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 June 30, 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 West 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 August 1, 2001 the following shares were outstanding. <Table> <S> <C> Common Stock, $1.00 par value 2,881,789 Shares Class B Common Stock, $1.00 par value 913,329 Shares </Table>
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 <TABLE> <CAPTION> ASSETS June 30 December 31 2001 2000 ----------- ----------- <S> <C> <C> CURRENT ASSETS: Cash and cash equivalents $ 4,873,905 $ 3,519,190 Marketable securities 6,651,270 7,690,551 Accounts receivable, net 23,728,622 23,864,339 Inventories - Finished shoes 17,801,667 13,406,933 Shoes in process 189,355 165,918 Raw materials and supplies 313,016 140,365 ----------- ----------- Total inventories 18,304,038 13,713,216 Deferred income tax benefits 2,836,000 2,697,000 Prepaid expenses and other current assets 302,075 185,342 ----------- ----------- Total current assets 56,695,910 51,669,638 MARKETABLE SECURITIES 13,055,140 14,664,474 OTHER ASSETS 9,654,264 9,336,800 PLANT AND EQUIPMENT 22,693,168 22,259,574 Less - Accumulated depreciation 6,641,867 5,987,377 ----------- ----------- 16,051,301 16,272,197 ----------- ----------- $95,456,615 $91,943,109 =========== =========== LIABILITIES & SHAREHOLDERS' INVESTMENT CURRENT LIABILITIES: Short-term borrowings $ 6,649,767 $ 5,206,948 Accounts payable 9,255,676 5,955,873 Dividend payable 456,014 445,836 Accrued liabilities 5,269,895 5,643,391 Accrued income taxes 700,583 505,792 ----------- ----------- Total current liabilities 22,331,935 17,757,840 DEFERRED INCOME TAX LIABILITIES 2,920,000 2,840,000 SHAREHOLDERS' INVESTMENT: Common stock 3,795,118 3,972,850 Other shareholders' investment 66,409,562 67,372,419 ----------- ----------- $95,456,615 $91,943,109 =========== =========== </TABLE>
3 WEYCO GROUP, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS FOR THE PERIODS ENDED JUNE 30, 2001 AND 2000 <TABLE> <CAPTION> Three Months ended June 30 Six Months ended June 30 ----------------------------- ----------------------------- 2001 2000 2001 2000 ------------- ------------ ------------ ------------- <S> <C> <C> <C> <C> NET SALES $ 31,541,688 $ 38,203,364 $ 66,899,946 $ 80,106,443 COST OF SALES 23,243,013 28,295,202 49,400,922 59,085,704 ------------ ------------ ------------ ------------ Gross earnings 8,298,675 9,908,162 17,499,024 21,020,739 SELLING AND ADMINISTRATIVE EXPENSES 5,980,065 6,372,562 12,293,645 12,911,185 ------------ ------------ ------------ ------------ Earnings from operations 2,318,610 3,535,600 5,205,379 8,109,554 INTEREST INCOME 266,719 267,061 550,385 529,269 INTEREST EXPENSE (82,838) (154,887) (166,796) (311,833) OTHER INCOME AND EXPENSE, net (70) 60,958 504,357 108,295 ------------ ------------ ------------ ------------ Earnings before provision for income taxes 2,502,421 3,708,732 6,093,325 8,435,285 PROVISION FOR INCOME TAXES 875,000 1,350,000 2,125,000 3,050,000 ------------ ------------ ------------ ------------ Net earnings $ 1,627,421 $ 2,358,732 $ 3,968,325 $ 5,385,285 ============ ============ ============ ============ WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING (Note 3) Basic 3,840,493 4,089,554 3,889,780 4,111,313 Diluted 3,866,414 4,142,965 3,916,611 4,164,371 EARNINGS PER SHARE (Note 3): Basic $ .42 $ .58 $ 1.02 $ 1.31 ============ ============ ============ ============ Diluted $ .42 $ .57 $ 1.01 $ 1.29 ============ ============ ============ ============ CASH DIVIDENDS PER SHARE $ .12 $ .11 $ .23 $ .21 ============ ============ ============ ============ </TABLE> -2-
4 WEYCO GROUP, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 2001 AND 2000 <TABLE> <CAPTION> 2001 2000 ---------------- ---------------- <S> <C> <C> CASH FLOWS FROM OPERATING ACTIVITIES: Net cash provided by operating activities $ 2,352,684 $ 3,431,347 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of marketable securities -- (1,460,829) Proceeds from maturities of marketable securities 2,648,615 2,257,615 Proceeds from sales of other investments 603,807 -- Purchase of plant and equipment (584,296) (467,159) Proceeds from sales of plant and equipment -- 28,758 ----------- ----------- Net cash provided by investing activities 2,668,126 358,385 ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Cash dividends paid (890,142) (863,410) Shares purchased and retired (4,279,897) (2,338,196) Proceeds from stock options exercised 61,125 90,291 Short-term borrowings 1,442,819 (685,000) ----------- ----------- Net cash used for financing activities (3,666,095) (3,796,315) ----------- ----------- Net increase (decrease) in cash and cash equivalents 1,354,715 (6,583) CASH AND CASH EQUIVALENTS at beginning of period 3,519,190 3,843,915 ----------- ----------- CASH AND CASH EQUIVALENTS at end of period $ 4,873,905 $ 3,837,332 =========== =========== SUPPLEMENTAL CASH FLOW INFORMATION: Income taxes paid $ 1,721,415 $ 2,681,925 =========== =========== Interest paid $ 206,700 $ 314,670 =========== =========== </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 or six months ended June 30, 2001, are not necessarily indicative of results for the full year. (2) 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 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. The Company has entered into forward exchange contracts for the purpose of hedging firmly committed inventory purchases with outside vendors. These forward contracts are effective hedges under SFAS 133. Accordingly, gains and losses are recorded in inventory when the inventory is purchased and recognized through earnings when inventory is sold. In June 