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 May 29, 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
May 29, 1998.
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PENOBSCOT SHOE COMPANY
CONDENSED BALANCE SHEET
(In thousands)
<CAPTION>
May 29, 1998 November 28, 1997
(Unaudited) (Note (a))
<S> <C> <C>
CURRENT ASSETS:
Cash & Cash Equivalents $ 1,097 $ 403
Marketable Securities 3,463 3,457
Accounts receivable 3,238 3,753
Inventories (Note 2) 4,043 4,283
Other current assets 478 382
_______ _______
TOTAL CURRENT ASSETS $12,319 $12,278
PROPERTY AND EQUIPMENT, AT COST:
Buildings $ 1,437 $ 1,437
All Other 489 474
Less accumulated depreciation
and amortization 1,671 1,618
_______ _______
NET PROPERTY AND EQUIPMENT $ 254 $ 293
_______ _______
TOTAL ASSETS $12,573 $12,571
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY:
CURRENT LIABILITIES:
Accounts payable $ 1,086 $ 597
Notes payable 0 750
Other current liabilities 366 431
_______ _______
TOTAL CURRENT LIABILITIES $ 1,452 $ 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 8,735 8,392
Add net unrealized gain on
available-for-sale securities 495 449
Less treasury stock at cost
158,051 and 148,051 shares 859 799
NET SHAREHOLDERS' EQUITY _______ _______
(Note 3) $11,012 $10,684
TOTAL LIABILITIES AND SHARE- _______ _______
HOLDERS' EQUITY $12,573 $12,571
======= =======
<FN>
Note: (a) The balance sheet at November 27, 1998, has been derived from
the audited financial statements at that date.
See notes to the condensed financial statements.
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<TABLE>
PENOBSCOT SHOE COMPANY
STATEMENT OF INCOME
(In thousands, except per share amounts)
(Unaudited)
<CAPTION>
For the For the
Second Quarter Ended Six Months Ended
May 29 May 30 May 29 May 30
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Net Sales $4,236 $2,439 $9,020 $6,541
Cost and operating expenses:
Cost of sales 2,933 1,594 6,106 4,367
Selling and administrative
expenses 1,111 984 2,380 2,130
_______ _______ _______ _______
Operating income 192 (140) 534 44
Other income 27 45 265 107
_______ _______ _______ _______
Income before income taxes 219 (95) 799 151
Income taxes 86 (40) 319 57
_______ _______ _______ _______
Net income $ 133 $ (55) $ 481 $ 94
======= ======= ======= =======
Earnings Per Share:
Basic $0.10 $(0.04) $0.35 $0.07
Diluted $0.10 $(0.04) $0.35 $0.07
Cash dividends per share 0.05 0.05 0.10 0.10
Average number of common shares
outstanding 1,374,991 1,388,864 1,375,433 1,391,989
<FN>
See notes to the condensed financial statements.
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PENOBSCOT SHOE COMPANY
STATEMENT OF CASH FLOWS
For Six Months Ended May 29, 1998 and May 30, 1997
(In thousands)
<CAPTION>
1998 1997
<S> <C> <C>
Cash flows from operating
activities:
Net cash provided by
operating activities $ 905 $ 996
Cash flows from investing
activities:
Proceeds from sale of assets 0 0
Capital expenditures (14) (170)
_______ _______
Net cash (used) by
investing activities (14) (170)
Cash flows from financing activities:
Dividends paid (137) (139)
Purchase of treasury stock (60) (44)
Net cash (used) by _______ _______
financing activities (197) (183)
Net increase in _______ _______
cash and cash equivalents 694 643
Cash and cash equivalent at
beginning of period 403 548
Cash and cash equivalent at _______ _______
end of period $ 1,097 $ 1,191
======= =======
Supplemental Disclosure of Cash Flow Information
Cash paid during the period for:
Interest $ 17 $ 0
Income taxes 535 384
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PENOBSCOT SHOE COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. CONDENSED FINANCIAL STATEMENTS
The condensed balance sheet as of May 29, 1998, the statements of
income for the second quarter ended May 29, 1998 and May 30, 1997,
and the condensed statements of cash flows for the six-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 May 29, 1998 and for the other periods
presented. The results of operations for the period ended May 29, 1998
are not necessarily indicative of operating results for the full year.
2. INVENTORIES
Inventories are summarized as follows (in thousands):
<TABLE>
<CAPTION>
5/29/98 11/28/97 5/30/97
<S> <C> <C> <C>
FIFO Cost:
finished shoes $4,315 $4,386 $4,156
raw materials 21 15 17
_______ _______ _______
$4,336 $4,401 $4,173
Excess of FIFO cost over
LIFO inventory value (293) (117) (140)
_______ _______ _______
$4,043 $4,283 $4,033
======= ======= =======
</TABLE>
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 six months ended May 29, 1998, shareholders' equity
changed due to the net income of $481,000, dividends declared of $137,000,
purchases of treasury stock of $60,000 and a $46,000 increase in the net
unrealized gain an available-for-sale securities held by the Company.
