares outstanding.
Cash Equivalents:
The Company considers all highly liquid instruments with a maturity of three
months or less when purchased to be cash equivalents.
Income Taxes:
Income taxes are based on income (loss) for financial reporting purposes and
reflect a current tax liability (asset) for the estimated taxes payable
(recoverable) in the current-year tax return and changes in deferred taxes.
Deferred tax liabilities or assets are recognized for the estimated tax
effects of temporary differences between financial reporting and taxable
income (loss) and for tax credit and loss carryforwards based on enacted tax
laws and rates.
Effect of Accounting Pronouncement Not Adopted:
The effect of adopting Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation," has not been estimated. The
Company is required to adopt the disclosure requirements of FAS No. 123
during the year ended November 28, 1997.
(2) Marketable Securities
At November 29, 1996 and November 24, 1995, marketable securities consist of
the following (in thousands):
Fair Market Value Cost
1996 1995 1996 1995
Preferred and
common stock $ 1,406 $ 1,018 $ 917 $ 638
U.S. Government and
U.S. Government
agency obligations 1,524 1,889 1,428 1,694
Mutual funds 73 53 62 47
Corporate bonds 296 311 298 295
Total $ 3,299 $ 3,271 $ 2,705 $ 2,674
Gross unrealized gains and losses at November 29, 1996, were $597,000 and
$3,000, respectively. Gross unrealized gains and losses at November 24, 1995,
were $597,000 and $1,000, respectively.
The contractual maturity of debt securities are summarized as follows at
November 29, 1996:
Cost Fair Market
Value
Within 1 year $ 99 $ 102
After 1 year through 5 years 613 622
After 5 years through 10 years 618 638
After 10 years 396 458
Total debt securities $ 1,726 $ 1,820
(3) Inventories
Inventories are summarized as follows (in thousands):
1996 1995
FIFO Cost:
Finished shoes $ 4,358 $ 3,355
Shoes in process - 22
Raw materials 20 232
4,378 3,609
Excess of FIFO cost over
LIFO inventory value (342) (555)
$ 4,036 $ 3,054
20
The Company uses the LIFO method because it more realistically reflects
operating results by charging current costs against current revenues.
Certain companies in the same industry use the first-in, first-out ("FIFO")
method. Had the Company's inventory been stated using the FIFO method, the
inventory would be greater by approximately $342,000 and $555,000 at
November 29, 1996 and November 24, 1995, respectively. Reported net income
would have been lower by approximately $127,000 ($.09 per share), $84,000
($.06 per share) and $125,000 ($.08 per share) in 1996, 1995 and 1994,
respectively.
During 1996, 1995 and 1994, cost of sales included charges for goods carried
at prior years' LIFO values which were less than the cost of current
purchases. This result was to increase net income by approximately $205,000
($.14 per share), $182,000 ($.12 per share) and $82,000 ($.06 per share) in
1996, 1995 and 1994, respectively.
(4) Retirement Plan
The Company has a retirement plan covering substantially all of its employees.
The following table sets forth the plan's funded status at November 29, 1996
and November 24, 1995 (in thousands):
Actuarial present value of 1996 1995
benefit obligation:
Accumulated benefit obligation,
including vested benefits of
$2,778 and $2,742 $ (3,205) $ (2,824)
Projected benefit obligation $ (3,319) $ (3,017)
Unrecognized net gain from
past experience difference from
that assumed (1,351) (1,184)
Plan assets at fair market value 5,085 4,604
Prior service cost not yet recognized
in net periodic pension cost 9 10 )
Unrecognized transition assets being
amortized over 15 years (198) (231)
Prepaid pension cost $ 226 $ 182
Net periodic pension expense (credit) in 1996, 1995 and 1994 included the
following (in thousands):
1996 1995 1994
Service cost $ 43 $ 33 $ 37
Interest cost 239 218 216
Return on plan assets (294) (278) (297)
Net amortization
and deferral (32) (35) (30)
Net periodic pension
expense (credit) $ (44) $ (62) $ (74)
The discount rate and rate of increase in future compensation levels used in
determining the actuarial present value of the projected benefit obligation
were 7.5% and 6%, respectively. The expected long-range rate of return on
assets was 7.5%.
