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FORM 10-Q
SECURITIES & EXCHANGE COMMISSION
Washington, D. C. 20549
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2001
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Or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-9068
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WEYCO GROUP, INC.
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(Exact name of registrant as specified in its charter)
WISCONSIN 39-0702200
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
333 West Estabrook Boulevard
P. O. Box 1188
Milwaukee, Wisconsin 53201
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(Address of principal executive offices)
(Zip Code)
(414) 908-1600
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(Registrant's telephone number, including area code)
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 (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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As of August 1, 2001 the following shares were outstanding.
<Table>
Common Stock, $1.00 par value 2,881,789 Shares
Class B Common Stock, $1.00 par value 913,329 Shares
</Table>
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
The condensed financial statements included herein have been prepared by
the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. It is
suggested that these financial statements be read in conjunction with the
financial statements and notes thereto included in the Company's latest
annual report on Form 10-K.
WEYCO GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
ASSETS
June 30 December 31
2001 2000
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CURRENT ASSETS:
Cash and cash equivalents $ 4,873,905 $ 3,519,190
Marketable securities 6,651,270 7,690,551
Accounts receivable, net 23,728,622 23,864,339
Inventories -
Finished shoes 17,801,667 13,406,933
Shoes in process 189,355 165,918
Raw materials and supplies 313,016 140,365
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Total inventories 18,304,038 13,713,216
Deferred income tax benefits 2,836,000 2,697,000
Prepaid expenses and other current assets 302,075 185,342
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Total current assets 56,695,910 51,669,638
MARKETABLE SECURITIES 13,055,140 14,664,474
OTHER ASSETS 9,654,264 9,336,800
PLANT AND EQUIPMENT 22,693,168 22,259,574
Less - Accumulated depreciation 6,641,867 5,987,377
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16,051,301 16,272,197
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$95,456,615 $91,943,109
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LIABILITIES & SHAREHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Short-term borrowings $ 6,649,767 $ 5,206,948
Accounts payable 9,255,676 5,955,873
Dividend payable 456,014 445,836
Accrued liabilities 5,269,895 5,643,391
Accrued income taxes 700,583 505,792
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Total current liabilities 22,331,935 17,757,840
DEFERRED INCOME TAX LIABILITIES 2,920,000 2,840,000
SHAREHOLDERS' INVESTMENT:
Common stock 3,795,118 3,972,850
Other shareholders' investment 66,409,562 67,372,419
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$95,456,615 $91,943,109
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WEYCO GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
FOR THE PERIODS ENDED JUNE 30, 2001 AND 2000
Three Months ended June 30 Six Months ended June 30
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2001 2000 2001 2000
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NET SALES $ 31,541,688 $ 38,203,364 $ 66,899,946 $ 80,106,443
COST OF SALES 23,243,013 28,295,202 49,400,922 59,085,704
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Gross earnings 8,298,675 9,908,162 17,499,024 21,020,739
SELLING AND ADMINISTRATIVE EXPENSES 5,980,065 6,372,562 12,293,645 12,911,185
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Earnings from operations 2,318,610 3,535,600 5,205,379 8,109,554
INTEREST INCOME 266,719 267,061 550,385 529,269
INTEREST EXPENSE (82,838) (154,887) (166,796) (311,833)
OTHER INCOME AND EXPENSE, net (70) 60,958 504,357 108,295
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Earnings before provision for
income taxes 2,502,421 3,708,732 6,093,325 8,435,285
PROVISION FOR INCOME TAXES 875,000 1,350,000 2,125,000 3,050,000
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Net earnings $ 1,627,421 $ 2,358,732 $ 3,968,325 $ 5,385,285
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WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING
(Note 3)
Basic 3,840,493 4,089,554 3,889,780 4,111,313
Diluted 3,866,414 4,142,965 3,916,611 4,164,371
EARNINGS PER SHARE (Note 3):
Basic $ .42 $ .58 $ 1.02 $ 1.31
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Diluted $ .42 $ .57 $ 1.01 $ 1.29
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CASH DIVIDENDS PER SHARE $ .12 $ .11 $ .23 $ .21
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WEYCO GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2001 AND 2000
2001 2000
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash provided by operating activities $ 2,352,684 $ 3,431,347
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities -- (1,460,829)
Proceeds from maturities of marketable securities 2,648,615 2,257,615
