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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, 1998
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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__________________
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.)
234 East Reservoir Avenue
P. O. Box 1188
Milwaukee, Wisconsin 53201
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(Address of principal executive offices)
(Zip Code)
(414) 263-8800
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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, 1998 the following shares were outstanding.
Common Stock, $1.00 par value 3,680,269 Shares
Class B Common Stock, $1.00 par value 960,156 Shares
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PART I. FINANCIAL INFORMATION
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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
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CONSOLIDATED CONDENSED BALANCE SHEETS
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ASSETS
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June 30 December 31
1998 1997
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CURRENT ASSETS:
Cash and cash equivalents $ 4,417,527 $ 3,323,035
Marketable securities 9,560,425 7,360,953
Accounts receivable, net 20,205,525 17,672,176
Inventories -
Finished shoes 11,863,930 10,713,099
Shoes in process 325,138 347,189
Raw materials and supplies 136,114 101,165
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Total inventories 12,325,182 11,161,453
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Deferred income tax benefits 3,325,000 3,357,000
Prepaid expenses and other current assets -- 37,447
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Total current assets 49,833,659 42,912,064
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MARKETABLE SECURITIES 31,668,037 30,105,090
OTHER ASSETS 7,109,198 6,874,191
PLANT AND EQUIPMENT 12,492,681 8,608,049
Less - Accumulated depreciation (6,624,894) (6,295,279)
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5,867,787 2,312,770
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$ 94,478,681 $ 82,204,115
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LIABILITIES & SHAREHOLDERS' INVESTMENT
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CURRENT LIABILITIES:
Short-term borrowings $ 7,739,050 $ --
Accounts payable 10,247,929 6,275,563
Dividend payable 431,498 381,954
Accrued liabilities 8,082,085 7,006,168
Accrued income taxes 753,548 979,024
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Total current liabilities 27,254,110 14,642,709
DEFERRED INCOME TAX LIABILITIES 859,000 884,000
SHAREHOLDERS' INVESTMENT:
Common stock 4,640,425 4,774,925
Other shareholders' investment 61,725,146 61,902,481
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$94,478,681 $82,204,115
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WEYCO GROUP, INC. AND SUBSIDIARIES
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CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
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FOR THE PERIODS ENDED JUNE 30, 1998 AND 1997
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Three Months ended June 30 Six Months ended June 30
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1998 1997 1998 1997
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NET SALES $ 29,636,465 $ 29,719,784 $ 65,691,727 $ 63,873,253
COST OF SALES 21,812,112 21,745,064 48,066,437 46,616,908
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Gross earnings 7,824,353 7,974,720 17,625,290 17,256,345
SELLING AND ADMINISTRATIVE EXPENSES 5,330,849 5,508,260 11,348,155 11,081,043
------------ ------------ ------------ ------------
Earnings from operations 2,493,504 2,466,460 6,277,135 6,175,302
INTEREST INCOME 484,752 400,296 926,147 612,340
INTEREST EXPENSE (69,859) -- (77,882) --
OTHER INCOME AND EXPENSE, net (58,186) (143,417) (49,436) (228,059)
------------ ------------ ------------ ------------
Earnings before provision for
income taxes 2,850,211 2,723,339 7,075,964 6,559,583
PROVISION FOR INCOME TAXES 900,000 950,000 2,450,000 2,400,000
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Net earnings $ 1,950,211 $ 1,773,339 $ 4,625,964 $ 4,159,583
============ ============ ============ ============
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING
(Note 2)
Basic 4,751,675 4,760,925 4,767,925 4,761,567
Diluted 4,824,342 4,830,170 4,833,166 4,817,822
EARNINGS PER SHARE (Note 2):
Basic $ .41 $ .37 $ .97 $ .87
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Diluted $ .41 $ .37 $ .96 $ .86
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CASH DIVIDENDS PER SHARE $ .08 $ .08 $ .16 $ .15
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WEYCO GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
1998 1997
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash provided by operating activities $ 5,930,090 $ 9,693,578
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities (8,777,756) (15,508,355)
Proceeds from maturities of marketable securities 5,025,635 5,206,100
Purchase of plant and equipment (3,884,731) (62,683)
Other -- (74,925)
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Net cash used for investing activities ( 7,636,852) (10,439,863)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Cash dividends paid (815,452) (698,599)
Shares purchased and retired (4,514,375) (260,500)
Proceeds from stock options exercised 392,031 91,438
Short-term borrowings 7,739,050 --
Net cash provided by (used for) ------------ ------------
financing activities 2,801,254 (867,661)
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Net increase (decrease) in cash and
cash equivalents 1,094,492 (1,613,946)
CASH AND CASH EQUIVALENTS at beginning
of period 3,323,035 6,837,765
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CASH AND CASH EQUIVALENTS at end
of period $ 4,417,527 $ 5,223,819
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SUPPLEMENTAL CASH FLOW INFORMATION:
Income taxes paid $ 2,513,203 $ 2,592,306
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Interest paid $ 73,718 $ --
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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, 1998, are not necessarily indicative of results for
the full year.
