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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, 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 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 2, 1999 the following shares were outstanding.
Common Stock, $1.00 par value 3,328,974 Shares
Class B Common Stock, $1.00 par value 949,551 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
June 30 December 31
1999 1998
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CURRENT ASSETS:
Cash and cash equivalents $ 2,757,148 $ 4,240,991
Marketable securities 8,985,297 8,853,095
Accounts receivable, net 22,961,862 19,597,979
Inventories -
Finished shoes 17,683,247 11,303,009
Shoes in process 268,811 388,160
Raw materials and supplies 154,443 95,161
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Total inventories 18,106,501 11,786,330
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Deferred income tax benefits 3,653,000 3,573,000
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Total current assets 56,463,808 48,051,395
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MARKETABLE SECURITIES 19,804,676 23,160,287
OTHER ASSETS 7,833,894 7,769,106
PLANT AND EQUIPMENT 23,799,856 20,447,541
Less - Accumulated depreciation 7,168,044 6,646,331
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16,631,812 13,801,210
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$100,734,190 $ 92,781,998
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LIABILITIES & SHAREHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Short-term borrowings $ 11,199,750 $ 9,521,545
Accounts payable 12,242,430 7,389,680
Dividend payable 430,652 403,103
Accrued liabilities 8,674,702 7,636,104
Accrued income taxes 1,194,343 1,436,689
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Total current liabilities 33,741,877 26,387,121
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DEFERRED INCOME TAX LIABILITIES 1,241,000 1,247,000
SHAREHOLDERS' INVESTMENT:
Common stock 4,284,525 4,423,925
Other shareholders' investment 61,466,788 60,723,952
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$100,734,190 $ 92,781,998
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WEYCO GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
FOR THE PERIODS ENDED JUNE 30, 1999 AND 1998
Three Months ended June 30 Six Months ended June 30
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1999 1998 1999 1998
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NET SALES $ 31,804,314 $ 29,636,465 $ 66,844,960 $ 65,691,727
COST OF SALES 23,335,105 21,812,112 48,665,503 48,066,437
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Gross earnings 8,469,209 7,824,353 18,179,457 17,625,290
SELLING AND ADMINISTRATIVE EXPENSES 5,555,976 5,330,849 11,367,080 11,348,155
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Earnings from operations 2,913,233 2,493,504 6,812,377 6,277,135
INTEREST INCOME 374,808 484,752 750,279 926,147
INTEREST EXPENSE (139,274) (69,859) (275,367) (77,882)
OTHER INCOME AND EXPENSE, net 11,389 (58,186) 27,086 (49,436)
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Earnings before provision for
income taxes 3,160,156 2,850,211 7,314,375 7,075,964
PROVISION FOR INCOME TAXES 1,050,000 900,000 2,500,000 2,450,000
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Net earnings $ 2,110,156 $ 1,950,211 $ 4,814,375 $ 4,625,964
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WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING
(Note 2)
Basic 4,311,175 4,751,675 4,349,768 4,767,925
Diluted 4,372,696 4,824,342 4,413,331 4,833,166
EARNINGS PER SHARE (Note 2):
Basic $ .49 $ .41 $ 1.11 $ .97
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Diluted $ .48 $ .41 $ 1.09 $ .96
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CASH DIVIDENDS PER SHARE $ .10 $ .08 $ .19 $ .16
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WEYCO GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
1999 1998
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash provided by operating activities $ 1,150,243 $ 5,930,090
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities (750,465) (8,777,756)
Proceeds from maturities of marketable securities 3,973,874 5,025,635
Purchase of plant and equipment (3,352,314) (3,884,731)
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Net cash used for investing activities (128,905) (7,636,852)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Cash dividends paid (796,639) (815,452)
Shares purchased and retired (3,386,747) (4,514,375)
Proceeds from stock options exercised -- 392,031
Short-term borrowings 1,678,205 7,739,050
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Net cash provided by (used for)
financing activities (2,505,181) 2,801,254
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Net increase (decrease) in cash and
cash equivalents (1,483,843) 1,094,492
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 $ 2,757,148 $ 4,417,527
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SUPPLEMENTAL CASH FLOW INFORMATION:
Income taxes paid $ 2,772,492 $ 2,513,203
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Interest paid $ 289,457 $ 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, 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 (FASB) issued
Statement of Financial Accounting Standards (SFAS) 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. In June 1999, the FASB issued SFAS No. 137, which deferred the
effective date of SFAS No. 133 for one year to January 1, 2001. The