5) Short-term Borrowings
At November 29, 1996, the Company had a line of credit of $3,750,000 for
letters of credit and short-term borrowings. Borrowings under this
arrangement are unsecured and bear interest at the bank's "base rate."
There were no short-term borrowings during fiscal 1995. During fiscal 1996
and 1994, the maximum amount of short-term borrowings under these
arrangements was $315,000 and $400,000 respectively, with an interest rate
paid of 8.25% and 7.75%. At November 29, 1996, commitments against letters
of credit were approximately $987,000.
(6) Commitments and Contingencies
Supplemental retirement benefit:
The Company provides retirement benefits to its former chief executive
officer in accordance with a supplemental retirement plan approved by the
Board of Directors. The present value of the estimated future payments under
this benefit program of $183,000 in 1996 and $189,000 in 1995 are reflected
in the accompanying financial statements as accrued retirement plan. Retirement
payments under this program amounted to $20,000 in both 1996 and 1995.
Employment death benefit:
The Board of Directors has voted to make payments to spouses and minor
children of certain officers in the aggregate amount of approximately
$357,000 in the event of officers' deaths while employed.
Litigation:
In September 1987, the Company and numerous other parties entered into two
Administrative Orders by Consent issued by the U.S. Environmental Protection
Agency and the Maine Department of Environmental Protection regarding the
removal of hazardous wastes from two locations in Maine. The Company
initially established a loss contingency of $75,000 to cover anticipated
liabilities in these two proceedings. Costs totaling $14,000 have been incurred
to date.
(7) Other Income (Expense), Net
Other income (expense), net, consists of the following (in thousands):
1995 1995 1994
Interest income $ 200 $ 218 $ 173
Dividend income 23 25 25
Gain on sale
of securities 226 178 65
Interest expense (3) - (3)
Litigation settlement 100 - (300)
Other, net (7) (9) (4)
$ 539 $ 412 $ (44)
21
(8) Taxes on Income (Credit)
The provision (credit) for income taxes is comprised of
the following (in thousands):
Fiscal Year Current Deferred Total
1996:
Federal $ 472 $ (37) $ 435
State 162 (11) 151
$ 634 $ (48) $ 586
1995:
Federal $ 296 $ (8) $ 288
State 12 (3) 9
308 (11) 297
1994:
Federal $ 204 $ 51 $ 255
State 51 16 67
$ 255 $ 67 $ 322
Deferred tax assets (liabilities) are comprised of the following
(in thousands)
1996 1995
Deferred tax asset:
Accounts receivable reserves $ 189 $ 188
Inventory valuation 33 31
Deferral related to
marketable securities (239) (240)
Basis difference of accrued
liabilities 132 134
$ 115 $ 113
Deferred tax liability:
Depreciation ( 99) (146)
A reconciliation on income at the United States statutory rate to
the effective rate follows:
1995 1995 1994
Taxes on income
computed at the
United States
statutory rate 34.0% 34.0% 34.0%
State and local
taxes, net of
federal benefit 6.1 5.5 5.1
Dividends
received
deduction (.4) (.8) (.7)
Other - net .9 1.7 .3
Effective tax rate 40.6% 40.4% 38.7%
(9) Stock Options Plan
The Company has a nonqualified stock option plan (the "Plan") designed to
reward key employees of the Company. Options are available for the purchase
of shares of the Company's common stock at an exercise price as determined by
the Board of Directors, but at a price not less than the fair market value of
the common stock at the time the option in granted. Stock option activity is
shown below.
