10-Q 1 e10-q.txt FORM 10-Q 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, 2000 ------------- 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, 2000 the following shares were outstanding. Common Stock, $1.00 par value 3,139,609 Shares Class B Common Stock, $1.00 par value 919,945 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
June 30 December 31 2000 1999 ---- ---- CURRENT ASSETS: Cash and cash equivalents $3,837,332 $ 3,843,915 Marketable securities 5,243,541 4,860,576 Accounts receivable, net 26,243,910 21,903,407 Inventories - Finished shoes 15,609,260 19,026,531 Shoes in process 290,751 380,957 Raw materials and supplies 120,911 132,243 ----------- ----------- Total inventories 16,020,922 19,539,731 ----------- ----------- Deferred income tax benefits 2,844,000 2,880,000 ----------- ----------- Prepaid expenses and other current assets 179,759 65,537 ----------- ----------- Total current assets 54,369,464 53,093,166 ----------- ----------- MARKETABLE SECURITIES 16,493,156 17,672,907 OTHER ASSETS 8,900,612 8,559,332 PLANT AND EQUIPMENT 21,904,856 21,468,279 Less - Accumulated depreciation 5,578,320 4,874,503 ----------- ----------- 16,326,536 16,593,776 ----------- ----------- $96,089,768 $95,919,181 =========== =========== LIABILITIES & SHAREHOLDERS' INVESTMENT CURRENT LIABILITIES: Short-term borrowings $ 8,115,000 $8,800,000 Accounts payable 8,818,600 9,403,897 Dividend payable 449,411 421,277 Accrued liabilities 5,510,114 6,422,885 Accrued income taxes 1,021,172 1,204,621 ----------- ----------- Total current liabilities 23,914,297 26,252,680 ----------- ----------- DEFERRED INCOME TAX LIABILITIES 2,151,000 1,916,000 SHAREHOLDERS' INVESTMENT: Common stock 4,070,554 4,160,986 Other shareholders' investment 65,953,917 63,589,515 ----------- ----------- $96,089,768 $95,919,181 =========== ===========
-1- 3 WEYCO GROUP, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS FOR THE PERIODS ENDED JUNE 30, 2000 AND 1999
Three Months ended June 30 Six Months ended June 30 2000 1999 2000 1999 ---- ---- ---- ---- NET SALES $38,315,160 $31,804,314 $80,311,944 $66,844,960 COST OF SALES 28,295,202 23,335,105 59,085,704 48,665,503 ----------- ----------- ----------- ----------- Gross earnings 10,019,958 8,469,209 21,226,240 18,179,457 SELLING AND ADMINISTRATIVE EXPENSES 6,484,358 5,555,976 13,116,686 11,367,080 ----------- ----------- ----------- ----------- Earnings from operations 3,535,600 2,913,233 8,109,554 6,812,377 INTEREST INCOME 267,061 374,808 529,269 750,279 INTEREST EXPENSE (154,887) (139,274) (311,833) (275,367) OTHER INCOME AND EXPENSE, net 60,958 11,389 108,295 27,086 ----------- ----------- ----------- ----------- Earnings before provision for income taxes 3,708,732 3,160,156 8,435,285 7,314,375 PROVISION FOR INCOME TAXES 1,350,000 1,050,000 3,050,000 2,500,000 ----------- ----------- ----------- ----------- Net earnings $ 2,358,732 $ 2,110,156 $ 5,385,285 $ 4,814,375 =========== =========== =========== =========== WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING (Note 2) Basic 4,089,554 4,311,175 4,111,313 4,349,768 Diluted 4,142,965 4,372,696 4,164,371 4,413,331 EARNINGS PER SHARE (Note 2): Basic $.58 $.49 $1.31 $1.11 ==== ==== ===== ===== Diluted $.57 $.48 $1.29 $1.09 ==== ==== ===== ===== CASH DIVIDENDS PER SHARE $.11 $.10 $.21 $.19 ==== ==== ==== ====
-2- 4 WEYCO GROUP, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
2000 1999 ------------ ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net cash provided by operating activities $3,431,347 $ 1,150,243 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of marketable securities (1,460,829) (750,465) Proceeds from maturities of marketable securities 2,257,615 3,973,874 Purchase of plant and equipment (467,159) (3,352,314) Proceeds from sales of plant and equipment 28,758 -- ----------- ----------- Net cash provided by (used for) investing activities 358,385 (128,905) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Cash dividends paid (863,410) (796,639) Shares purchased and retired (2,338,196) (3,386,747) Proceeds from stock options exercised 90,291 -- Short-term borrowings (685,000) 1,678,205 ----------- ----------- Net cash used for financing activities (3,796,315) (2,505,181) ----------- ----------- Net decrease in cash and cash equivalents (6,583) (1,483,843) CASH AND CASH EQUIVALENTS at beginning of period 3,843,915 4,240,991 ----------- ----------- CASH AND CASH EQUIVALENTS at end of period $ 3,837,332 $ 2,757,148 =========== =========== SUPPLEMENTAL CASH FLOW INFORMATION: Income taxes paid $ 2,681,925 $ 2,772,492 =========== =========== Interest paid $ 314,670 $ 289,457 =========== ===========
-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, 2000, 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 standard requires that entities recognize derivatives as either assets or liabilities in the balance sheet and measure those instruments at fair value. 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 -------------------------- ------------------------ 2000 1999 2000 1999 -------------- ------------ ------------ ------------ Numerator: Net Earnings . . . . . . . . . . . . . . . . . $2,358,732 $2,110,156 $5,385,285 $4,814,375 ========== ========== ========== ========== Denominator: Basic weighted average shares. . . . . . . . . 4,089,554 4,311,175 4,111,313 4,349,768 Effect of dilutive securities: Employee stock options . . . . . . . . . . . 53,411 61,521 53,058 63,563 ---------- ----------- ---------- ---------- Diluted weighted average shares . . . . . . . 4,142,965 4,372,696 4,164,371 4,413,331 ========== =========== ========== ========== Basic earnings per share . . . . . . . . . . . . $.58 $.49 $1.31 $1.11 ==== ==== ===== ===== Diluted earnings per share . . . . . . . . . . . $.57 $.48 $1.29 $1.09 ==== ==== ===== =====
