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 26, 1999
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 1,378,291 shares, $1 par value, was outstanding at
February 26, 1999.
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PENOBSCOT SHOE COMPANY
CONDENSED BALANCE SHEET
(In thousands)
<CAPTION>
February 26, 1999 November 27, 1998
(Unaudited) (Note (a))
<S> <C> <C>
CURRENT ASSETS:
Cash & Cash Equivalents $ 924 $ 454
Marketable Securities 3,748 3,757
Accounts receivable 3,854 3,825
Inventories (Note 2) 5,316 6,568
Other current assets 511 575
_______ _______
TOTAL CURRENT ASSETS $14,353 $15,179
PROPERTY AND EQUIPMENT, AT COST:
Buildings $ 1,443 $ 1,443
All Other 506 496
Less accumulated depreciation
and amortization 1,751 1,725
_______ _______
NET PROPERTY AND EQUIPMENT $ 198 $ 214
_______ _______
TOTAL ASSETS $14,551 $15,393
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY:
CURRENT LIABILITIES:
Accounts payable $ 1,350 $ 1,088
Notes payable 0 1,475
Other current liabilities 825 802
_______ _______
TOTAL CURRENT LIABILITIES $ 2,175 $ 3,365
DEFERRED INCOME TAXES $ 168 $ 168
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 9,929 9,602
Add net unrealized gain on
available-for-sale securities 476 455
Less treasury stock at cost
154,152 shares 839 839
NET SHAREHOLDERS' EQUITY _______ _______
(Note 3) $12,209 $11,860
TOTAL LIABILITIES AND SHARE- _______ _______
HOLDERS' EQUITY $14,551 $15,393
======= =======
<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
First Quarter Ended
February 26 February 27
1999 1998
<S> <C> <C>
Net Sales $5,705 $4,784
Cost and operating expenses:
Cost of sales 3,715 3,172
Selling and administrative
expenses 1,397 1,269
_______ _______
Operating income 592 342
Other income 69 238
_______ _______
Income before income taxes 661 581
Income taxes 264 233
_______ _______
Net income $ 396 $ 348
======= =======
Earnings Per Share:
Basic $0.29 $0.25
Diluted $0.28 $0.25
Cash dividends per share 0.05 0.05
Average number of common shares
outstanding
Basic 1,378,291 1,375,880
Diluted 1,393,075 1,385,403
<FN>
See notes to the condensed financial statements.
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PENOBSCOT SHOE COMPANY
STATEMENT OF CASH FLOWS
For Three Months Ended February 26, 1999 and February 27, 1998
(In thousands)
<CAPTION>
1999 1998
<S> <C> <C>
Cash flows from operating
activities:
Net cash provided by
operating activities $ 549 $ 339
Cash flows from investing
activities:
Proceeds from sale of assets 0 0
Capital expenditures (10) (10)
_______ _______
Net cash (used) by
investing activities (10) (10)
Cash flows from financing activities:
Dividends paid (69) (69)
Purchase of treasury stock 0 (60)
Net cash (used) by _______ _______
financing activities (69) (129)
Net increase in _______ _______
cash and cash equivalents 470 200
Cash and cash equivalent at
beginning of period 454 403
Cash and cash equivalent at _______ _______
end of period $ 924 $ 603
======= =======
Supplemental Disclosure of Cash Flow Information
Cash paid during the year-to-date period for:
Interest $ 16 $ 8
Income taxes 82 173
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PENOBSCOT SHOE COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. CONDENSED FINANCIAL STATEMENTS
The condensed balance sheet as of February 26, 1999, the statements of
income for the first quarter ended February 26, 1999 and February 27, 1998,
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 26, 1999 and for the other periods
presented. The results of operations for the period ended February 26, 1999
are not necessarily indicative of operating results for the full year.
2. INVENTORIES
Inventories are summarized as follows (in thousands):
<TABLE>
<CAPTION>
2/26/99 11/27/98 2/27/98
<S> <C> <C> <C>
FIFO Cost:
finished shoes $5,645 $6,867 $4,917
other materials 9 11 19
_______ _______ _______
$5,654 $6,878 $4,936
Excess of FIFO cost over
LIFO inventory value (338) (310) (249)
_______ _______ _______
$5,316 $6,658 $4,687
======= ======= =======
</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 three months ended February 26, 1999, shareholders' equity
changed due to the net income of $396,000, dividends declared of $69,000,
and a $21,000 increase in the netunrealized 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.