1995 1995 1994
Outstanding at
beginning of year 29,800 29,800 31,000
Granted (price of $5.00
per share) - - 5,000
Exercised (price of
$3.125 per share) - - (6,200)
Outstanding at end of
year (prices range
from $3.125 to $5.00
per share) 29,800 29,800 29,800
Available for grant
at end of year 33,000 33,000 33,000
(10) Summarized Quarterly Results of Operations
(unaudited)
(In thousands except
per share data)
1996 1995
First quarter
Revenue $4,225 $3,120
Gross profit 1,385 1,054
Net income 224 14
Net income
per common share .15 .01
Second quarter
Revenue $3,024 $2,455
Gross profit 951 827
Net income (loss) 31 (27)
Net income (loss)
per common share .02 (.02)
Third quarter
Revenue $3,865 $3,872
Gross profit 1,168 1,285
Net income 196 133
Net income
per common share .13 .09
Fourth quarter
Revenue $4,315 $3,234
Gross profit 1,635 1,297
Net income 406 318
Net income
per common share .29 .21
22
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Penobscot Shoe Company
Old Town, Maine
We have audited the accompanying balance sheets of Penobscot Shoe Company
as of November 29, 1996 and November 24, 1995, and the related statements
of income, shareholders' equity, and cash flows for each of the three years
in the period ended November 29, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Penobscot Shoe Company at
November 29, 1996 and November 24, 1995, and the results of its operations
and its cash flows for each of the three years in the period ended November
29, 1996, in conformity with generally accepted accounting principles.
As discussed in Note 1 to the financial statements, the Company changed its
method of accounting for investments in debt and equity securities in fiscal
1995.
Boston, Massachusetts
January 10, 1997
BDO Seidman, LLP
SELECTED FINANCIAL DATA
(In thousands, except per share amounts)
1996 1995 1994 1993 1992
Selected Financial Data
Net Sales $ 15,429 $ 12,681 $ 14,506 $ 14,861 $14,170
Income Before Taxes $ 1,443 $ 735 $ 832 $ 1,087 $ 1,341
Net Income $ 857 $ 438 $ 510 $ 663 $ 879
Net Income per Share $ .59 $ .30 $ .34 $ .45 $ .60
Cash Dividends Declared per
Common Share $ .20 $ .20 $ .20 $ .20 $ .20
At year-end:
Total Assets $ 11,836 $ 11,828 $ 11,026 $ 11,290 $ 10,388
Working Capital $ 10,392 $ 10,172 $ 9,568 $ 9,212 $ 8,832
Shareholders' Equity $ 10,494 $ 10,395 $ 9,898 $ 9,664 $ 9,278
Book Value per Common Share
Outstanding at Year End $ 7.52 $ 7.01 $ 6.68 $ 6.55 $ 6.31
23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources:
Penobscot Shoe Company's net working capital increased by $220,000 during
1996, compared to an increase of $604,000 and $356,000 in 1995 and 1994,
respectively. Working capital at the end of 1996 was $10,392,000, compared
to $10,172,000 at the end of 1995 and $9,568,000 at the end of 1994. The
current ratio for each of the last three years was 8.1 to 1, 8.9 to 1 and
10.6 to 1, respectively.
The Statement of Cash Flows for the year ended November 29, 1996, shows a
decrease in cash and cash equivalents of $753,000. The Company's operations
used $253,000 during 1996, primarily due to increased inventory. The
payment of the Company's quarterly dividend amounted to $290,000 during
1996. During 1996, the Company used $467,000 to purchase treasury stock.
During 1996, the total value of the Company's inventory which included both
domestically assembled and imported footwear increased by $982,000. In
1995, the inventory had increased by $585,000 from 1994. The increase in
inventory in fiscal 1996 was due to larger purchases of imported footwear
in advance of 1997 shipment. In both 1996 and 1995, the portion of inventory
comprised of domestically assembled footwear decreased, reducing the amount
of inventory carried at prior years' LIFO values. As a result, in each of
the last two years cost of sales was charged for goods carried at prior
years' LIFO values which were significantly less than the cost of current
purchases. The effect of these LIFO liquidations was to increase earnings
by $205,000, or $.14 per share, and $182,000, or $.12 per share, in 1996
and 1995, respectively.
