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 March 31, 2002
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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 W. 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 May 6, 2002 the following shares were outstanding:
Common Stock, $1.00 par value 2,850,317 Shares
Class B Common Stock, $1.00 par value 908,251 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
March 31 December 31
2002 2001
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CURRENT ASSETS:
Cash and cash equivalents $15,239,390 $16,850,998
Marketable securities 2,968,490 3,266,846
Accounts receivable, net 26,872,372 20,867,106
Inventories -
Finished shoes 6,760,976 17,006,221
Shoes in process 69,910 162,833
Raw materials and supplies 196,279 332,602
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Total inventories 7,027,165 17,501,656
Deferred income tax benefits 2,899,000 3,068,000
Prepaid expenses and other current assets 242,480 165,531
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Total current assets 55,248,897 61,720,137
MARKETABLE SECURITIES 12,180,199 10,753,542
OTHER ASSETS 10,329,380 10,143,249
PLANT AND EQUIPMENT 22,275,383 22,597,871
Less - Accumulated depreciation 7,279,184 7,260,488
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14,996,199 15,337,383
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$92,754,675 $97,954,311
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LIABILITIES & SHAREHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Short-term borrowings $ 2,700,000 $ 7,509,904
Accounts payable 3,818,154 5,317,817
Dividend payable 449,532 451,598
Accrued liabilities 5,080,042 6,021,238
Accrued income taxes 1,892,286 1,609,991
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Total current liabilities 13,940,014 20,910,548
DEFERRED INCOME TAX LIABILITIES 3,476,000 3,452,000
SHAREHOLDERS' INVESTMENT:
Common stock 3,746,318 3,748,818
Other shareholders' investment 71,592,343 69,842,945
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$92,754,675 $97,954,311
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WEYCO GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
FOR THE THREE MONTHS ENDED MARCH 31, 2002 AND 2001
2002 2001
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NET SALES $ 35,722,349 $ 35,358,258
COST OF SALES 26,245,278 26,157,909
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Gross earnings 9,477,071 9,200,349
SELLING AND ADMINISTRATIVE EXPENSES 6,187,136 6,313,580
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Earnings from operations 3,289,935 2,886,769
INTEREST INCOME 266,803 283,666
INTEREST EXPENSE (16,356) (83,958)
OTHER INCOME AND EXPENSE (17,350) 504,427
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Earnings before provision for
income taxes 3,523,032 3,590,904
PROVISION FOR INCOME TAXES 1,250,000 1,250,000
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Net earnings $ 2,273,032 $ 2,340,904
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WEIGHTED AVERAGE SHARES
OUTSTANDING (Note 3)
Basic 3,748,006 3,953,276
Diluted 3,797,013 3,981,082
EARNINGS PER SHARE (Note 3)
Basic $ .61 $ .59
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Diluted $ .60 $ .59
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Cash dividends $ .12 $ .11
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WEYCO GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2002 AND 2001
2002 2001
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash used for operating activities $ 4,921,608 $ (425,924)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities (2,304,235) --
Proceeds from maturities of
marketable securities 1,175,934 612,999
Proceeds from sales of other investments -- 603,807
Purchase of plant and equipment (68,877) (408,058)
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Net cash (used for) provided by
investing activities (1,197,178) 808,748
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CASH FLOWS FROM FINANCING ACTIVITIES:
Cash dividends paid (449,258) (434,128)
Shares purchased and retired (195,500) (712,507)
Proceeds from stock options exercised 118,624 40,750
Short-term borrowings (4,809,904) 1,106,052
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Net cash (used for) provided by
financing activities (5,336,038) 167
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Net (decrease) increase in cash
and cash equivalents (1,611,608) 382,991
CASH AND CASH EQUIVALENTS at beginning
of period 16,850,998 3,519,190
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CASH AND CASH EQUIVALENTS at end
of period $ 15,239,390 $ 3,902,181
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SUPPLEMENTAL CASH FLOW INFORMATION:
Income taxes paid $ 712,782 $ 44,200
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Interest paid $ 16,497 $ 104,563
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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 ended
March 31, 2002, are not necessarily indicative of results for the full
year.
(2) In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statements of Financial Accounting Standards ("SFAS") 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 did 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 Sheets.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" (SFAS 144). SFAS 144
establishes a single accounting model for long-lived assets to be
disposed of by sale and provides additional implementation guidance for
assets to be held and used and assets to be disposed of other than by
sale. The statement is effective for fiscal years beginning after
December 15, 2001. The adoption of this statement on January 1, 2002 did
not have an impact on the Company's financial position or results of
operations.
