<PAGE> 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 September 30, 1999
Or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-9068
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WEYCO GROUP, INC.
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(Exact name of registrant as specified in its charter)
WISCONSIN 39-0702200
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(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
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(Address of principal executive offices)
(Zip Code)
(414) 908-1600
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(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
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As of October 29, 1999 the following shares were outstanding.
Common Stock, $1.00 par value 3,273,196 Shares
Class B Common Stock, $1.00 par value 945,579 Shares
<PAGE> 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>
September 30 December 31
1999 1998
-------------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,652,039 $ 4,240,991
Marketable securities 4,624,366 8,853,095
Accounts receivable, net 25,742,223 19,597,979
Inventories -
Finished shoes 17,279,558 11,303,009
Shoes in process 392,696 388,160
Raw materials and supplies 125,319 95,161
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Total inventories 17,797,573 11,786,330
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Deferred income tax benefits 3,116,000 3,573,000
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Total current assets 52,932,201 48,051,395
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MARKETABLE SECURITIES 18,772,458 23,160,287
OTHER ASSETS 7,868,534 7,769,106
PLANT AND EQUIPMENT 23,919,309 20,447,541
Less - Accumulated depreciation (7,240,656) (6,646,331)
----------- -----------
16,678,653 13,801,210
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$96,251,846 $92,781,998
=========== ===========
LIABILITIES & SHAREHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Short-term borrowings $ 9,254,868 $ 9,521,545
Accounts payable 10,487,596 7,389,680
Dividend payable 425,902 403,103
Accrued liabilities 7,270,344 7,636,104
Accrued income taxes 1,160,773 1,436,689
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Total current liabilities 28,599,483 26,387,121
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DEFERRED INCOME TAX LIABILITIES 1,245,000 1,247,000
SHAREHOLDERS' INVESTMENT:
Common stock 4,227,525 4,423,925
Other shareholders' investment 62,179,838 60,723,952
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$96,251,846 $92,781,998
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</TABLE>
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WEYCO GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
FOR THE PERIODS ENDED SEPTEMBER 30, 1999 AND 1998
<TABLE>
<CAPTION>
Three Months ended September 30 Nine Months ended September 30
------------------------------- ------------------------------
1999 1998 1999 1998
------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
NET SALES $35,009,829 $32,745,457 $101,854,789 $98,437,184
COST OF SALES 26,078,758 24,141,995 74,744,261 72,208,432
------------ ------------ ------------- ------------
Gross earnings 8,931,071 8,603,462 27,110,578 26,228,752
SELLING AND ADMINISTRATIVE EXPENSES 5,639,236 5,282,103 17,006,316 16,630,091
------------ ------------ ------------- ------------
Earnings from operations 3,291,835 3,321,359 10,104,212 9,598,661
INTEREST INCOME 331,134 458,314 1,083,208 1,384,461
INTEREST EXPENSE (160,549) (138,258) (435,912) (216,140)
OTHER INCOME AND EXPENSE, net 250,313 (33,335) 275,600 (82,771)
------------ ------------ ------------- ------------
Earnings before provision for
income taxes 3,712,733 3,608,080 11,027,108 10,684,211
PROVISION FOR INCOME TAXES 1,250,000 1,300,000 3,750,000 3,750,000
------------ ------------ ------------- ------------
Net earnings $ 2,462,733 $ 2,308,080 $ 7,277,108 $ 6,934,211
============ ============ ============= ============
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING
(Note 3)
Basic 4,262,400 4,634,925 4,321,345 4,727,475
Diluted 4,321,877 4,711,166 4,383,019 4,793,027
EARNINGS PER SHARE (Note 3):
Basic $ .57 $ .50 $ 1.68 $1.47
============ ============ ============= ============
Diluted $ .57 $ .49 $ 1.66 $ 1.45
============ ============ ============= ============
CASH DIVIDENDS PER SHARE $ .10 $ .09 $ .29 $ .25
============ ============ ============= ============
</TABLE>
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WEYCO GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash provided by (used for) operating
activities $(1,371,472) $ 3,773,406
