1 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, 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 W. 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 May 4, 2001 the following shares were outstanding. Common Stock, $1.00 par value 2,906,789 Shares Class B Common Stock, $1.00 par value 913,329 Shares
2 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 <TABLE> <CAPTION> March 31 December 31 2001 2000 ------------ ----------- <S> <C> <C> CURRENT ASSETS: Cash and cash equivalents $ 3,902,181 $ 3,519,190 Marketable securities 8,249,147 7,690,551 Accounts receivable, net 28,949,281 23,864,339 Inventories - Finished shoes 12,366,083 13,406,933 Shoes in process 167,356 165,918 Raw materials and supplies 128,196 140,365 ----------- ----------- Total inventories 12,661,635 13,713,216 Deferred income tax benefits 2,745,000 2,697,000 Prepaid expenses and other current assets 230,998 185,342 ----------- ----------- Total current assets 56,738,242 51,669,638 MARKETABLE SECURITIES 13,492,879 14,664,474 OTHER ASSETS 9,444,882 9,336,800 PLANT AND EQUIPMENT 22,516,929 22,259,574 Less - Accumulated depreciation 6,237,856 5,987,377 ----------- ----------- 16,279,073 16,272,197 ----------- ----------- $95,955,076 $91,943,109 =========== =========== LIABILITIES & SHAREHOLDERS' INVESTMENT CURRENT LIABILITIES: Short-term borrowings $ 6,313,000 $ 5,206,948 Accounts payable 7,184,179 5,955,873 Dividend payable 431,128 445,836 Accrued liabilities 4,960,196 5,643,391 Accrued income taxes 1,606,285 505,792 ----------- ----------- Total current liabilities 20,494,788 17,757,840 DEFERRED INCOME TAX LIABILITIES 2,880,000 2,840,000 SHAREHOLDERS' INVESTMENT: Common stock 3,946,618 3,972,850 Other shareholders' investment 68,633,670 67,372,419 ----------- ----------- $95,955,076 $91,943,109 =========== =========== </TABLE> -1-
3 WEYCO GROUP, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000 <TABLE> <CAPTION> 2001 2000 ----------------- ----------------- <S> <C> <C> NET SALES $35,358,258 $41,903,079 COST OF SALES 26,157,909 30,790,502 ----------- ----------- Gross earnings 9,200,349 11,112,577 SELLING AND ADMINISTRATIVE EXPENSES 6,313,580 6,538,623 ----------- ----------- Earnings from operations 2,886,769 4,573,954 INTEREST INCOME 283,666 259,836 INTEREST EXPENSE (83,958) (154,574) OTHER INCOME AND EXPENSE 504,427 47,337 ----------- ----------- Earnings before provision for income taxes 3,590,904 4,726,553 PROVISION FOR INCOME TAXES 1,250,000 1,700,000 ----------- ----------- Net earnings $ 2,340,904 $ 3,026,553 =========== =========== WEIGHTED AVERAGE SHARES OUTSTANDING (Note 3) Basic 3,953,276 4,131,882 Diluted 3,981,082 4,185,641 EARNINGS PER SHARE (Note 3) Basic $.59 $.73 ==== ==== Diluted $.59 $.72 ==== ==== Cash dividends $.11 $.10 ==== ==== </TABLE> -2-
4 WEYCO GROUP, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000 <TABLE> <CAPTION> 2001 2000 -------------- -------------- <S> <C> <C> CASH FLOWS FROM OPERATING ACTIVITIES: Net cash used for operating activities $ (425,924) $ (1,616,733) ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from maturities of marketable securities 612,999 1,445,573 Proceeds from sales of other investments 603,807 -- Purchase of plant and equipment (408,058) (73,079) Proceeds from sales of plant and equipment -- 18,850 ----------- ------------ Net cash provided by investing activities 808,748 1,391,344 ----------- ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Cash dividends paid (434,128) (413,999) Shares purchased and retired (712,507) (1,393,884) Proceeds from stock options exercised 40,750 42,375 Short-term borrowings 1,106,052 915,000 ----------- ------------ Net cash provided by (used for) financing activities 167 (850,508) ----------- ------------ Net increase (decrease) in cash and cash equivalents 382,991 (1,075,897) CASH AND CASH EQUIVALENTS at beginning of period 3,519,190 3,843,915 ----------- ------------ CASH AND CASH EQUIVALENTS at end of period $ 3,902,181 $ 2,768,018 =========== ============ SUPPLEMENTAL CASH FLOW INFORMATION: Income taxes paid $ 44,200 $ 240,000 =========== ============ Interest paid $ 104,563 $ 109,574 =========== ============ </TABLE> -3-
5 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, 2001, 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, 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. (3) The following table sets forth the computation of net earnings per share and diluted net earnings per share: <TABLE> <CAPTION> March 31, 2001 March 31, 2000 -------------- -------------- <S> <C> <C> Numerator: Net Earnings . . . . . . . . . . . . . . . . . . . . . $2,340,904 $3,026,553 ========== ========== Denominator: Basic weighted average shares . . . . . . . . . . . . 3,953,276 4,131,882 Effect of dilutive securities: Employee stock options . . . . . . . . . . . . . 27,806 53,759 ---------- ---------- Diluted weighted average shares . . . . . . . . . . . 3,981,082 4,185,641 ========== ========== Basic earnings per share . . . . . . . . . . . . . . . . $.59 $.73 ==== ==== Diluted earnings per share . . . . . . . . . . . . . . . $.59 $.72 ==== ==== </TABLE> (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, 2001 and 2000 is: <TABLE> <CAPTION> Wholesale Distribution Retail Total ------------- ---------------- ---------------- <S> <C> <C> <C> 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 MARCH 31, 2000 Net Sales . . . . . . . . . . . . . . . . . . $40,300,000 $1,603,000 $41,903,000 Earnings from operations . . . . . . . . . . 4,547,000 27,000 4,574,000 </TABLE> -4-
