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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, 2002
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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.
(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
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As of August 8, 2002 the following shares were outstanding:
Common Stock, $1.00 par value 2,852,317 Shares
Class B Common Stock, $1.00 par value 908,251 Shares
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
The Consolidated 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
2002 (Unaudited) 2001
---------------- ------------
CURRENT ASSETS:
Cash and cash equivalents $ 13,648,676 $ 16,850,998
Marketable securities 2,755,000 3,266,846
Accounts receivable, net 30,343,909 20,867,106
Inventories -
Finished shoes 49,380,360 17,006,221
Shoes in process 214,213 162,833
Raw materials and supplies 586,212 332,602
------------ ------------
Total inventories 50,180,785 17,501,656
Deferred income tax benefits 4,025,000 3,068,000
Prepaid expenses and other current assets 310,972 165,531
------------ ------------
Total current assets 101,264,342 61,720,137
MARKETABLE SECURITIES 10,611,334 10,753,542
OTHER ASSETS 10,826,178 10,143,249
PLANT AND EQUIPMENT 30,223,595 22,597,871
Less - Accumulated depreciation 7,739,798 7,260,488
------------ ------------
PLANT AND EQUIPMENT, NET 22,483,797 15,337,383
TRADEMARK 10,175,618 --
------------ ------------
$155,361,269 $ 97,954,311
============ ============
LIABILITIES & SHAREHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Short-term borrowings $ -- $ 7,509,904
Accounts payable 14,255,051 5,317,817
Dividend payable 488,614 451,598
Accrued liabilities 6,669,496 6,021,238
Accrued income taxes 1,797,068 1,609,991
------------ ------------
Total current liabilities 23,210,229 20,910,548
DEFERRED INCOME TAX LIABILITIES 3,499,000 3,452,000
LONG-TERM DEBT 51,877,130 --
SHAREHOLDERS' INVESTMENT:
Common stock 3,759,568 3,748,818
Other shareholders' investment 73,015,342 69,842,945
------------ ------------
$155,361,269 $ 97,954,311
============ ============
The accompanying notes to consolidated condensed financial statements are an
integral part of these balance sheets.
-1-
WEYCO GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
FOR THE PERIODS ENDED JUNE 30, 2002 AND 2001 (UNAUDITED)
Three Months ended June 30 Six Months ended June 30
------------------------------ ----------------------------
2002 2001 2002 2001
------------- ------------- ------------ ------------
NET SALES $ 32,532,514 $ 31,541,688 $ 68,254,863 $ 66,899,946
COST OF SALES 22,444,040 23,243,013 48,689,318 49,400,922
------------ ------------ ------------ ------------
Gross earnings 10,088,474 8,298,675 19,565,545 17,499,024
SELLING AND ADMINISTRATIVE EXPENSES 7,506,185 5,980,065 13,693,321 12,293,645
------------ ------------ ------------ ------------
Earnings from operations 2,582,289 2,318,610 5,872,224 5,205,379
INTEREST INCOME 216,403 266,719 483,206 550,385
INTEREST EXPENSE (249,996) (82,838) (266,352) (166,796)
OTHER INCOME AND EXPENSE, net 292 (70) (17,058) 504,357
------------ ------------ ------------ ------------
Earnings before provision for
income taxes 2,548,988 2,502,421 6,072,020 6,093,325
PROVISION FOR INCOME TAXES 900,000 875,000 2,150,000 2,125,000
------------ ------------ ------------ ------------
Net earnings $ 1,648,988 $ 1,627,421 $ 3,922,020 $ 3,968,325
============ ============ ============ ============
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING
(Note 5)
Basic 3,758,318 3,840,493 3,752,818 3,889,780
Diluted 3,840,569 3,866,414 3,820,698 3,916,611
EARNINGS PER SHARE (Note 5):
Basic $ .44 $ .42 $ 1.05 $ 1.02
===== ===== ======= =======
Diluted $ .43 $ .42 $ 1.03 $ 1.01
===== ===== ======= =======
CASH DIVIDENDS PER SHARE $ .13 $ .12 $ .25 $ .23
===== ===== ===== =====
The accompanying notes to consolidated condensed financial statements are an
integral part of these statements.
-2-
WEYCO GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2002 AND 2001 (UNAUDITED)
2002 2001
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash provided by operating activities $ 6,666,688 $ 2,352,684
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Florsheim business (47,467,870) --
Purchase of marketable securities (5,504,235) --
Proceeds from maturities of marketable securities 6,158,289 2,648,615
Proceeds from sales of other investments -- 603,807
Purchase of plant and equipment (6,338,547) (584,296)
------------ ------------
Net cash (used for) provided by investing
activities (53,152,363) 2,668,126
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash dividends paid (937,872) (890,142)
Shares purchased and retired (195,500) (4,279,897)
Proceeds from stock options exercised 394,499 61,125
Proceeds from revolving line of credit 49,177,130 --
Debt issuance costs (345,000) --
Short-term borrowings (repayments) (4,809,904) 1,442,819
------------ ------------
Net cash provided by (used for) financing activities 43,283,353 (3,666,095)
------------ ------------
Net (decrease) increase in cash and
cash equivalents (3,202,322) 1,354,715
CASH AND CASH EQUIVALENTS at beginning
of period 16,850,998 3,519,190
------------ ------------
CASH AND CASH EQUIVALENTS at end
of period $ 13,648,676 $ 4,873,905
============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Income taxes paid $ 2,703,007 $ 1,721,415
============ ============
Interest paid $ 115,882 $ 206,700
============ ============
The accompanying notes to consolidated condensed financial statements are an
integral part of these statements.
-3-
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS:
(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, 2002, are not necessarily indicative of results for
the full year.
(2) Acquisition
On May 20, 2002, the Company acquired from Florsheim Group, