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 September 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 November 1, 2001 the following shares were outstanding. Common Stock, $1.00 par value 2,844,289 Shares Class B Common Stock, $1.00 par value 913,329 Shares
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 September 30 December 31 2001 2000 ------------ ----------- <S> <C> <C> CURRENT ASSETS: Cash and cash equivalents $ 6,603,389 $ 3,519,190 Marketable securities 4,148,331 7,690,551 Accounts receivable, net 28,505,629 23,864,339 Inventories - Finished shoes 14,616,108 13,406,933 Shoes in process 215,193 165,918 Raw materials and supplies 283,782 140,365 ----------- ----------- Total inventories 15,115,083 13,713,216 Deferred income tax benefits 2,951,000 2,697,000 Prepaid expenses and other current assets 247,592 185,342 ----------- ----------- Total current assets 57,571,024 51,669,638 MARKETABLE SECURITIES 11,883,546 14,664,474 OTHER ASSETS 9,863,645 9,336,800 PLANT AND EQUIPMENT 22,518,765 22,259,574 Less - Accumulated depreciation 6,855,700 5,987,377 ----------- ----------- 15,663,065 16,272,197 ----------- ----------- $94,981,280 $91,943,109 =========== =========== LIABILITIES & SHAREHOLDERS' INVESTMENT CURRENT LIABILITIES: Short-term borrowings $ 7,780,810 $ 5,206,948 Accounts payable 4,850,940 5,955,873 Dividend payable 454,814 445,836 Accrued liabilities 5,634,175 5,643,391 Accrued income taxes 1,618,950 505,792 ----------- ----------- Total current liabilities 20,339,689 17,757,840 DEFERRED INCOME TAX LIABILITIES 2,960,000 2,840,000 SHAREHOLDERS' INVESTMENT: Common stock 3,779,118 3,972,850 Other shareholders' investment 67,902,473 67,372,419 ----------- ----------- $94,981,280 $91,943,109 =========== =========== </TABLE> -1-
WEYCO GROUP, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS FOR THE PERIODS ENDED SEPTEMBER 30, 2001 AND 2000 <TABLE> <CAPTION> Three Months ended September 30 Nine Months ended September 30 ------------------------------------ ------------------------------------ 2001 2000 2001 2000 ------------- ------------ ------------- ------------ <S> <C> <C> <C> <C> NET SALES $ 33,785,816 $36,856,556 $ 100,685,762 $116,962,999 COST OF SALES 24,552,953 27,312,664 73,953,875 86,398,368 ------------ ------------ ------------- ------------ Gross earnings 9,232,863 9,543,892 26,731,887 30,564,631 SELLING AND ADMINISTRATIVE EXPENSES 5,866,180 6,217,726 18,159,825 19,128,911 ------------ ------------ ------------- ------------ Earnings from operations 3,366,683 3,326,166 8,572,062 11,435,720 INTEREST INCOME 247,290 275,551 797,675 809,322 INTEREST EXPENSE (76,984) (175,280) (243,780) (489,485) OTHER INCOME AND EXPENSE, net 113,386 162,251 617,743 268,416 ------------ ------------ ------------- ------------ Earnings before provision for income taxes 3,650,375 3,588,688 9,743,700 12,023,973 PROVISION FOR INCOME TAXES 1,275,000 1,250,000 3,400,000 4,300,000 ------------ ------------ ------------- ------------ Net earnings $ 2,375,375 $ 2,338,688 $ 6,343,700 $ 7,723,973 ============ ============ ============= ============ WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING (Note 3) Basic 3,788,618 4,062,579 3,858,781 4,095,895 Diluted 3,813,970 4,113,631 3,884,318 4,143,866 EARNINGS PER SHARE (Note 3): Basic $.63 $.58 $1.64 $1.89 ==== ==== ===== ===== Diluted $.62 $.57 $1.63 $1.86 ==== ==== ===== ===== CASH DIVIDENDS PER SHARE $.12 $.11 $.35 $.32 ==== ==== ==== ==== </TABLE> -2-
WEYCO GROUP, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000 <TABLE> <CAPTION> 2001 2000 ----------- ----------- <S> <C> <C> CASH FLOWS FROM OPERATING ACTIVITIES: Net cash provided by operating activities $ 90,017 $ 5,099,742 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of marketable securities -- (4,351,283) Proceeds from maturities of marketable securities 6,323,148 4,302,438 Proceeds from sales of other investments 603,807 -- Purchase of plant and equipment (664,851) (903,617) Proceeds from sales of plant and equipment 165,594 29,754 ----------- ----------- Net cash provided by (used for) investing activities 6,427,698 (922,708) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Cash dividends paid (1,344,956) (1,310,060) Shares purchased and retired (4,805,021) (3,874,897) Proceeds from stock options exercised 142,599 423,916 Short-term borrowings(repayments), net 2,573,862 683,272 ----------- ----------- Net cash used for financing activities (3,433,516) (4,077,769) ----------- ----------- Net increase in cash and cash equivalents 3,084,199 99,265 CASH AND CASH EQUIVALENTS at beginning of period 3,519,190 3,843,915 ----------- ----------- CASH AND CASH EQUIVALENTS at end of period $ 6,603,389 $ 3,943,180 =========== =========== SUPPLEMENTAL CASH FLOW INFORMATION: Income taxes paid $ 2,055,206 $ 3,428,460 =========== =========== Interest paid $ 266,208 $ 444,485 =========== =========== </TABLE> -3-