Company intends to adopt this standard in 2001. 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:
Three Months Ended June 30 Six Months Ended June 30
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1998 1999 1998 1999
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Numerator:
Net Earnings ..................................... $2,110,156 $1,950,211 $4,814,375 $4,625,964
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Denominator:
Basic weighted average shares .................... 4,311,175 4,751,675 4,349,768 4,767,925
Effect of dilutive securities:
Employee stock options ......................... 61,521 72,667 63,563 65,241
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Diluted weighted average shares .................. 4,372,696 4,824,342 4,413,331 4,833,166
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Basic earnings per share ........................... $ .49 $ .41 $ 1.11 $ .97
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Diluted earnings per share ......................... $ .48 $ .41 $ 1.09 $ .96
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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, 1999 and 1998 is:
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Wholesale
Distribution Retail Total
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THREE MONTHS ENDED JUNE 30
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1999
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Net Sales ............................... $30,097,000 $1,707,000 $31,804,000
Earnings from operations ................ 2,776,000 137,000 2,913,000
1998
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Net Sales ............................... $27,708,000 $1,928,000 $29,636,000
Earnings from operations ................ 2,480,000 14,000 2,494,000
SIX MONTHS ENDED JUNE 30
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1999
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Net Sales ............................... $63,629,000 $3,216,000 $66,845,000
Earnings from operations ................ 6,649,000 163,000 6,812,000
1998
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Net Sales ............................... $62,011,000 $3,681,000 $65,692,000
Earnings from operations ................ 6,252,000 25,000 6,277,000
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 $31,547,000 at June 30, 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 second quarter of 1999.
The reduction in cash and marketable securities to date in 1999 is primarily
related to a $6.3 million buildup in inventory since December 31, 1998. The
buildup in inventory is for the upcoming selling season and is higher than
normal due to an increased backlog of orders.
The Company's capital expenditures were $3,352,000 and $3,885,000 for the
second 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 operations
began in the new building in the second quarter of 1999.
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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 June 30, 1999, there
was $11,200,000 of commercial paper outstanding.
In April 1998, the Company's Board of Directors authorized a stock repurchase
program for up to 500,000 shares or approximately 10% 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 April 1999, the Board of Directors extended the stock
repurchase program to cover the repurchase of 500,000 additional shares of
Common Stock. In the first six months of 1999, the Company purchased 121,400
shares at a total cost of $2,945,000 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 for the second quarter of 1999 were $31,804,000, compared
with $29,636,000 for the second quarter of 1998. Net sales in the wholesale
division increased $2,389,000 (9%) from $27,708,000 in 1998 to $30,097,000 in
1999. The increase resulted primarily from a 9% increase in wholesale shoes
shipped. Retail net sales decreased 11% during the second quarter of 1999 as
compared to the second quarter of 1998 as a result of store closings. Same
store net sales were up 7% between the second quarter of 1998 and 1999.
For the six months ended June 30, 1999, net sales increased $1,153,000, or
2%, as compared with the same period in 1998. Wholesale sales increased
$1,618,000 or 3% from $62,011,000 in 1998 to $63,629,000 in 1999. This
increase resulted primarily from a 4% increase in shoes shipped. Retail net
sales decreased $465,000 (12%) from $3,681,000 in 1998 to $3,216,000 in 1999,
as a result of 1998 retail store closings. Same store net sales were up 6% as
compared with the same period in 1998. Retail net sales now account for less
than 5% of total company net sales, as the Company continues to focus on its
wholesale business.
Gross earnings as a percent of net sales were consistent for the second
quarter of 1998 and 1999, as well as the six months ended June 30, 1999 at
27%.
As a percent of net sales, selling and administrative expenses were
consistent between the second quarter of 1998 and 1999 at 18% and the six
months ended June 30, 1998 and 1999 at 17%.
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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 six months 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 six
months 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 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 13, 1999 /s/ John Wittkowske
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Date John Wittkowske
Vice President-Finance
Chief Financial Officer
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