2001, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards 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 will 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 sheet. (3) The following table sets forth the computation of net earnings per share and diluted net earnings per share: <TABLE> <CAPTION> Three Months Ended June 30 Six Months Ended June 30 -------------------------- ------------------------ 2001 2000 2001 2000 ---------- ---------- ---------- ---------- <S> <C> <C> <C> <C> Numerator: Net Earnings $1,627,421 $2,358,732 $3,968,325 $5,385,285 ========== ========== ========== ========== Denominator: Basic weighted average shares 3,840,493 4,089,554 3,889,780 4,111,313 Effect of dilutive securities: Employee stock options 25,921 53,411 26,831 53,058 ---------- ---------- ---------- ---------- Diluted weighted average shares 3,866,414 4,142,965 3,916,611 4,164,371 ========== ========== ========== ========== Basic earnings per share $ .42 $ .58 $ 1.02 $ 1.31 ========== ========== ========== ========== Diluted earnings per share $ .42 $ .57 $ 1.01 $ 1.29 ========== ========== ========== ========== </TABLE> -4-
6 (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, 2001 and 2000 is: <TABLE> <CAPTION> Wholesale Distribution Retail Total -------------- -------------- -------------- THREE MONTHS ENDED JUNE 30 -------------------------- 2001 ---- <S> <C> <C> <C> Net Sales $30,215,000 $1,327,000 $31,542,000 Earnings from operations 2,293,000 26,000 2,319,000 2000 ---- Net Sales $36,564,000 $1,639,000 $38,203,000 Earnings from operations 3,438,000 98,000 3,536,000 SIX MONTHS ENDED JUNE 30 ------------------------ 2001 ---- Net Sales $64,314,000 $2,586,000 $66,900,000 Earnings from operations 5,206,000 (1,000) 5,205,000 2000 ---- Net Sales $76,864,000 $3,242,000 $80,106,000 Earnings from operations 7,984,000 126,000 8,110,000 </TABLE> 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 $24,580,000 at June 30, 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 $15 million back commercial paper issuances and provide funds on a short-term basis when necessary. At June 30, 2001, $6,650,000 of commercial paper was outstanding, and there were no draws on the lines of credit. During the second quarter of 2001, the Company purchased 151,500 shares of its common stock at a total cost of $3,531,000 under its stock repurchase program, and 1,500 shares at a total cost of $36,000 in private transactions. -5-
7 Cash flows from operations are $1.1 million lower to date in 2001 than in the same period of 2000. The decrease in cash flows from operations is primarily due to the lower net income and the increase in inventories. This, however, is partially offset by the increase in accounts payable. Cash flows from investing activities to date in 2001 includes $604,000 of proceeds from the sale of other investments. During the first quarter of 2001, other investments were sold for $604,000 at a gain of $504,000, which is included in other income and expense on the Consolidated Condensed Statements of Earnings. The Company's capital expenditures were $584,000 and $467,000 for the first six months of 2001 and 2000, respectively. 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 decreased 17%, from $38,203,000 for the second quarter of 2000 to $31,542,000 for the second quarter of 2001. This decrease was the result of a 17% decrease in wholesale net sales, down from $36,564,000 for the second quarter of 2000 to $30,215,000 for the second quarter of 2001. For the six months ended June 30, net sales decreased 16%, from $80,106,000 in 2000 to $66,900,000 in 2001. This decrease was also driven primarily by the decrease in wholesale net sales between periods, from $76,864,000 for the six months ended June 30, 2000 to $64,314,000 for the same period in 2001. The difficult retail environment in the first half of 2001 has had a detrimental effect on the Company's overall performance so far in 2001. Backlogs, however, remain strong and management believes that the Company is well positioned for the future. Gross earnings as a percent of net sales for the second quarter increased from 25.9% in 2000 to 26.3% in 2001. For the six months ended June 30, gross earnings as a percent of net sales were comparable at 26.2%. Selling and administrative expenses as a percent of net sales increased from 16.7% for the second quarter of 2000 to 19.0% for the same period in 2001, and from 16.1% to 18.4% for the six months ended June 30, 2000 and 2001, respectively. In general, the increase in the selling and administrative percentage reflects the fixed costs included in selling and administrative expenses, which are not affected by changes in sales volumes. -6-
8 The decrease in interest expense in the second quarter and for the six months ended June 30, 2001 compared with the same period in 2000 is due to lower average short-term borrowings and lower interest rates in 2001. For the six months ended June 30, 2001, other income and expense includes a $504,000 gain on the sale of other investments recorded in the first quarter. The effective tax rate decreased from 36% in the second quarter of 2000 to 35% in the second quarter of 2001, and from 36% for the six months ended June 30, 2000 to 35% for the same period in 2001. Item 3. Quantitative and Qualitative Disclosures About Market Risk There have been no material changes since the March 23, 2001 filing of the Company's Annual Report on Form 10-K. 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 14, 2001 /s/ John Wittkowske - ----------------------------- -------------------------------- Date John Wittkowske Vice President-Finance Chief Financial Officer -7-