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 August 28, 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 1,378,891 shares, $1 par value, was outstanding at
August 28, 1998.
PENOBSCOT SHOE COMPANY
CONDENSED BALANCE SHEET
(In thousands)
August 28, 1998 November 28, 1997
(Unaudited) (Note (a))
CURRENT ASSETS:
Cash & Cash Equivalents $ 686 $ 403
Marketable Securities 3,198 3,457
Accounts receivable 4,011 3,753
Inventories (Note 2) 5,533 4,283
Other current assets 426 382
_______ _______
TOTAL CURRENT ASSETS $13,854 $12,278
PROPERTY AND EQUIPMENT, AT COST:
Buildings $ 1,444 $ 1,437
All Other 494 474
Less accumulated depreciation
and amortization 1,699 1,618
_______ _______
NET PROPERTY AND EQUIPMENT $ 239 $ 293
_______ _______
TOTAL ASSETS $14,093 $12,571
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY:
CURRENT LIABILITIES:
Accounts payable $ 1,222 $ 597
Notes payable 972 750
Other current liabilities 625 431
_______ _______
TOTAL CURRENT LIABILITIES $ 2,819 $ 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 9,172 8,392
Add net unrealized gain on
available-for-sale securities 189 449
Less treasury stock at cost
154,151 and 145,351 shares 838 799
NET SHAREHOLDERS' EQUITY _______ _______
(Note 3) $11,165 $10,684
TOTAL LIABILITIES AND SHARE- _______ _______
HOLDERS' EQUITY $14,093 $12,571
======= =======
<FN>
Note: (a) The balance sheet at November 28, 1997, has been derived from
the audited financial statements at that date.
See notes to the condensed financial statements.
PENOBSCOT SHOE COMPANY
STATEMENT OF INCOME
(In thousands, except per share amounts)
(Unaudited)
For the For the
Third Quarter Ended Nine Months Ended
August 28 August 29 August 28 August 29
1998 1997 1998 1997
Net Sales $5,637 $3,864 $14,657 $10,405
Cost and operating expenses:
Cost of sales 3,782 2,634 9,888 7,001
Selling and administrative
expenses 1,226 1,091 3,606 3,221
_______ _______ _______ _______
Operating income 629 139 1,163 183
Other income 216 180 481 287
_______ _______ _______ _______
Income before income taxes 845 319 1,644 470
Income taxes 339 126 658 183
_______ _______ _______ _______
Net income $ 506 $ 193 $ 986 $ 287
======= ======= ======= =======
Earnings Per Share:
Basic $0.37 $0.14 $0.72 $0.21
Diluted $0.36 $0.14 $0.71 $0.20
Cash dividends per share 0.05 0.05 0.15 0.15
Average number of common shares
outstanding
Basic 1,377,889 1,387,796 1,376,255 1,390,589
Diluted 1,391,441 1,400,253 1,387,886 1,403,133
<FN>
See notes to the condensed financial statements.
PENOBSCOT SHOE COMPANY
STATEMENT OF CASH FLOWS
For Nine Months Ended August 28, 1998 and August 29, 1997
(In thousands)
1998 1997
Cash flows from operating
activities:
Net cash provided by
operating activities $ 554 $ 556
Cash flows from investing
activities:
Proceeds from sale of assets 0 0
Capital expenditures (26) (191)
_______ _______
Net cash (used) by
investing activities (26) (191)
Cash flows from financing activities:
Dividends paid (206) (209)
Purchase of treasury stock (39) (45)
Net cash (used) by _______ _______
financing activities (245) (254)
Net increase in _______ _______
cash and cash equivalents 283 111
Cash and cash equivalent at
beginning of period 403 548
Cash and cash equivalent at _______ _______
end of period $ 686 $ 659
======= =======
Supplemental Disclosure of Cash Flow Information
Cash paid during the year-to-date period for:
Interest $ 23 $ 9
Income taxes 538 387
PENOBSCOT SHOE COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. CONDENSED FINANCIAL STATEMENTS
The condensed balance sheet as of August 28, 1998, the statements of
income for the third quarter ended August 28, 1998 and August 29, 1997,
and the condensed statements of cash flows for the nine-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 August 28, 1998 and for the other periods
presented. The results of operations for the period ended August 28, 1998
are not necessarily indicative of operating results for the full year.
2. INVENTORIES
Inventories are summarized as follows (in thousands):
8/28/98 11/28/97 8/29/97
FIFO Cost:
finished shoes $5,630 $4,386 $5,477
other materials 15 14 14
_______ _______ _______
$5,645 $4,400 $5,491
Excess of FIFO cost over
LIFO inventory value (112) (117) (108)
_______ _______ _______
$5,533 $4,283 $5,383
======= ======= =======
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 nine months ended August 28, 1998, shareholders' equity
changed due to the net income of $986,000, dividends declared of $206,000,
purchases of treasury stock of $39,000 and a $260,000 decrease in the net
unrealized gain an available-for-sale securities held by the Company.
