SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended February 27, 1998
Commission File No. 1-5548
Penobscot Shoe Company
(Exact name of registrant as specified in its charter)
Maine
(State or other jurisdiction of incorporation or organization)
01-0139580
(IRS Employer identification no.)
450 North Main Street, Old Town Maine
(Address of principal executive offices)
04468
(Zip code)
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
Registrant's telephone number, including area code: (207) 827-4431
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, and (2) has been subject to such
filing requirements for the past 90 days. Yes __X__
No _____
Common stock of 1,374,991 shares, $1 par value, was outstanding at
February 27, 1998.
PENOBSCOT SHOE COMPANY
CONDENSED BALANCE SHEET
(In thousands)
February 27, 1998 November 28, 1997
(Unaudited) (Note (a))
CURRENT ASSETS:
Cash & Cash Equivalents $ 603 $ 403
Marketable Securities 3,422 3,457
Accounts receivable 4,236 3,753
Inventories (Note 2) 4,687 4,283
Other current assets 328 382
_______ _______
TOTAL CURRENT ASSETS $13,276 $12,278
PROPERTY AND EQUIPMENT, AT COST:
Buildings $ 1,437 $ 1,437
All Other 484 474
Less accumulated depreciation
and amortization 1,645 1,618
_______ _______
NET PROPERTY AND EQUIPMENT $ 276 $ 293
_______ _______
TOTAL ASSETS $13,552 $12,571
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY:
CURRENT LIABILITIES:
Accounts payable $ 1,104 $ 597
Notes payable 760 750
Other current liabilities 684 431
_______ _______
TOTAL CURRENT LIABILITIES $ 2,548 $ 1,778
DEFERRED INCOME TAXES $ 109 $ 109
SHAREHOLDERS' EQUITY:
Common stock, $1 par value:
authorized 2,000,000 shares:
issued 1,533,042 $ 1,533 $ 1,533
Capital in excess of par value 1,109 1,109
Retained earnings 8,671 8,392
Add net unrealized gain on
available-for-sale securities
(Note (b)) 441 449
Less treasury stock at cost
148,051 and 137,877 shares 859 799
NET SHAREHOLDERS' EQUITY _______ _______
(Note 3) $10,894 $10,684
TOTAL LIABILITIES AND SHARE- _______ _______
HOLDERS' EQUITY $13,552 $12,571
======= =======
<FN>
Note: (a) The balance sheet at November 27, 1998, has been derived from
the audited financial statements at that date.
(b) The Company adopted Statement of Accounting Standard No. 115
"Accounting for Certain Investments in Debt and Equity Securities"
effective November 26, 1994.
See notes to the condensed financial statements.
PENOBSCOT SHOE COMPANY
STATEMENT OF INCOME
(In thousands, except per share amounts)
(Unaudited)
For the
Three Months Ended
February February
27, 1998 28, 1997
Net Sales $4,784 $4,103
Cost and operating expenses:
Cost of sales 3,172 2,773
Selling and administrative
expenses 1,269 1,146
_______ _______
Operating income 342 183
Other income 238 62
_______ _______
Income before income taxes 581 246
Income taxes 233 97
_______ _______
Net income $ 348 $ 149
======= =======
Earnings Per Share:
Basic $0.25 $0.11
Diluted $0.25 $0.11
Cash dividends per share 0.05 0.05
Average number of common shares
outstanding 1,375,880 1,395,165
<FN>
See notes to the condensed financial statements.
PENOBSCOT SHOE COMPANY
STATEMENT OF CASH FLOWS
For Three Months Ended February 27, 1998 and February 28, 1997
(In thousands)
1998 1997
Cash flows from operating
activities:
Net cash provided by
operating activities $ 339 $ 713
Cash flows from investing
activities:
Proceeds from sale of assets 0 0
Capital expenditures (10) (142)
_______ _______
Net cash (used) by
investing activities (10) (142)
Cash flows from financing activities:
Dividends paid (69) (70)
Purchase of treasury stock (60) 0
Net cash (used) by _______ _______
financing activities (129) (70)
Net increase in _______ _______
cash and cash equivalents 200 501
Cash and cash equivalent at
beginning of period 403 548
Cash and cash equivalent at _______ _______
end of period $ 603 $ 1,049
======= =======
Supplemental Disclosure of Cash Flow Information
Cash paid during the period for:
Interest $ 8 $ 0
Income taxes 173 193
PENOBSCOT SHOE COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. CONDENSED FINANCIAL STATEMENTS
The condensed balance sheet as of February 27, 1998, the statements of
income for the first quarter ended February 27, 1998 and February 28, 1997,
and the condensed statements of cash flows for the three-month periods then
ended have been prepared by the Company, without audit. In the opinion of
management, all necessary adjustments, which include normal recurring
adjustments, have been made to present fairly the financial position, results
of operations, and cash flows at February 27, 1998 and for the other periods
presented. The results of operations for the period ended February 27, 1998
are not necessarily indicative of operating results for the full year.
2. INVENTORIES
Inventories are summarized as follows (in thousands):
2/27/98 11/28/97 2/28/97
FIFO Cost:
finished shoes $4,917 $4,386 $3,840
raw materials 19 15 18
_______ _______ _______
$4,936 $4,401 $3,858
Excess of FIFO cost over
LIFO inventory value (249) (117) (227)
_______ _______ _______
$4,687 $4,283 $3,631
======= ======= =======
The Company uses the LIFO method because it more realistically
reflects operating results by charging current costs against current
revenues.
3. SHAREHOLDERS' EQUITY
During the three months ended February 27, 1998, shareholders' equity
changed due to the net income of $348,000 and dividends declared of $69,000,
purchases of treasury stock of $60,000 and an $8,000 decrease in the net
unrealized gain an available-for-sale securities held by the Company.
Effective November 26, 1994 the Company adopted Statement of Financial
Accounting Standards No. 115 "Accounting for Certain Investments in Debt and
Equity Securities", necessitating the inclusion of this unrealized gain on
the balance sheet.
4. EARNINGS PER SHARE
The weighted average number of shares outstanding used to compute basic
earnings per share were 1,375,880 and 1,395,165 for the periods ended
February 27, 1998 and February 28, 1997, respectively, and for computing diluted
earnings per share were 1,385,403 and 1,408,271 for the same respective periods.
Basic earnings per share are calculated based on the weighted average number of
shares outstanding. Diluted earnings per share are calculated based on the same
number of shares plus additional shares representing stock distributable under
stock-based plans computed using the treasury stock method. The implememtation
of Statement of Accounting Standards No. 128 "Earnings per Share" did not have
a material impact on the financial statements.
PENOBSCOT SHOE COMPANY
MANAGEMENT DISCUSSION AND ANALYSIS OF THE SUMMARY OF OPERATIONS
Forward Looking Statements:
This report contains certain forward looking statements regarding the
Company. The Company desires to take advantage of the "safe harbor" provisions
of the Private Securities Litigation Reform Act of 1995 and in that regard is
cautioning the readers of this report that a number of important risk factors
could affect the Company's actual results of operations and may cause changes
in the Company's strategy with the result that the Company's operations and
results may differ materially from those expressed in any forward looking
statements made by, or on behalf of, the Company. These risk factors include,
among others, general economic and market conditions, the rate of growth in the
footwear market and consumer acceptance of the Company's product line, and the
risk factors that are discussed from time-to-time in the Company's SEC reports,
including, but not limited to, the report on Form 10-Q for the quarter ended
February 27, 1998.
Liquidity and Capital Resources:
At February 27, 1998, Penobscot Shoe Company had working capital of
approximately $10,728,000 versus approximately $10,499,000 at November
28, 1997, an increase of $229,000. The ratio of current assets to current
liabilities at February 27, 1998, was 5.2 to 1, compared to 6.9 to 1, at
November 28, 1997.
The statement of cash flows for the three months ended February 27, 1998,
shows an increase of $200,000 in cash and cash equivalents since November
28, 1997. The Company's operations provided $339,000 since November 28,
1997, including net income of $348,000 and ordinary fluctuations in various
current asset and liability accounts. The fluctuations included increases in
inventory, accounts receivable and accounts payable, all mainly as a result of
timing. The Company's quarterly dividend amounted to a use of $69,000 during
the period. The Company used $10,000 for purchases of capital equipment and
used $60,000 to purchase treasury stock.
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
with a major bank available for direct borrowing at the prime rate minus 1.5%
should the need arise.
Results of Operations:
Net sales for the quarter ended February 27, 1998, were $4,784,000,
up 17% from $4,103,000 in the same quarter last year. Net income for the
current quarter was $348,000, or $.25 per share, compared to $149,000, or $.11
per share, in the corresponding quarter last year. Gains from the sales of
securities contributed $126,000, or $.09 per share to the current quarter's
earnings. Such gains last year amounted to only $6,000, or less than $.01
per share. Last year's first quarter benefited from a LIFO gain that amounted
to approximately $116,000, or $.08 per share. There was no such LIFO gain in
the current quarter.
The increase in net sales versus last year was due to the success of our
Spring '98 line. This collection has generated significant at-once orders to
date. However, advance bookings for Fall '98 have been adversley affected by
reduced boot bookings due to the unusually mild winter of 97/98. Overall,
assuming continued positive response to product at retail, the Company expects
to produce a moderate increase in sales for the full year.
Cost of sales was 66.3% of net sales in the first quarter compared to 67.6%
a year ago resulting in gross profit margins of 33.7% and 32.4% in the 1998 and
1997 quarters, respectively. Last year, the first quarter included a pre-tax
LIFO liquidation gain of $193,000. Without the LIFO gain, the gross profit
margin in that quarter would have been 27.7%. No LIFO liquidation gain was
realized in the first quarter of this year.
Selling and administrative costs in the first quarter were approximately
11% higher that last year. Increased expenditures on new product development,
strengthened marketing and sales programs and variable costs accounted for
most of the increase.
Other income in the first quarter of 1998 was $238,000, pre-tax, compared
to $62,000 in the same quarter last year. Gains from the sale of securities
contributed $210,000, pre-tax, in the first quarter. Such gains last year
amounted to only $10,000, pre-tax.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27. Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the
last quarter of the period covered by this report.
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 under-
signed thereunto duly authorized.
Penobscot Shoe Company
_________________________
(Registrant)
Date: March 27, 1998 Paul Hansen
_________________________
By: Paul Hansen
President and
Chief Executive Officer
Date: March 27, 1998 David L. Keane
_________________________
By: David L. Keane
Vice President/Finance and
Administration