Proceeds from sales of other investments 603,807 --
Purchase of plant and equipment (584,296) (467,159)
Proceeds from sales of plant and equipment -- 28,758
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Net cash provided by investing activities 2,668,126 358,385
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CASH FLOWS FROM FINANCING ACTIVITIES:
Cash dividends paid (890,142) (863,410)
Shares purchased and retired (4,279,897) (2,338,196)
Proceeds from stock options exercised 61,125 90,291
Short-term borrowings 1,442,819 (685,000)
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Net cash used for financing activities (3,666,095) (3,796,315)
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Net increase (decrease) in cash and
cash equivalents 1,354,715 (6,583)
CASH AND CASH EQUIVALENTS at beginning
of period 3,519,190 3,843,915
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CASH AND CASH EQUIVALENTS at end
of period $ 4,873,905 $ 3,837,332
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SUPPLEMENTAL CASH FLOW INFORMATION:
Income taxes paid $ 1,721,415 $ 2,681,925
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Interest paid $ 206,700 $ 314,670
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NOTES:
(1) In the opinion of management, all adjustments (which include only normal
recurring accruals) necessary to present fairly the financial information
have been made. The results of operations for the three months or six
months ended June 30, 2001, are not necessarily indicative of results for
the full year.
(2) In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting
for Derivative Instruments and Hedging Activities." The standard, as
amended, requires that entities recognize derivatives as either assets or
liabilities in the balance sheet and measure those instruments at fair
value. The Company adopted this standard on January 1, 2001. The adoption
of this standard did not have a material effect on the Company's balance
sheet or statement of earnings.
The Company has entered into forward exchange contracts for the purpose
of hedging firmly committed inventory purchases with outside vendors.
These forward contracts are effective hedges under SFAS 133. Accordingly,
gains and losses are recorded in inventory when the inventory is
purchased and recognized through earnings when inventory is sold.
In June 2001, the Financial Accounting Standards Board issued Statements
of Financial Accounting Standards No. 141, "Business Combinations" and
No. 142, "Goodwill and Other Intangible Assets" effective for fiscal
years beginning after December 31, 2001. Under the new rules, goodwill
and intangible assets deemed to have indefinite lives will no longer be
amortized but will be subject to annual impairment tests in accordance
with the Statements. The adoption of these statements in the first
quarter of 2002 will not impact the Company's results of operations or
financial position because there are no goodwill or intangible assets
recorded on the Company's consolidated balance sheet.
(3) The following table sets forth the computation of net earnings per share
and diluted net earnings per share:
Three Months Ended June 30 Six Months Ended June 30
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2001 2000 2001 2000
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Numerator:
Net Earnings $1,627,421 $2,358,732 $3,968,325 $5,385,285
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Denominator:
Basic weighted average shares 3,840,493 4,089,554 3,889,780 4,111,313
Effect of dilutive securities:
Employee stock options 25,921 53,411 26,831 53,058
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Diluted weighted average shares 3,866,414 4,142,965 3,916,611 4,164,371
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Basic earnings per share $ .42 $ .58 $ 1.02 $ 1.31
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Diluted earnings per share $ .42 $ .57 $ 1.01 $ 1.29
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(4) The Company continues to operate in two business segments: wholesale
distribution and retail sales of men's footwear. Summarized segment data
for June 30, 2001 and 2000 is:
Wholesale
Distribution Retail Total
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THREE MONTHS ENDED JUNE 30
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2001
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Net Sales $30,215,000 $1,327,000 $31,542,000
Earnings from operations 2,293,000 26,000 2,319,000
2000
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Net Sales $36,564,000 $1,639,000 $38,203,000
Earnings from operations 3,438,000 98,000 3,536,000
SIX MONTHS ENDED JUNE 30
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2001
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Net Sales $64,314,000 $2,586,000 $66,900,000
Earnings from operations 5,206,000 (1,000) 5,205,000
2000
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Net Sales $76,864,000 $3,242,000 $80,106,000
Earnings from operations 7,984,000 126,000 8,110,000
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Liquidity
The Company's primary source of liquidity is its cash and marketable
securities which aggregated approximately $24,580,000 at June 30, 2001,
compared with $25,874,000 at December 31, 2000.
