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, 2002 --------------------- 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 6, 2002 the following shares were outstanding: Common Stock, $1.00 par value 2,850,317 Shares Class B Common Stock, $1.00 par value 908,251 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 ASSETS <TABLE> <CAPTION> March 31 December 31 2002 2001 ----------- ----------- <S> <C> <C> CURRENT ASSETS: Cash and cash equivalents $15,239,390 $16,850,998 Marketable securities 2,968,490 3,266,846 Accounts receivable, net 26,872,372 20,867,106 Inventories - Finished shoes 6,760,976 17,006,221 Shoes in process 69,910 162,833 Raw materials and supplies 196,279 332,602 ----------- ----------- Total inventories 7,027,165 17,501,656 Deferred income tax benefits 2,899,000 3,068,000 Prepaid expenses and other current assets 242,480 165,531 ----------- ----------- Total current assets 55,248,897 61,720,137 MARKETABLE SECURITIES 12,180,199 10,753,542 OTHER ASSETS 10,329,380 10,143,249 PLANT AND EQUIPMENT 22,275,383 22,597,871 Less - Accumulated depreciation 7,279,184 7,260,488 ----------- ----------- 14,996,199 15,337,383 ----------- ----------- $92,754,675 $97,954,311 =========== =========== LIABILITIES & SHAREHOLDERS' INVESTMENT CURRENT LIABILITIES: Short-term borrowings $ 2,700,000 $ 7,509,904 Accounts payable 3,818,154 5,317,817 Dividend payable 449,532 451,598 Accrued liabilities 5,080,042 6,021,238 Accrued income taxes 1,892,286 1,609,991 ----------- ----------- Total current liabilities 13,940,014 20,910,548 DEFERRED INCOME TAX LIABILITIES 3,476,000 3,452,000 SHAREHOLDERS' INVESTMENT: Common stock 3,746,318 3,748,818 Other shareholders' investment 71,592,343 69,842,945 ----------- ----------- $92,754,675 $97,954,311 =========== =========== </TABLE> -1-
WEYCO GROUP, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS FOR THE THREE MONTHS ENDED MARCH 31, 2002 AND 2001 <TABLE> <CAPTION> 2002 2001 ------------ ------------ <S> <C> <C> NET SALES $ 35,722,349 $ 35,358,258 COST OF SALES 26,245,278 26,157,909 ------------ ------------ Gross earnings 9,477,071 9,200,349 SELLING AND ADMINISTRATIVE EXPENSES 6,187,136 6,313,580 ------------ ------------ Earnings from operations 3,289,935 2,886,769 INTEREST INCOME 266,803 283,666 INTEREST EXPENSE (16,356) (83,958) OTHER INCOME AND EXPENSE (17,350) 504,427 ------------ ------------ Earnings before provision for income taxes 3,523,032 3,590,904 PROVISION FOR INCOME TAXES 1,250,000 1,250,000 ------------ ------------ Net earnings $ 2,273,032 $ 2,340,904 ============ ============ WEIGHTED AVERAGE SHARES OUTSTANDING (Note 3) Basic 3,748,006 3,953,276 Diluted 3,797,013 3,981,082 EARNINGS PER SHARE (Note 3) Basic $ .61 $ .59 ============ ============ Diluted $ .60 $ .59 ============ ============ Cash dividends $ .12 $ .11 ============ ============ </TABLE> -2-
WEYCO GROUP, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2002 AND 2001 <TABLE> <CAPTION> 2002 2001 ------------ ------------ <S> <C> <C> CASH FLOWS FROM OPERATING ACTIVITIES: Net cash used for operating activities $ 4,921,608 $ (425,924) ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of marketable securities (2,304,235) -- Proceeds from maturities of marketable securities 1,175,934 612,999 Proceeds from sales of other investments -- 603,807 Purchase of plant and equipment (68,877) (408,058) ------------ ------------ Net cash (used for) provided by investing activities (1,197,178) 808,748 ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Cash dividends paid (449,258) (434,128) Shares purchased and retired (195,500) (712,507) Proceeds from stock options exercised 118,624 40,750 Short-term borrowings (4,809,904) 1,106,052 ------------ ------------ Net cash (used for) provided by financing activities (5,336,038) 167 ------------ ------------ Net (decrease) increase in cash and cash equivalents (1,611,608) 382,991 CASH AND CASH EQUIVALENTS at beginning of period 16,850,998 3,519,190 ------------ ------------ CASH AND CASH EQUIVALENTS at end of period $ 15,239,390 $ 3,902,181 ============ ============ SUPPLEMENTAL CASH FLOW INFORMATION: Income taxes paid $ 712,782 $ 44,200 ============ ============ Interest paid $ 16,497 $ 104,563 ============ ============ </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 ended March 31, 2002, are not necessarily indicative of results for the full year. (2) In July 2001, the Financial Accounting Standards Board ("FASB") issued Statements of Financial Accounting Standards ("SFAS") 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 did 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 Sheets. In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" (SFAS 144). SFAS 144 establishes a single accounting model for long-lived assets to be disposed of by sale and provides additional implementation guidance for assets to be held and used and assets to be disposed of other than by sale. The statement is effective for fiscal years beginning after December 15, 2001. The adoption of this statement on January 1, 2002 did not have an impact on the Company's financial position or results of operations. (3) The following table sets forth the computation of net earnings per share and diluted net earnings per share: <TABLE> <CAPTION> March 31, 2002 March 31, 2001 -------------- -------------- <S> <C> <C> Numerator: Net Earnings ................................................. $2,273,032 $2,340,904 ========== ========== Denominator: Basic weighted average shares ................................ 3,748,006 3,953,276 Effect of dilutive securities: Employee stock options ..................................... 49,007 27,806 ---------- ---------- Diluted weighted average shares .............................. 