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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 March 31, 1999
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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 April 27, 1999 the following shares were outstanding.
Common Stock, $1.00 par value 3,360,889 Shares
Class B Common Stock, $1.00 par value 951,636 Shares
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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
March 31 December 31
1999 1998
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CURRENT ASSETS:
Cash and cash equivalents $ 4,060,018 $ 4,240,991
Marketable securities 8,620,816 8,853,095
Accounts receivable, net 25,279,776 19,597,979
Inventories -
Finished shoes 9,580,419 11,303,009
Shoes in process 250,222 388,160
Raw materials and supplies 86,856 95,161
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Total inventories 9,917,497 11,786,330
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Deferred income tax benefits 3,558,000 3,573,000
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Total current assets 51,436,107 48,051,395
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MARKETABLE SECURITIES 21,531,484 23,160,287
OTHER ASSETS 7,799,253 7,769,106
PLANT AND EQUIPMENT 22,747,871 20,447,541
Less - Accumulated depreciation 6,872,355 6,646,331
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15,875,516 13,801,210
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$96,642,360 $92,781,998
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LIABILITIES & SHAREHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Short-term borrowings $ 9,894,779 $ 9,521,545
Accounts payable 8,593,657 7,389,680
Dividend payable 393,536 403,103
Accrued liabilities 8,315,961 7,636,104
Accrued income taxes 2,668,854 1,436,689
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Total current liabilities 29,866,787 26,387,121
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DEFERRED INCOME TAX LIABILITIES 1,243,000 1,247,000
SHAREHOLDERS' INVESTMENT:
Common stock 4,346,125 4,423,925
Other shareholders' investment 61,186,448 60,723,952
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$96,642,360 $92,781,998
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WEYCO GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
1999 1998
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NET SALES $35,040,646 $36,055,262
COST OF SALES 25,330,398 26,254,325
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Gross earnings 9,710,248 9,800,937
SELLING AND ADMINISTRATIVE EXPENSES 5,811,104 6,017,306
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Earnings from operations 3,899,144 3,783,631
INTEREST INCOME 373,674 441,395
INTEREST EXPENSE (136,097) (8,023)
OTHER INCOME AND EXPENSE 17,498 8,750
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Earnings before provision for
income taxes 4,154,219 4,225,753
PROVISION FOR INCOME TAXES 1,450,000 1,550,000
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Net earnings $ 2,704,219 $ 2,675,753
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WEIGHTED AVERAGE SHARES
OUTSTANDING (Note 3)
Basic 4,387,050 4,792,050
Diluted 4,453,195 4,860,847
EARNINGS PER SHARE (Note 3)
Basic $.62 $.56
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Diluted $.61 $.55
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Cash dividends $.09 $.08
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WEYCO GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
1999 1998
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash provided by operating activities $ 2,214,128 $ 1,615,991
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities -- (3,926,549)
Proceeds from maturities of
marketable securities 1,861,082 2,262,533
Purchase of plant and equipment (2,300,331) (1,434,522)
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Net cash used for investing activities (439,249) (3,098,538)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Cash dividends paid (403,103) (381,954)
Shares purchased and retired (1,925,983) (399,625)
Proceeds from stock options exercised -- 392,027
Short-term borrowings 373,234 3,060,000
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Net cash (used for) provided by
financing activities (1,955,852) 2,670,448
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Net increase (decrease) in cash
and cash equivalents (180,973) 1,187,901
CASH AND CASH EQUIVALENTS at beginning
of period 4,240,991 3,323,035
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CASH AND CASH EQUIVALENTS at end
of period $ 4,060,018 $ 4,510,936
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SUPPLEMENTAL CASH FLOW INFORMATION:
Income taxes paid $ 134,788 $ 225,828
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Interest paid $ 153,113 $ 5,886
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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, 1999, are not necessarily indicative of results for the full
year.
(2) 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." This standard requires that entities
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.