The Company issues commercial paper with 30 to 90 day maturities. Lines of
credit totaling $15 million back commercial paper issuances and provide
funds on a short-term basis when necessary. At June 30, 2001, $6,650,000 of
commercial paper was outstanding, and there were no draws on the lines of
credit.
During the second quarter of 2001, the Company purchased 151,500 shares of
its common stock at a total cost of $3,531,000 under its stock repurchase
program, and 1,500 shares at a total cost of $36,000 in private
transactions.
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Cash flows from operations are $1.1 million lower to date in 2001 than in
the same period of 2000. The decrease in cash flows from operations is
primarily due to the lower net income and the increase in inventories.
This, however, is partially offset by the increase in accounts payable.
Cash flows from investing activities to date in 2001 includes $604,000 of
proceeds from the sale of other investments. During the first quarter of
2001, other investments were sold for $604,000 at a gain of $504,000, which
is included in other income and expense on the Consolidated Condensed
Statements of Earnings.
The Company's capital expenditures were $584,000 and $467,000 for the first
six months of 2001 and 2000, respectively.
The Company believes that available cash and marketable securities, cash
provided from operations and available borrowing facilities will provide
adequate support for the cash needs of the business.
Results of Operations
Overall net sales decreased 17%, from $38,203,000 for the second quarter of
2000 to $31,542,000 for the second quarter of 2001. This decrease was the
result of a 17% decrease in wholesale net sales, down from $36,564,000 for
the second quarter of 2000 to $30,215,000 for the second quarter of 2001.
For the six months ended June 30, net sales decreased 16%, from $80,106,000
in 2000 to $66,900,000 in 2001. This decrease was also driven primarily by
the decrease in wholesale net sales between periods, from $76,864,000 for
the six months ended June 30, 2000 to $64,314,000 for the same period in
2001.
The difficult retail environment in the first half of 2001 has had a
detrimental effect on the Company's overall performance so far in 2001.
Backlogs, however, remain strong and management believes that the Company
is well positioned for the future.
Gross earnings as a percent of net sales for the second quarter increased
from 25.9% in 2000 to 26.3% in 2001. For the six months ended June 30,
gross earnings as a percent of net sales were comparable at 26.2%.
Selling and administrative expenses as a percent of net sales increased
from 16.7% for the second quarter of 2000 to 19.0% for the same period in
2001, and from 16.1% to 18.4% for the six months ended June 30, 2000 and
2001, respectively. In general, the increase in the selling and
administrative percentage reflects the fixed costs included in selling and
administrative expenses, which are not affected by changes in sales
volumes.
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The decrease in interest expense in the second quarter and for the six
months ended June 30, 2001 compared with the same period in 2000 is due to
lower average short-term borrowings and lower interest rates in 2001.
For the six months ended June 30, 2001, other income and expense includes a
$504,000 gain on the sale of other investments recorded in the first
quarter.
The effective tax rate decreased from 36% in the second quarter of 2000 to
35% in the second quarter of 2001, and from 36% for the six months ended
June 30, 2000 to 35% for the same period in 2001.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes since the March 23, 2001 filing of the
Company's Annual Report on Form 10-K.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 6. Exhibits and Reports on Form 8-K
None
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
undersigned thereunto duly authorized.
WEYCO GROUP, INC.
August 14, 2001 /s/ John Wittkowske
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Date John Wittkowske
Vice President-Finance
Chief Financial Officer
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