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 September 30, 2001
----------------------
Or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
---------------- -----------------
Commission file number 0-9068
-------------------
WEYCO GROUP, INC.
-------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
WISCONSIN 39-0702200
- ---------------------------------- ------------------------------
(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
-----------------------------------
(Address of principal executive offices)
(Zip Code)
(414) 908-1600
----------------------------------------------------
(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
------- ------
As of November 1, 2001 the following shares were outstanding.
Common Stock, $1.00 par value 2,844,289 Shares
Class B Common Stock, $1.00 par value 913,329 Shares
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
September 30 December 31
2001 2000
------------ -----------
CURRENT ASSETS:
Cash and cash equivalents $ 6,603,389 $ 3,519,190
Marketable securities 4,148,331 7,690,551
Accounts receivable, net 28,505,629 23,864,339
Inventories -
Finished shoes 14,616,108 13,406,933
Shoes in process 215,193 165,918
Raw materials and supplies 283,782 140,365
----------- -----------
Total inventories 15,115,083 13,713,216
Deferred income tax benefits 2,951,000 2,697,000
Prepaid expenses and other current assets 247,592 185,342
----------- -----------
Total current assets 57,571,024 51,669,638
MARKETABLE SECURITIES 11,883,546 14,664,474
OTHER ASSETS 9,863,645 9,336,800
PLANT AND EQUIPMENT 22,518,765 22,259,574
Less - Accumulated depreciation 6,855,700 5,987,377
----------- -----------
15,663,065 16,272,197
----------- -----------
$94,981,280 $91,943,109
=========== ===========
LIABILITIES & SHAREHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Short-term borrowings $ 7,780,810 $ 5,206,948
Accounts payable 4,850,940 5,955,873
Dividend payable 454,814 445,836
Accrued liabilities 5,634,175 5,643,391
Accrued income taxes 1,618,950 505,792
----------- -----------
Total current liabilities 20,339,689 17,757,840
DEFERRED INCOME TAX LIABILITIES 2,960,000 2,840,000
SHAREHOLDERS' INVESTMENT:
Common stock 3,779,118 3,972,850
Other shareholders' investment 67,902,473 67,372,419
----------- -----------
$94,981,280 $91,943,109
=========== ===========
-1-
WEYCO GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
FOR THE PERIODS ENDED SEPTEMBER 30, 2001 AND 2000
Three Months ended September 30 Nine Months ended September 30
------------------------------------ ------------------------------------
2001 2000 2001 2000
------------- ------------ ------------- ------------
NET SALES $ 33,785,816 $36,856,556 $ 100,685,762 $116,962,999
COST OF SALES 24,552,953 27,312,664 73,953,875 86,398,368
------------ ------------ ------------- ------------
Gross earnings 9,232,863 9,543,892 26,731,887 30,564,631
SELLING AND ADMINISTRATIVE EXPENSES 5,866,180 6,217,726 18,159,825 19,128,911
------------ ------------ ------------- ------------
Earnings from operations 3,366,683 3,326,166 8,572,062 11,435,720
INTEREST INCOME 247,290 275,551 797,675 809,322
INTEREST EXPENSE (76,984) (175,280) (243,780) (489,485)
OTHER INCOME AND EXPENSE, net 113,386 162,251 617,743 268,416
------------ ------------ ------------- ------------
Earnings before provision for
income taxes 3,650,375 3,588,688 9,743,700 12,023,973
PROVISION FOR INCOME TAXES 1,275,000 1,250,000 3,400,000 4,300,000
------------ ------------ ------------- ------------
Net earnings $ 2,375,375 $ 2,338,688 $ 6,343,700 $ 7,723,973
============ ============ ============= ============
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING
(Note 3)
Basic 3,788,618 4,062,579 3,858,781 4,095,895
Diluted 3,813,970 4,113,631 3,884,318 4,143,866
EARNINGS PER SHARE (Note 3):
Basic $.63 $.58 $1.64 $1.89
==== ==== ===== =====
Diluted $.62 $.57 $1.63 $1.86
==== ==== ===== =====
CASH DIVIDENDS PER SHARE $.12 $.11 $.35 $.32
==== ==== ==== ====
-2-
WEYCO GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
2001 2000
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash provided by operating activities $ 90,017 $ 5,099,742
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities -- (4,351,283)
Proceeds from maturities of marketable securities 6,323,148 4,302,438
Proceeds from sales of other investments 603,807 --
Purchase of plant and equipment (664,851) (903,617)
Proceeds from sales of plant and equipment 165,594 29,754
----------- -----------
Net cash provided by (used for) investing
activities 6,427,698 (922,708)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash dividends paid (1,344,956) (1,310,060)
Shares purchased and retired (4,805,021) (3,874,897)
Proceeds from stock options exercised 142,599 423,916
Short-term borrowings(repayments), net 2,573,862 683,272
----------- -----------
Net cash used for
financing activities (3,433,516) (4,077,769)
----------- -----------
Net increase in cash and cash equivalents 3,084,199 99,265
CASH AND CASH EQUIVALENTS at beginning
of period 3,519,190 3,843,915
----------- -----------
CASH AND CASH EQUIVALENTS at end
of period $ 6,603,389 $ 3,943,180
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Income taxes paid $ 2,055,206 $ 3,428,460
=========== ===========
Interest paid $ 266,208 $ 444,485
=========== ===========
-3-