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities (1,760,465) (9,742,756)
Proceeds from maturities of marketable securities 10,377,023 11,322,055
Purchase of plant and equipment (3,828,780) (9,188,938)
Proceeds from sales of plant and equipment 256,238 --
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Net cash provided by (used for) investing
activities 5,044,016 (7,539,639)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Cash dividends paid (1,226,792) (1,232,506)
Shares purchased and retired (4,802,652) (5,051,812)
Proceeds from stock options exercised 34,625 422,422
Short-term borrowings (repayments), net (266,677) 9,996,900
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Net cash provided by (used for)
financing activities (6,261,496) 4,135,004
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Net increase (decrease) in cash and
cash equivalents (2,588,952) 368,771
CASH AND CASH EQUIVALENTS at beginning
of period 4,240,991 3,323,035
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CASH AND CASH EQUIVALENTS at end
of period $ 1,652,039 $ 3,691,806
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SUPPLEMENTAL CASH FLOW INFORMATION:
Income taxes paid $ 3,364,363 $ 3,142,163
=========== ============
Interest paid $ 444,935 $ 180,902
=========== ============
</TABLE>
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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, 1999, 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 new standard
requires that an entity recognize derivatives as either assets or
liabilities in the balance sheet and measure those instruments at fair
value. In June 1999, the FASB issued SFAS No. 137, which deferred the
effective date of SFAS No. 133 for one year to January 1, 2001. 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:
<TABLE>
<CAPTION>
Three Months Ended September 30 Nine Months Ended September 30
------------------------------- ------------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Numerator:
Net Earnings ................................... $2,462,733 $2,308,080 $7,277,108 $6,934,211
========== ========== ========== ==========
Denominator:
Basic weighted average shares .................. 4,262,400 4,634,925 4,321,345 4,727,475
Effect of dilutive securities:
Employee stock options ....................... 59,477 76,241 61,674 65,552
---------- ---------- ---------- ----------
Diluted weighted average shares ................ 4,321,877 4,711,166 4,383,019 4,793,027
========== ========== ========== ==========
Basic earnings per share ......................... $ .57 $ .50 $ 1.68 $ 1.47
========== ========== ========== ==========
Diluted earnings per share ....................... $ .57 $ .49 $ 1.66 $ 1.45
========== ========== ========== ==========
</TABLE>
(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, 1999 and 1998 is:
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<PAGE> 6
<TABLE>
<CAPTION>
Wholesale
Distribution Retail Total
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THREE MONTHS ENDED SEPTEMBER 30
<S> <C> <C> <C>
1999
Net Sales . . . . . . . . $33,472,000 $1,538,000 $35,010,000
Earnings from operations . . 3,268,000 24,000 3,292,000
1998
Net Sales . . . . . . . . $31,322,000 $1,423,000 $32,745,000
Earnings from operations . . 3,386,000 (65,000) 3,321,000
NINE MONTHS ENDED SEPTEMBER 30
1999
Net Sales . . . . . . . . $97,101,000 $4,754,000 $101,855,000
Earnings from operations. . . 9,917,000 187,000 10,104,000
1998
Net Sales . . . . . . . . . $93,333,000 $5,104,000 $98,437,000
Earnings from operations. . . 9,639,000 (40,000) 9,599,000
</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 $25,049,000 at September 30,
1999, compared with $36,254,000 at December 31, 1998. 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 third
quarter of 1999.
The decrease in cash flows from operating activities to date in 1999 is
primarily related to a $6.0 million buildup in inventory since December 31,
1998. The buildup in inventory is for the upcoming selling season and is
higher than normal due to an increased backlog of orders.
The Company's capital expenditures were $3,829,000 and $9,119,000 for the
first nine months of 1999 and 1998, respectively. In both periods,
expenditures were primarily related to the construction of the Company's
346,000 square foot corporate office and distribution center. The Company's
corporate offices moved into the new building in February 1999.
Distribution operations began in the new building in the second quarter of
1999.
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<PAGE> 7
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 September 30, 1999,
there was $9,255,000 of commercial paper outstanding.