4. EARNINGS PER SHARE
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.
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
August 28, 1998.
Liquidity and Capital Resources:
At August 28, 1998, Penobscot Shoe Company had working capital of
approximately $11,035,000 versus approximately $10,499,000 at November
28, 1997, an increase of $536,000. The ratio of current assets to current
liabilities at August 28, 1998 was 4.9 to 1, compared to 6.9 to 1, at
November 28, 1997.
The statement of cash flows for the nine months ended August 28, 1998,
shows an increase of $283,000 in cash and cash equivalents since November
28, 1997. The Company's operations provided $554,000 since November 28,
1997, including net income of $986,000 and ordinary fluctuations in various
current asset and liability accounts. The fluctuations included an increase in
accounts payable, inventory and accounts receivable, all mainly as a result
of increased sales levels. The Company's quarterly dividend amounted to a use
of $206,000 during the period. The Company used $26,000 for purchases of
capital equipment and used $39,000 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.
Year 2000 Disclosure:
The Company is in the process of assessing its Year 2000 exposure as it
pertains to management and operational information systems, key outside
vendor and key customer Year 2000 compliance programs. This assessment is being
supervised and conducted by the Company's in-house information technology staff
and is expected to be completed by the end of 1998. Plans to address areas of
particular concern are expected to be finalized by February 28, 1999. At this
time, the Company is unable to determine the actual cost of correcting any
deficiencies found during the assessment, however, based on the fact that no
significant unanticipated remedial costs have been identified to date, the
Company does not anticipate that the ultimate costs of any required remediation
will be significant.
Based on the Company's assessment, the Company presently believes that with
minor modifications to existing software the Year 2000 Issue will not pose
significant operational problems for its computer systems. The software used by
the Company in its operations was developed over time by in-house programmers.
Unlike many other software programs that used a two digit date (ie "98" for
"1998") and have led to the problems now being addressed worldwide, our system
was based on the use of a one digit date (ie "8" for "1998"). As a result, many
of the issues being faced for the Year 2000 problems were faced previously in
the period of 1989-1990. This experience should allow the Company to utilize
in-house staff to make the modifications needed to be Year 2000 compliant, and
to make those modifications at a relatively modest cost. However, if such
modifications are not made, or are not completed in a timely manner, the
Year 2000 Issue could result in a system failure or miscalculations causing
disruptions to operations, including, among other things, a temporary inability
to correctly process some transactions, send invoices, or engage in similar
normal business activities. The Company's ongoing assessment of Year 2000 risks
relating to non-information technology components such as internal tele-
communications, heating and ventilation equipment has not revealed any problem.
The Company is in the process of initiating formal communications with
significant suppliers, shippers, telecommunications companies and customers to
determine the extent to which the Company may be vulnerable to a failure by any
of these third parties to remediate their own Year 2000 issues. The Company is
dependent on many outside resources for both products and services. Regardless
of the Company's efforts to verify Year 2000 compliance with domestic and
non-domestic third parties involved in sourcing, manufacturing, shipping and
ordering, there can be no assurance that one or more of such third parties will
not encounter a Year 2000 problem that would materially and adversely impact the
Company's results of operations. The failure of some of these third parties to
be Year 2000 compliant could have a material adverse impact on the Company's
ability to deliver product. The Company is in the process of identifying
contingency arrangements to minimize the adverse impact of third party Year 2000
problems that could interfere with the Company's operations.
Results of Operations:
Net sales for the third quarter ended August 28, 1998, were $5,637,000, up
46% from net sales of $3,864,000 last year. Net income in the current quarter
was $506,000, or $.37 per share, compared to net income of $193,000, or $.14
per share, a year ago. Gains from the sales of securities contributed
approximately $.08 per share to the third quarter earnings compared to
approximately $.06 per share a year ago.
For the nine-months year-to-date, net sales were $14,657,000, up 41% from
$10,405,000 a year ago. Net income for the year-to-date period was $986,000,
or $.72 per share, versus $287,000, or $.21 per share last year. Gains from the
sales of securities added $.17 and $.07 per share to year-to-date earnings in
1998 and 1997, respectively.
The significant increase in net sales and profits compared to last year
was primarily due to the strength of Trotters footwear at retail. Reorders
shipped during the third quarter were 75% higher than the corresponding period
last year, 63,500 pairs versus 36,200 in 1997. Shipments of closed shoe initial
orders during the quarter also exceeded last years pairs significantly, 107,000
pairs compared to 62,300, a 71% increase.
The early delivery of fall merchandise accounted for much of this increase
in initial order shipments. While most of the sales increase was due to volume
factors, approximately 14% of the increase was a result of higher average
selling price. The mix of products shipped in the quarter contained fewer
winter boots which have a lower average selling price than our fall shoes.
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: September 25, 1998 Paul Hansen
_________________________
By: Paul Hansen
President and
Chief Executive Officer
Date: September 25, 1998 David L. Keane
_________________________
By: David L. Keane
Vice President/Finance and
Administration