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 nine months ended September 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 is not expected to 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 September 30 Nine Months Ended September 30
------------------------------- ------------------------------
2001 2000 2001 2000
---------- ---------- ---------- ----------
Numerator:
Net Earnings ................................. $2,375,375 $2,338,688 $6,343,700 $7,723,973
========== ========== ========== ==========
Denominator:
Basic weighted average shares ................ 3,788,618 4,062,579 3,858,781 4,095,895
Effect of dilutive securities:
Employee stock options ..................... 25,352 51,052 25,537 47,971
---------- ---------- ---------- ----------
Diluted weighted average shares .............. 3,813,970 4,113,631 3,884,318 4,143,866
========== ========== ========== ==========
Basic earnings per share ....................... $ .63 $ .58 $ 1.64 $ 1.89
========== ========== ========== ==========
Diluted earnings per share ..................... $ .62 $ .57 $ 1.63 $ 1.86
========== ========== ========== ==========
-4-
(4) The Company continues to operate in two business segments: wholesale
distribution and retail sales of men's footwear. Summarized segment
data for September 30, 2001 and 2000 is:
Wholesale
Distribution Retail Total
------------ ------------ ------------
THREE MONTHS ENDED SEPTEMBER 30
2001
Net Sales ................................. $32,701,000 $1,085,000 $33,786,000
Earnings from operations .................. 3,463,000 (96,000) 3,367,000
2000
Net Sales ................................. $35,551,000 $1,306,000 $36,857,000
Earnings from operations .................. 3,300,000 26,000 3,326,000
NINE MONTHS ENDED SEPTEMBER 30
2001
Net Sales ................................. $97,015,000 $3,671,000 $100,686,000
Earnings from operations .................. 8,669,000 (97,000) 8,572,000
2000
Net Sales ................................. $112,415,000 $4,548,000 $116,963,000
Earnings from operations .................. 11,284,000 152,000 11,436,000
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 $22,635,000 at September 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 September 30, 2001, $7,781,000 of commercial paper
was outstanding, and there were no draws on the lines of credit.
Cash flows from operations are $5 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 larger increase in
inventories in the first nine months of 2001 as compared to the same period
in 2000.
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.
-5-
The Company's capital expenditures were $665,000 and $904,000 for the first
nine months of 2001 and 2000, respectively.
In the first nine months of 2001, the Company purchased 172,500 shares of
its common stock at a total cost of $4,033,000 under its stock repurchase
program, and 31,700 shares at a total cost of $772,000 in private
transactions. In the same period of 2000, the Company purchased 101,500
shares at a total cost of $2,498,000 under its stock repurchase program and
54,000 shares at a total cost of $1,376,000 in private transactions. As of
September 30, 2001, the Company can purchase up to 615,600 additional
shares under its current stock repurchase program.
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 8%, from $36,857,000 for the third quarter of
2000 to $33,786,000 for the third quarter of 2001. This decrease was
primarily the result of an 8% decrease in wholesale net sales, down from
$35,551,000 for the third quarter of 2000 to $32,701,000 for the third
quarter of 2001.
For the nine months ended September 30, net sales decreased 14%, from
$116,963,000 in 2000 to $100,686,000 in 2001. This decrease was also driven
primarily by the decrease in wholesale net sales between periods, from
$112,415,000 for the nine months ended September 30, 2000 to $97,015,000
for the same period in 2001.
The difficult retail environment in 2001 has had a detrimental effect on
the Company's sales performance so far in 2001, principally related to
volume. 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 third quarter increased
from 25.9% in 2000 to 27.3% in 2001. For the nine months ended September
30, gross earnings as a percent of net sales increased slightly from 26.1%
to 26.5%.
Selling and administrative expenses as a percent of net sales increased
from 16.9% for the third quarter of 2000 to 17.4% for the same period in
2001, and from 16.4% to 18.0% for the nine months ended September 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. Some of the 2001 actual decreases in selling and administrative
expense dollars, however, reflect savings from efficiencies obtained in our
distribution center this year.
-6-
The decrease in interest expense in the third quarter and for the nine
months ended September 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 nine months ended September 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 was consistent between the third quarter of 2000 and
2001 at 35%. For the nine months ended September 30, 2001, the effective
tax rate was 35% as compared with 36% for the same period in 2000.
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.
November 9, 2001 /s/ John Wittkowske
- --------------------------- ------------------------
Date John Wittkowske
Vice President-Finance
Chief Financial Officer
-7-