(3) The following table sets forth the computation of net earnings per share
and diluted net earnings per share:
March 31, 2002 March 31, 2001
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Numerator:
Net Earnings ................................................. $2,273,032 $2,340,904
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Denominator:
Basic weighted average shares ................................ 3,748,006 3,953,276
Effect of dilutive securities:
Employee stock options ..................................... 49,007 27,806
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Diluted weighted average shares .............................. 3,797,013 3,981,082
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Basic earnings per share ........................................ $ .61 $ .59
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Diluted earnings per share ...................................... $ .60 $ .59
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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 March 31, 2002 and 2001 is:
Wholesale
Distribution Retail Total
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MARCH 31, 2002
Net Sales ..................... $34,634,000 $ 1,088,000 $35,722,000
Earnings from operations ....... 3,348,000 (58,000) 3,290,000
MARCH 31, 2001
Net Sales ..................... $34,099,000 $ 1,259,000 $35,358,000
Earnings from operations ...... 2,913,000 (26,000) 2,887,000
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Liquidity and Capital Resources
The Company's primary source of liquidity is its cash and marketable
securities which aggregated approximately $30,388,000 at March 31, 2002,
compared with $30,871,000 at December 31, 2001. 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 March 31, 2002, $2,700,000 of commercial paper was
outstanding, and there were no draws on the lines of credit.
Cash flows from operations were $5.3 million higher in the first quarter of
2002 than in the same period of 2001. The increase in cash flows from
operations was primarily due to the decrease in inventories between
December 31, 2001 and March 31, 2002, partially offset by the decrease in
accounts payable between periods.
Cash flows from investing activities for the first quarter of 2002 include
$2.3 million of purchases of marketable securities. Cash flows from
investing activities for the first quarter of 2001 included $604,000 of
proceeds from the sale of investments. These investments were sold for
$604,000 at a gain of $504,000, which was included in other income on the
Consolidated Condensed Statements of Earnings.
Cash flows from financing activities for the first quarter of 2002
decreased relative to 2001 due to reductions in short-term borrowings this
quarter.
The Company's capital expenditures were $69,000 and $408,000 for the first
quarter of 2002 and 2001, respectively. In 2001, capital expenditures were
primarily related to the remodeling of two retail stores.
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During the first quarter of 2002, the Company purchased 5,000 shares of its
common stock at a total cost of $126,750 under its stock repurchase
program, and 2,500 shares at a total cost of $68,750 in private
transactions. During the first quarter of 2001, the Company did not
purchase any shares of its common stock under its stock repurchase program,
but did purchase 29,232 shares at a total cost of $713,000 in private
transactions.
On May 10, 2002 the U S Bankruptcy Court for the Northern District of
Illinois approved the purchase of Florsheim Group Inc's domestic wholesale
business and certain retail stores by the Company. The purchase price is
approximately $45 million in cash (subject to certain adjustments) and the
assumption of certain trade and lease liabilities. The Company anticipates
closing the transaction in the second quarter 2002. The Company has secured
a $70,000,000 revolving credit facility with a group of four banks and will
finance the acquisition with that facility along with available cash. The
Company also intends to sign agreements to purchase certain Florsheim
foreign subsidiaries prior to the closing date for approximately $1.1
million.
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 increased 1%, from $35,358,000 for the first quarter of
2001 to $35,722,000 for the first quarter of 2002. This increase was the
result of a 1.6% increase in wholesale net sales, up from $34,099,000 for
the first quarter of 2001 to $34,634,000 in the first quarter of 2002, and
a 13.5% decrease in retail net sales, down from $1,259,000 for the first
quarter of 2001 to $1,089,000 in the first quarter of 2002. The increase in
wholesale sales was driven by an increase in pairs shipped. The decrease in
retail net sales is due to the closing of two retail stores in January
2002.
Gross earnings as a percent of net sales for the first quarter increased
from 26.0% in 2001 to 26.5% in 2002. This increase results mainly from the
increase in gross earnings as a percent of net sales for the wholesale
division, which increased from 25.0% in 2001 to 25.7% in 2002. The increase
in wholesale gross earnings as a percent of net sales between 2001 and 2002
is primarily attributable to differences in the mix of products sold
between periods.
Selling and administrative expenses as a percent of net sales decreased
from 17.9% for the first quarter of 2001 to 17.3% for the same period in
2002. This is primarily the result of the decrease in wholesale selling and
administrative expenses as a percent of wholesale net sales from 16.5% in
the first quarter of 2001 to 16.1% in the first quarter of 2002. In
general, the decrease in selling and administrative expenses in relation to
the change in net sales 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 first quarter of 2002 compared to
the first quarter of 2001 is due to lower short-term borrowings and lower
interest rates in 2002.
In the first quarter of 2001, other income and expense includes a $504,000
gain on the sale of investments.
The effective tax rate was 35% in the first quarter of 2001 and 2002.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Shareholders was held April 23, 2002 to elect three
members to the Board of Directors.
Thomas W. Florsheim, Jr. and Robert Feitler were nominated for election to
the Board of Directors for terms of three years, and Mr. Leonard J.
Goldstein was nominated for election to the Board for a two year term. A
total of 3,212,065 votes were cast for the nominees, with 60,354 votes
withheld for Mr. Florsheim, 3,900 votes withheld for Mr. Feitler, and 5,700
votes withheld for Mr. Goldstein.
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.
May 15, 2002 /s/ John Wittkowske
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Date John Wittkowske
Vice President-Finance
Chief Financial Officer