(2) Earnings per share are computed based on the weighted average number of
common and common equivalent shares outstanding. Common equivalent shares
consist of stock options which have a dilutive effect when applying the
treasury stock method. The Company adopted Statement of Accounting
Standards No. 128, "Earnings Per Share," as of December 31, 1997 and has
restated prior period earnings per share as required.
(3) The Company has entered into forward exchange contracts for the purpose
of hedging firmly committed inventory purchases with outside vendors. The
Company accounts for these contracts under the deferral method.
Accordingly, gains and losses are recorded in inventory when the
inventory is purchased.
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The new standard requires that an
entity recognize derivatives as either assets or liabilities in the
balance sheet and measure those instruments at fair value. The Company
intends to adopt this standard in 2000. The adoption of this standard is
not expected to have a material effect on the Company's balance sheet or
statement of earnings.
(4) During the first quarter of 1998, the Company adopted Financial
Accounting Standards Board Statement No. 130, "Reporting Comprehensive
Income" ("SFAS 130"). SFAS 130 establishes standards for reporting and
displaying comprehensive income and its components in a full set of
general-purpose financial statements, either in the statement of
operations or a separate statement. Additionally, SFAS 130 requires the
display of the accumulated balance of other comprehensive income. The
adoption of this standard did not impact the financial statements of the
Company.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Liquidity
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The Company's primary source of liquidity is its cash and marketable
securities which aggregated approximately $45,646,000 at June 30, 1998,
compared with $40,789,000 at December 31, 1997. The Company maintains a
$7,500,000 bank line of credit and has banker acceptance loan facilities to
provide funds on a short-term basis when necessary. In addition, the
Company entered into a three year $10,000,000 revolving credit agreement
during the first quarter of 1998. The Company did not make any borrowings
under these facilities during the first six months of 1998.
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In April 1998, the Company's Board of Directors authorized a stock
repurchase program for up to 500,000 shares or approximately 10% of its
common stock in open market transactions at prevailing prices. Through June
30, the Company purchased 149,000 shares at a total cost of $3,983,000.
Included in Plant and Equipment is $3,592,000 of construction costs for the
Company's distribution center and related equipment. Management estimates
that the new building will be completed in the fall of 1998 with the
installation of equipment and systems to follow. Operations are expected to
begin in the new facility in the second quarter of 1999. The entire project
is expected to cost $12 million. During the first six months of 1998, the
Company began issuing commercial paper with 30 to 90 day maturities to
finance the construction project. As of June 30, 1998, $7,739,000 of
commercial paper was outstanding.
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
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Total net sales for the second quarter of 1998 were essentially flat
compared with the same period in 1997. Net sales in the wholesale division
increased $584,000 (2%) from $27,412,000 in 1997 to $27,996,000 in 1998.
Retail net sales decreased 18% during the second quarter of 1998 as
compared to the second quarter of 1997 due to the closing of four retail
units during 1997 and one during 1998. Same store net sales were flat
between the second quarter of 1997 and 1998.
For the six months ended June 30, 1998, net sales increased $1,819,000, or
3%, as compared with the same period in 1997. Wholesale sales increased
$2,646,000 or 5% from $59,365,000 in 1997 to $62,011,000 in 1998. This
increase resulted from a 3% increase in shoes shipped, as well as an
increase in the average selling price per pair, attributed to a change in
product mix. Retail net sales decreased $828,000 (18%) from $4,509,000 in
1997 to $3,681,000 in 1998, as a result of the retail store closings. Same
store net sales were down 3% as compared with the same period in 1997.
Retail net sales now account for less than 6% of total company net sales.
Gross earnings as a percent of net sales were consistent for the second
quarter of 1997 and 1998, as well as the six months ended June 30, 1998 at
27%.
As a percent of net sales, selling and administrative expenses were
consistent between the second quarter of 1997 and 1998 at 18% and the six
months ended June 30, 1997 and 1998 at 17%.
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PART II. OTHER INFORMATION
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Item 1. Legal Proceedings
None
Item 6. Exhibits and Reports on Form 8-K
None
SIGNATURES
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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.
_____________________________ ____________________________________
Date John Wittkowske
Vice President-Finance
Chief Financial Officer
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