3,797,013 3,981,082 ========== ========== Basic earnings per share ........................................ $ .61 $ .59 ========== ========== Diluted earnings per share ...................................... $ .60 $ .59 ========== ========== </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 March 31, 2002 and 2001 is: <TABLE> <CAPTION> Wholesale Distribution Retail Total -------------- --------------- ------------ <S> <C> <C> <C> MARCH 31, 2002 Net Sales ..................... $34,634,000 $ 1,088,000 $35,722,000 Earnings from operations ....... 3,348,000 (58,000) 3,290,000 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 </TABLE> 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 $30,388,000 at March 31, 2002, compared with $30,871,000 at December 31, 2001. 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 March 31, 2002, $2,700,000 of commercial paper was outstanding, and there were no draws on the lines of credit. Cash flows from operations were $5.3 million higher in the first quarter of 2002 than in the same period of 2001. The increase in cash flows from operations was primarily due to the decrease in inventories between December 31, 2001 and March 31, 2002, partially offset by the decrease in accounts payable between periods. Cash flows from investing activities for the first quarter of 2002 include $2.3 million of purchases of marketable securities. Cash flows from investing activities for the first quarter of 2001 included $604,000 of proceeds from the sale of investments. These investments were sold for $604,000 at a gain of $504,000, which was included in other income on the Consolidated Condensed Statements of Earnings. Cash flows from financing activities for the first quarter of 2002 decreased relative to 2001 due to reductions in short-term borrowings this quarter. The Company's capital expenditures were $69,000 and $408,000 for the first quarter of 2002 and 2001, respectively. In 2001, capital expenditures were primarily related to the remodeling of two retail stores. -5-
During the first quarter of 2002, the Company purchased 5,000 shares of its common stock at a total cost of $126,750 under its stock repurchase program, and 2,500 shares at a total cost of $68,750 in private transactions. 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. On May 10, 2002 the U S Bankruptcy Court for the Northern District of Illinois approved the purchase of Florsheim Group Inc's domestic wholesale business and certain retail stores by the Company. The purchase price is approximately $45 million in cash (subject to certain adjustments) and the assumption of certain trade and lease liabilities. The Company anticipates closing the transaction in the second quarter 2002. The Company has secured a $70,000,000 revolving credit facility with a group of four banks and will finance the acquisition with that facility along with available cash. The Company also intends to sign agreements to purchase certain Florsheim foreign subsidiaries prior to the closing date for approximately $1.1 million. 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 increased 1%, from $35,358,000 for the first quarter of 2001 to $35,722,000 for the first quarter of 2002. This increase was the result of a 1.6% increase in wholesale net sales, up from $34,099,000 for the first quarter of 2001 to $34,634,000 in the first quarter of 2002, and a 13.5% decrease in retail net sales, down from $1,259,000 for the first quarter of 2001 to $1,089,000 in the first quarter of 2002. The increase in wholesale sales was driven by an increase in pairs shipped. The decrease in retail net sales is due to the closing of two retail stores in January 2002. Gross earnings as a percent of net sales for the first quarter increased from 26.0% in 2001 to 26.5% in 2002. This increase results mainly from the increase in gross earnings as a percent of net sales for the wholesale division, which increased from 25.0% in 2001 to 25.7% in 2002. The increase in wholesale gross earnings as a percent of net sales between 2001 and 2002 is primarily attributable to differences in the mix of products sold between periods. Selling and administrative expenses as a percent of net sales decreased from 17.9% for the first quarter of 2001 to 17.3% for the same period in 2002. This is primarily the result of the decrease in wholesale selling and administrative expenses as a percent of wholesale net sales from 16.5% in the first quarter of 2001 to 16.1% in the first quarter of 2002. In general, the decrease 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. -6-
The decrease in interest expense in the first quarter of 2002 compared to the first quarter of 2001 is due to lower short-term borrowings and lower interest rates in 2002. In the first quarter of 2001, other income and expense includes a $504,000 gain on the sale of investments. The effective tax rate was 35% in the first quarter of 2001 and 2002. PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders The Annual Meeting of Shareholders was held April 23, 2002 to elect three members to the Board of Directors. Thomas W. Florsheim, Jr. and Robert Feitler were nominated for election to the Board of Directors for terms of three years, and Mr. Leonard J. Goldstein was nominated for election to the Board for a two year term. A total of 3,212,065 votes were cast for the nominees, with 60,354 votes withheld for Mr. Florsheim, 3,900 votes withheld for Mr. Feitler, and 5,700 votes withheld for Mr. Goldstein. 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 15, 2002 /s/ John Wittkowske - ------------------------------ ------------------------------------------ Date John Wittkowske Vice President-Finance Chief Financial Officer