The increase in marketable securities was primarily due to the adoption of
Statement of Accounting Standards No. 115 "Accounting for Certain
Investments in Debt and Equity Securities" on November 26, 1994. As a result
of the adoption of this accounting standard, marketable securities includes
$594,000 of unrealized gain and a deferred tax liability of $239,000 is
recorded on the balance sheet as an offset to prepaid expenses and other.
The increases in accruals and prepaid expenses, and the decrease in
accounts receivable and accounts payable were a result of timing.
Management believes that Penobscot Shoe Company remains financially well
structured to consider a variety of financing options should the need arise
and will make choices depending on economic conditions at the time. Options
available include conversion of marketable securities held by the Company
into cash and cash equivalents. The Company also has an established line
of credit of $3,750,000 with a major bank available at the bank's base rate
should the need arise. The Company had no material commitments for capital
expenditures as of November 29, 1996.
Results of Operations:
Net sales for 1996 increased 22% from the preceding year which had decreased
by 13% from 1994. Total pairs of footwear shipped increased by approximately
15% from 1995, and the average selling price per pair increased by
approximately 6%. Most of the increase in the average selling price per pair
was a result of the product mix rather than price increases.
The Company's business is characterized by two major selling seasons, one for
the Fall retail season and the other for the Spring retail season. Sales for
the Fall season generally account for slightly more than half of a year's
sales, while the Spring sales account for the balance.
Cost of sales was 67% of net sales in 1996 and 65% in 1995 and 66% in 1994.
The gross profit percentage was 33%, 35% and 34% in 1996, 1995 and 1994
respectively. Costs related to the closure of the Company's domestic
assembly factory in 1996 reduced margins by approximately 1%. The closing
of the factory in Old Town, Maine, was in response to a decline in the
portion of the product line which had been assembled at that facility. The
resulting inefficiencies reached a point at which it was no longer economically
viable to operate the factory.
Selling and administrative costs increased by approximately $94,000, or 2%,
from 1995. In 1995, these expenses had increased by approximately 1% from
1994. The increase in the current year was mainly due to costs variable on
sales.
In the fiscal year 1996, other income amounted to $539,000, pre-tax,
including $226,000 in gains from the sales of securities and interest income
of $200,000. Also in 1996, other income was increased by a gain of $100,000
related to the settlement of litigation. In 1995 gains from the sales of
securities amounted to $178,000, pre-tax, and interest income amounted to
$218,000.
During fiscal 1996, the Company's effective income tax rate was 41%. During
1995 the rate was 40% and 1994 the effective rate was 39%. In all three
years the effective income tax rate consisted of State and Federal income taxes.
TROTTERS sales growth in 1996 was the result of several factors. Improved
product sell through, as indicated by a 26% increase in our in-stock
business, sales programs and expanded penetration into key retail segments
all contributed to this success.
Future growth will be dependent on further expansion of TROTTERS distribution
in the highly competitive women's footwear market and the strength of the
retail footwear environment.
24
MARKET FOR THE COMPANY'S COMMON STOCK AND
RELATED SECURITY HOLDER MATTERS
Principal Market, Transfer Agent and Registrar
The principal market on which the Company's Common Stock is traded is the
American Stock Exchange. The Transfer Agent and Registrar for the Company's
Common Stock is Chemical Mellon Shareholder Services, 111 Founders Plaza,
E. Hartford, CT 06108. As of November 29, 1996, there were 239 holders of
record of the Company's Common Stock.
Stock Price and Dividend Information
The table presents the high and low sales prices as reported by the American
Stock Exchange, and dividend information for the Company's Common Stock
for each quarterly period during the past two years.
First Second Third Fourth
Quarter Quarter Quarter Quarter
1996
High 4 7/8 6 1/4 5 7/8 6 3/8
Low 4 1/4 4 7/8 4 3/4 5 3/8
Dividends $.05 $.05 $.05 $.05
1995
High 4 7/8 5 4 3/4 4 3/4
Low 4 4 3/8 4 3/8 4 3/16
Dividends $.05 $.05 $.05 $.05
PENOBSCOT SHOE COMPANY
PO BOX 545, OLD TOWN, MAINE 04468
TROTTERS
25