(3) The following table sets forth the computation of net earnings per share
and diluted net earnings per share:
March 31, 1999 March 31, 1998
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Numerator:
Net Earnings . . . . . . . . . . . . . . . . . . . . . . . . $2,704,219 $2,675,753
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Denominator:
Basic weighted average shares . . . . . . . . . . . . . . . . 4,387,050 4,792,050
Effect of dilutive securities:
Employee stock options . . . . . . . . . . . . . . . . . 66,145 68,797
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Diluted weighted average shares . . . . . . . . . . . . . . . 4,453,195 4,860,847
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Basic earnings per share . . . . . . . . . . . . . . . . . . . $.62 $.56
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Diluted earnings per share . . . . . . . . . . . . . . . . . . $.61 $.55
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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, 1999 and 1998 is:
Wholesale
Distribution Retail Total
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MARCH 31, 1999
Net Sales . . . . . . . . . . . . . . $33,532,000 $1,509,000 $35,041,000
Earnings from operations . . . . . . . . . 8,933,000 777,000 9,710,000
MARCH 31, 1998
Net Sales . . . . . . . . . . . . . . $34,302,000 $1,753,000 $36,055,000
Earnings from operations . . . . . . . . . 8,897,000 904,000 9,801,000
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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 $34,212,000 at March 31, 1999,
compared with $36,254,000 at December 31, 1998. In addition, 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. There
were no draws on the line of credit during the first quarter of 1999.
The Company's capital expenditures were $2,300,000 and $1,435,000 for the
first quarter of 1999 and 1998, respectively. In both periods, expenditures
were primarily related to the construction of the Company's new 346,000
square foot corporate office and distribution center. The Company's
corporate offices moved into the new building in February 1999.
Distribution functions are expected to begin in the new building in the
second quarter of 1999.
The Company issued commercial paper with 30 to 90 day maturities to finance
the building construction project. The commercial paper is backed by a
three-year, $12 million revolving credit agreement. At March 31, 1999,
there was $9,895,000 of commercial paper outstanding.
In April 1998, the Company's Board of Directors authorized a stock
repurchase program for up to 500,000 shares of its common stock in open
market transactions at prevailing prices. During 1998, the Company
purchased 320,000 shares at a total cost of $8,484,000 under the program,
and an additional 76,500 shares at a total cost of $1,932,000 in private
transactions. In the first quarter of 1999, the Company purchased 59,800
shares at a total cost of $1,484,000 under the program, and 18,000 shares
at a total cost of $442,000 in private transactions.
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
Total net sales decreased 3%, from $36,055,000 for the first quarter of
1998 to $35,041,000 for the first quarter of 1999. Net sales in the
wholesale division decreased 2% from $34,302,000 in 1998 to $33,532,000 in
1999, despite a 1% increase in wholesale pairs shipped. The decrease in the
dollar value of wholesale net sales between quarters is the result of
differences in the mix of products sold.
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Retail net sales decreased from $1,753,000 in the first quarter of 1998 to
$1,509,000 in the first quarter of 1999, primarily as a result of the
closing of two retail units during 1998. Same store retail sales were flat
between the first quarter of 1998 and 1999. Retail now represents only 5%
of the Company's overall business, as the Company continues to focus on its
wholesale business.
Gross earnings as a percent of net sales was consistent between the first
quarter of 1998 and 1999 at 27%. This reflects the consistency of wholesale
gross earnings as a percent of wholesale net sales of 26% for the first
quarters of 1998 and 1999, as well as retail gross earnings as a percent of
retail net sales of 52% for the first quarters of 1998 and 1999.
Selling and administrative expenses as a percent of net sales were
consistent between the first quarter of 1998 and 1999 at 17%. This reflects
the consistency of wholesale selling and administrative expenses as a
percent of wholesale net sales of 15% for the first quarter of 1998 and
1999, as well as retail selling and administrative expenses as a percent of
retail net sales of 50% for the first quarters of 1998 and 1999.
Year 2000 Computer Compliance
The Company's 1998 Annual Report includes a detailed discussion of the nature
and extent of the Company's project to address the Year 2000 issue relating to
the inability of certain computer software programs to process 2-digit year-date
codes after December 31, 1999. During the first quarter of 1999, the Company
continued its progress on this project, and still anticipates that the entire
project will be completed, tested and implemented by the end of the third
quarter of 1999. One significant item completed in the first quarter of 1999 was
the review of potential Year 2000 issues with machinery at the manufacturing
facility in Beaver Dam, WI. No problems were noted. Total estimated costs of the
project are still $800,000, as disclosed in the Annual Report.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Shareholders was held April 27, 1999 to elect three
members to the Board of Directors.
Thomas W. Florsheim, Jr., Robert Feitler and Leonard J. Goldstein were
nominated for election to the Board of Directors for terms of three years.
A total of 11,575,880 votes were cast for each nominee, and 11,404 votes
were withheld for Mr. Florsheim, 5,704 votes were withheld for Mr. Feitler
and 22,482 votes were withheld for Mr. Goldstein.
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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 10, 1999 /s/ John Wittkowske
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Date John Wittkowske
Vice President-Finance
Chief Financial Officer
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