In April 1998, the Company's Board of Directors authorized a stock
repurchase program for up to 500,000 shares or approximately 10% of its
common stock in open market transactions at prevailing prices. During 1998,
the Company purchased 320,000 shares at a total cost of $8,484,000 under
the program, and an additional 76,500 shares at a total cost of $1,932,000
in private transactions. In April 1999, the Board of Directors extended the
stock repurchase program to cover the repurchase of 500,000 additional
shares of Common Stock. In the first nine months of 1999, the Company
purchased 155,000 shares at a total cost of $3,737,000 under the program,
and 44,000 shares at a total cost of $1,066,000 in private transactions.
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
Total net sales for the third quarter of 1999 were $35,010,000, compared
with $32,745,000 for the third quarter of 1998. Net sales in the wholesale
division increased $2,150,000 (7%) from $31,322,000 in 1998 to $33,472,000
in 1999. The increase resulted primarily from an 8% increase in wholesale
shoes shipped. Retail net sales increased 8% during the third quarter of
1999 as compared to the third quarter of 1998. Same store net sales were up
12% between the third quarter of 1998 and 1999. There was one store closing
in July 1998, which is the reason for the difference between retail and
same store net sales for the quarter.
For the nine months ended September 30, 1999, net sales increased
$3,418,000, or 3%, as compared with the same period in 1998. Wholesale
sales increased $3,768,000 or 4% from $93,333,000 in 1998 to $97,101,000 in
1999. This increase resulted primarily from a 5% increase in shoes shipped.
Retail net sales decreased $350,000 (7%) from $5,104,000 in 1998 to
$4,754,000 in 1999, as a result of 1998 retail store closings. Same store
net sales were up 6% as compared with the same period in 1998. Retail net
sales now account for less than 5% of total company net sales, as the
Company continues to focus on its wholesale business.
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<PAGE> 8
Gross earnings as a percent of net sales decreased approximately 1% between
the third quarter of 1998 and 1999, from 26.3% to 25.5%, and was consistent
for the nine months ended September 30, 1999 at 27%.
As a percent of net sales, selling and administrative expenses were
consistent between the third quarter of 1998 and 1999 at 16% and the nine
months ended September 30, 1998 and 1999 at 17%.
Other income and expense includes a $188,000 gain on the sale of the former
warehouse facility in Beaver Dam, Wisconsin. The sale closed on September
30, 1999. The buildings in Milwaukee which formerly housed the corporate
office and distribution center were sold on October 5, 1999. The resulting
$612,000 gain will be included in fourth quarter other income and expense.
Year 2000 Computer Compliance
The Company's 1998 Annual Report includes a detailed discussion of the
nature and extent of the Company's project to address the Year 2000 issue
relating to the inability of certain computer software programs to process
2-digit year-date codes after December 31, 1999. This project has been
substantially completed, tested and implemented, and the Company does not
anticipate any major problems related to this issue. The total cost of the
project was $800,000.
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 12, 1999
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Date John Wittkowske
Vice President-Finance
Chief Financial Officer
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<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JUL-1-1999
<PERIOD-END> SEP-30-1999
<EXCHANGE-RATE> 1
<CASH> 1,652
<SECURITIES> 4,624
<RECEIVABLES> 28,374
<ALLOWANCES> 2,632
<INVENTORY> 17,798
<CURRENT-ASSETS> 52,932
<PP&E> 23,919
<DEPRECIATION> 7,241
<TOTAL-ASSETS> 96,252
<CURRENT-LIABILITIES> 28,599
<BONDS> 0
0
0
<COMMON> 4,228
<OTHER-SE> 62,180
<TOTAL-LIABILITY-AND-EQUITY> 96,252
<SALES> 35,010
<TOTAL-REVENUES> 35,010
<CGS> 26,079
<TOTAL-COSTS> 31,718
<OTHER-EXPENSES> (250)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 161
<INCOME-PRETAX> 3,713
<INCOME-TAX> 1,250
<INCOME-CONTINUING> 2,463
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,463
<EPS-BASIC> .57
<EPS-DILUTED> .57
</TABLE>