<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
February 26, 1999.
Liquidity and Capital Resources:
At February 26, 1999, Penobscot Shoe Company had working capital of
approximately $12,179,000 versus approximately $11,815,000 at November
27, 1998, an increase of $364,000. The ratio of current assets to current
liabilities at February 26, 1999 was 6.6 to 1, compared to 4.5 to 1, at
November 27, 1998.
The statement of cash flows for the three months ended February 26, 1999,
shows an increase of $470,000 in cash and cash equivalents since November
27, 1998. The Company's operations provided $549,000 since November 27,
1998, including net income of $396,000 and ordinary fluctuations in various
current asset and liability accounts. The fluctuations included an increase in
accounts payable and accounts receivable, as well as a decrease in inventory.
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.
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 continues to assess and work to mitigate its Year 2000
exposure as it pertains to management and operational information systems,
key outside vendor and key customer Year 2000 compliance programs.
The assessment of all internal management and operational information
systems is being supervised and conducted by a team led by the Vice President
of Finance and Administration that includes the Company's in-house information
technology staff. The assessment of all critical internal systems is complete
and necessary modifications and testing are underway. Priority has been given
to certain key elements of our systems and accordingly, modifications to the
order processing and inventory management portions of our system have been
completed. Testing is underway to determine if any further modifications are
necessary in this area. It is anticipated that all research and modifications
on all remaining portions of our internal management and operational
information systems will be completed by May 31, 1999. Testing will continue
throughout the year and into early 2000 as we watch for any unforeseen problems
that may arise. At this time, the Company is unable to determine the actual
cost of correcting any deficiencies found during the assessment. 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 additional
required remediation will be significant.
<PAGE>
Based on the Company's efforts to date, 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
and have led to the problems now being addressed worldwide, the Company's
system was based on the use of a one digit date. 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
telecommunications, heating and ventilation equipment has not revealed any
problem.
The Company is in the process of communicating 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 quarter ended February 26, 1999, were $5,705,000, up 19%
from $4,784,000 in the same quarter last year. Net income for the current
quarter was $396,000, or $.29 per share, compared to net income of $348,000, or
$.25 per share, in the corresponding quarter last year.
The increase in net sales versus last year was due to the continuing strong
performance of Trotters at retail. Operating income increased by 73% over the
prior year's first quarter.
Both operating income and earnings for the first quarter were reduced by a
one-time charge of approximately $175,000, pre-tax, to recognize a death benefit
liability due to the death of a corporate officer. The impact of this expense
was to reduce first quarter earnings by approximately $.08 per share.
The gross profit margin for the first quarter was 34.9% compared to 33.7% in
the corresponding period last year. This modest improvement was primarily due
to the higher sales volume in the quarter.
Gains from the sales of securities contributed $25,000, or $.02 per share to the
current quarter's earnings. Such gains last year amounted to $126,000, or $.09
per share.
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
Form 8-K was filed with the Securities and Exchange
Commission on January 7, 1999
<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: April 8, 1999 Irving Kagan
_________________________
By: Irving Kagan
Chairman of the Board and
Chief Executive Officer
Date: April 8, 1999 David L. Keane
_________________________
By: David L. Keane
Vice President/Finance and
Administration
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-26-1999
<PERIOD-END> FEB-26-1999
<CASH> 924
<SECURITIES> 3,748
<RECEIVABLES> 4,418
<ALLOWANCES> (583)
<INVENTORY> 5,316
<CURRENT-ASSETS> 14,353
<PP&E> 1,949
<DEPRECIATION> 1,751
<TOTAL-ASSETS> 14,551
<CURRENT-LIABILITIES> 2,175
<BONDS> 0
<COMMON> 1,533
0
0
<OTHER-SE> 11,038
<TOTAL-LIABILITY-AND-EQUITY> 14,551
<SALES> 5,705
<TOTAL-REVENUES> 5,774
<CGS> 3,715
<TOTAL-COSTS> 5,112
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16
<INCOME-PRETAX> 661
<INCOME-TAX> 264
<INCOME-CONTINUING> 396
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 396
<EPS-PRIMARY> .29
<EPS-DILUTED> .28
</TABLE>