4. EARNINGS PER SHARE
The weighted average number of shares outstanding used to compute basic
earnings per share were 1,374,991 and 1,388,864 for the quarter ended
May 29, 1998 and May 30, 1997, respectively, and for computing diluted
earnings per share were 1,386,011 and 1,400,930 for the same respective periods.
For the six months year-to-date ended May 29, 1998 and May 30, 1997, the shares
used to compute basic earnings per share were 1,375,433 and 1,391,989 and for
diluted earnings per share were 1,385,562 and 1,404,561, respectively. 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.
<PAGE>
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
May 29, 1998.
Liquidity and Capital Resources:
At May 29, 1998, Penobscot Shoe Company had working capital of
approximately $10,868,000 versus approximately $10,499,000 at November
28, 1997, an increase of $369,000. 8.55.2 to 1, compared to 6.9 to 1, at
November 28, 1997.
The statement of cash flows for the six months ended May 29, 1998,
shows an increase of $694,000 in cash and cash equivalents since November
28, 1997. The Company's operations provided $905,000 since November 28,
1997, including net income of $481,000 and ordinary fluctuations in various
current asset and liability accounts. The fluctuations included an increase in
accounts payable, and decreases in inventory and accounts receivable, all
mainly as a result of timing. The Company's quarterly dividend amounted to a
use of $137,000 during the period. The Company used $14,000 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 second quarter ended May 29, 1998, were $4,236,000, up
74% from $2,439,000 last year. Net income for the current quarter $133,000,
or $.10 per share, compared to the net loss of $55,000, or $.04 per share
incurred in the second quarter last year. Net income in the second quarter last
year benefited from a LIFO gain of approximately $41,000, or $.03 per share.
The current year had no such LIFO gain.
For the six-months year-to-date, net sales were $9,020,000, up 38% from
$6,541,000 a year ago. Net income for the year-to-date period was $481,000, or
$.35 per share, versus $94,000, or $.07 per share last year. In the first six
months last year, net income included LIFO gains totaling approximately
$157,000, or $.11 per share. The current year-to-date period did not benefit
from any LIFO gain. For the six months year-to-date periods, gains from the
sales of securities amounted to approximately $125,000, or $.09 per share in
1998, and $6,000, or less than $.01 per share in 1997.
The increase in sales versus last year was due to the continued success of
our Spring '98 line at retail. At-once orders for the collection are double
those of the corresponding period in 1997. The sales growth was a result of
volume and not due to an increase in average selling price. Currently, advance
bookings of Fall '98 merchandise to be delivered in the second half of the year
are slightly ahead of last year.
Cost of sales was 69.2% in the second quarter compared to 65.4% in the
same period last year, resulting in gross profit margins of 30.8% and 34.6% in
the 1998 and 1997 quarters respectively. During the second quarter last year a
LIFO liquidation gain of $69,000, pre-tax, benefited margins. Without that LIFO
gain, the gross profit margin in the second quarter of 1997 would have been
31.8%. No LIFO gains have been realized in the current quarter.
Selling and administrative costs in the second quarter were approximatley
$127,000 higher that last year. Approximatley 66% of this increase was based on
costs variable on sales volume. The balance of the higher costs reflects
investment in new sales and marketing efforts.
<PAGE>
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.
<PAGE>
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: June 22, 1998 Paul Hansen
_________________________
By: Paul Hansen
President and
Chief Executive Officer
Date: June 22, 1998 David L. Keane
_________________________
By: David L. Keane
Vice President/Finance and
Administration
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> NOV-27-1998
<PERIOD-END> MAY-29-1998
<CASH> 1,097
<SECURITIES> 3,463
<RECEIVABLES> 3,744
<ALLOWANCES> (506)
<INVENTORY> 4,043
<CURRENT-ASSETS> 12,319
<PP&E> 1,925
<DEPRECIATION> 1,671
<TOTAL-ASSETS> 12,573
<CURRENT-LIABILITIES> 1,452
<BONDS> 0
<COMMON> 1,533
0
0
<OTHER-SE> 9,589
<TOTAL-LIABILITY-AND-EQUITY> 12,573
<SALES> 9,020
<TOTAL-REVENUES> 9,020
<CGS> 6,106
<TOTAL-COSTS> 8,486
<OTHER-EXPENSES> (265)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 17
<INCOME-PRETAX> 799
<INCOME-TAX> 319
<INCOME-CONTINUING> 481
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 481
<EPS-PRIMARY> .35
<EPS-DILUTED> .35
</TABLE>