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 nine months ended September 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 is not expected to 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 September 30 Nine Months Ended September 30 ------------------------------- ------------------------------ 2001 2000 2001 2000 ---------- ---------- ---------- ---------- <S> <C> <C> <C> <C> Numerator: Net Earnings ................................. $2,375,375 $2,338,688 $6,343,700 $7,723,973 ========== ========== ========== ========== Denominator: Basic weighted average shares ................ 3,788,618 4,062,579 3,858,781 4,095,895 Effect of dilutive securities: Employee stock options ..................... 25,352 51,052 25,537 47,971 ---------- ---------- ---------- ---------- Diluted weighted average shares .............. 3,813,970 4,113,631 3,884,318 4,143,866 ========== ========== ========== ========== Basic earnings per share ....................... $ .63 $ .58 $ 1.64 $ 1.89 ========== ========== ========== ========== Diluted earnings per share ..................... $ .62 $ .57 $ 1.63 $ 1.86 ========== ========== ========== ========== </TABLE> -4-
(4) The Company continues to operate in two business segments: wholesale distribution and retail sales of men's footwear. Summarized segment data for September 30, 2001 and 2000 is: <TABLE> <CAPTION> Wholesale Distribution Retail Total ------------ ------------ ------------ <S> <C> <C> <C> THREE MONTHS ENDED SEPTEMBER 30 2001 Net Sales ................................. $32,701,000 $1,085,000 $33,786,000 Earnings from operations .................. 3,463,000 (96,000) 3,367,000 2000 Net Sales ................................. $35,551,000 $1,306,000 $36,857,000 Earnings from operations .................. 3,300,000 26,000 3,326,000 NINE MONTHS ENDED SEPTEMBER 30 2001 Net Sales ................................. $97,015,000 $3,671,000 $100,686,000 Earnings from operations .................. 8,669,000 (97,000) 8,572,000 2000 Net Sales ................................. $112,415,000 $4,548,000 $116,963,000 Earnings from operations .................. 11,284,000 152,000 11,436,000 </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 $22,635,000 at September 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 September 30, 2001, $7,781,000 of commercial paper was outstanding, and there were no draws on the lines of credit. Cash flows from operations are $5 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 larger increase in inventories in the first nine months of 2001 as compared to the same period in 2000. 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. -5-
The Company's capital expenditures were $665,000 and $904,000 for the first nine months of 2001 and 2000, respectively. In the first nine months of 2001, the Company purchased 172,500 shares of its common stock at a total cost of $4,033,000 under its stock repurchase program, and 31,700 shares at a total cost of $772,000 in private transactions. In the same period of 2000, the Company purchased 101,500 shares at a total cost of $2,498,000 under its stock repurchase program and 54,000 shares at a total cost of $1,376,000 in private transactions. As of September 30, 2001, the Company can purchase up to 615,600 additional shares under its current stock repurchase program. 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 8%, from $36,857,000 for the third quarter of 2000 to $33,786,000 for the third quarter of 2001. This decrease was primarily the result of an 8% decrease in wholesale net sales, down from $35,551,000 for the third quarter of 2000 to $32,701,000 for the third quarter of 2001. For the nine months ended September 30, net sales decreased 14%, from $116,963,000 in 2000 to $100,686,000 in 2001. This decrease was also driven primarily by the decrease in wholesale net sales between periods, from $112,415,000 for the nine months ended September 30, 2000 to $97,015,000 for the same period in 2001. The difficult retail environment in 2001 has had a detrimental effect on the Company's sales performance so far in 2001, principally related to volume. 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 third quarter increased from 25.9% in 2000 to 27.3% in 2001. For the nine months ended September 30, gross earnings as a percent of net sales increased slightly from 26.1% to 26.5%. Selling and administrative expenses as a percent of net sales increased from 16.9% for the third quarter of 2000 to 17.4% for the same period in 2001, and from 16.4% to 18.0% for the nine months ended September 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. Some of the 2001 actual decreases in selling and administrative expense dollars, however, reflect savings from efficiencies obtained in our distribution center this year. -6-
The decrease in interest expense in the third quarter and for the nine months ended September 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 nine months ended September 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 was consistent between the third quarter of 2000 and 2001 at 35%. For the nine months ended September 30, 2001, the effective tax rate was 35% as compared with 36% for the same period in 2000. 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. November 9, 2001 /s/ John Wittkowske - --------------------------- ------------------------ Date John Wittkowske Vice President-Finance Chief Financial Officer -7-