6 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 $25,644,000 at March 31, 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 $22.5 million back commercial paper issuances and provide funds on a short-term basis when necessary. At March 31, 2001, $6,313,000 of commercial paper was outstanding, and there were no draws on the lines of credit. 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. Subsequent to March 31, 2001 an additional 126,500 shares of common stock were purchased at a total cost of $2,952,000 under the Company's stock repurchase program, and 1,500 shares were purchased at a total cost of $36,000 in private transactions. Cash flows from operations were $1.2 million lower in the first quarter of 2001 than in the same period of 2000. The decrease in cash flows from operations was primarily due to a $993,000 decrease in net earnings between periods, after adjusting for a $504,000 gain ($307,000 after tax) on the sale of other investments discussed below. Cash flows from investing activities for the first quarter of 2001 includes $604,000 of proceeds from the sale of investments. During the quarter, investments were sold for $604,000 at a gain of $504,000, which is included in other income on the Consolidated Condensed Statements of Earnings. The Company's capital expenditures were $408,000 and $73,000 for the first quarter of 2001 and 2000, respectively. In 2001, capital expenditures were primarily related to the remodeling of two retail stores. 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. -5-
7 Results of Operations Overall net sales decreased 16%, from $41,903,000 for the first quarter of 2000 to $35,358,000 for the first quarter of 2001. This 16% decrease was the result of a 15% decrease in wholesale net sales, down from $40,300,000 for the first quarter of 2000 to $34,099,000 in the first quarter of 2001, and a 21% decrease in retail net sales, down from $1,603,000 for the first quarter of 2000 to $1,259,000 in the first quarter of 2001. The decrease in wholesale sales was driven by a decrease in pairs shipped. Same store retail net sales decreased 12% between periods. In general, the decreases in the first quarter 2001 were the result of a difficult retail environment. Retailers are maintaining lean inventories in response to the economic slowdown with the timing of seasonal deliveries shifting in part to the second quarter. Gross earnings as a percent of net sales for the first quarter decreased from 26.5% in 2000 to 26.0% in 2001. This decrease results mainly from the decrease in gross earnings as a percent of net sales for the wholesale division, which decreased from 25.6% in 2000 to 25.0% in 2001. The decrease in wholesale gross earnings as a percent of net sales between 2000 and 2001 is primarily attributable to differences in the mix of products sold between periods. Selling and administrative expenses as a percent of net sales increased from 15.6% for the first quarter of 2000 to 17.9% for the same period in 2001. This is primarily the result of the increase in wholesale selling and administrative expenses as a percent of wholesale net sales from 14.3% in the first quarter of 2000 to 16.5% in the first quarter of 2001. In general, the increase 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. The decrease in interest expense in the first quarter of 2001 compared to the first quarter of 2000 is due to lower short-term borrowings and lower interest rates in 2001. In the first quarter of 2001, other income and expense includes a $504,000 gain on the sale of investments. The effective tax rate decreased from 36% in the first quarter of 2000 to 35% in the first quarter of 2001. -6-
8 PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders The Annual Meeting of Shareholders was held April 24, 2001 to elect two members to the Board of Directors. Thomas W. Florsheim, and Frank W. Norris were nominated for election to the Board of Directors for terms of three years. A total of 3,571,198 votes were cast for the nominees, with 2,370 votes withheld for Mr. Florsheim, and 129,017 votes withheld for Mr. Norris. 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 11, 2001 /s/ John Wittkowske - ------------------------------ ---------------------------------- Date John Wittkowske Vice President-Finance Chief Financial Officer -7-