(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, 2000 and 1999 is: -4- 6
Wholesale Distribution Retail Total -------------- --------------- ------------------- THREE MONTHS ENDED JUNE 30 2000 Net Sales . . . . . . . . . . . . . . . . . $36,676,000 $1,639,000 $38,315,000 Earnings from operations . . . . . . . . . . . . 3,438,000 98,000 3,536,000 1999 Net Sales . . . . . . . . . . . . . . . . . $30,097,000 $1,707,000 $31,804,000 Earnings from operations . . . . . . . . . . . . 2,776,000 137,000 2,913,000 SIX MONTHS ENDED JUNE 30 2000 Net Sales . . . . . . . . . . . . . . . . . $77,070,000 $3,242,000 $80,312,000 Earnings from operations . . . . . . . . . . . . 7,984,000 126,000 8,110,000 1999 Net Sales . . . . . . . . . . . . . . . . . $63,629,000 $3,216,000 $66,845,000 Earnings from operations . . . . . . . . . . . . 6,649,000 163,000 6,812,000
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 $25,574,000 at June 30, 2000, compared with $26,377,000 at December 31, 1999. 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 2000. Cash flows from operations are $2.3 million higher to date in 2000 than in the same period of 1999. The increase in cash flows from operations is primarily due to the higher net income and the $3.5 million decrease in inventories. This, however, is partially offset by the $4.3 million increase in accounts receivable and the decreases in accounts payable and accrued liabilities. -5- 7 The Company's capital expenditures were $467,000 and $3,352,000 for the first six months of 2000 and 1999, respectively. In 1999, 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 and distribution functions moved into the new building in 1999. 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, 2000, there was $8,115,000 of commercial paper and advances on the revolving credit agreement outstanding. In the first six months of 2000, the Company purchased 66,500 shares at a total cost of $1,610,000 under its stock repurchase program, and an additional 29,432 shares at a total cost of $728,000 in private transactions. As of June 30, 2000, the Company can purchase up to 409,100 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 increased 20%, from $31,804,000 for the second quarter of 1999 to $38,315,000 for the second quarter of 2000. This 20% increase was the result of a 22% increase in wholesale net sales, up from $30,097,000 for the second quarter of 1999 to $36,676,000 for the second quarter of 2000, offset slightly by a 4% decrease in retail net sales, from $1,707,000 in 1999 to $1,639,000 in 2000. The increase in wholesale net sales was driven by an increase in pairs shipped. The decrease in retail sales was due to the closing of one retail store in 2000. Same store sales were flat between periods. For the six months ended June 30, net sales increased 20%, from $66,845,000 in 1999 to $80,312,000 in 2000. This increase was also driven primarily by the increase in wholesale net sales between periods, from $63,629,000 for the six months ended June 30, 1999 to $77,070,000 for the same period in 2000. Retail sales were flat between periods, and same store retail sales were up by 3%. -6- 8 All of the Company's brands posted strong sales increases during the second quarter. The Stacy Adams division was up 20% in the second quarter, with a six- month gain of 24%. Within this division, there were significant gains in both the dress footwear and "SAO by Stacy Adams" casual line. The Nunn Bush brand was up 14% for the second quarter and 15% for the six months ended June 30, 2000, with the strongest growth coming from the "Nunn Bush NXXT" contemporary line. The Brass Boot brand continued its exceptional growth with net sales up 84% in the second quarter and 81% for the six month period. Gross earnings as a percent of net sales for the second quarter decreased from 26.6% in 1999 to 26.2% in 2000. For the six months ended June 30, gross earnings as a percent of net sales decreased from 27.2% in 1999 to 26.4% in 2000. These decreases are the result of changes in the mix of products sold between periods. Selling and administrative expenses as a percent of net sales decreased from 17.5% for the second quarter of 1999 to 16.9% for the same period in 2000, and from 17.0% to 16.3% for the six months ended June 30, 1999 and 2000, respectively. In general, the decrease 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. The effective tax rate increased from 33% in the second quarter of 1999 to 36% in the second quarter of 2000, and from 34% for the six months ended June 30, 1999 to 36% for the same period in 2000. The increases result from the decrease in tax exempt municipal bond income in 2000. PART II. OTHER INFORMATION Item 1. Legal Proceedings None Item 6. Exhibits and Reports on Form 8-K None -7- 9 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, 2000 /s/ John Wittkowske ----------------------------- -------------------------- Date John Wittkowske Vice President-Finance Chief Financial Officer -8-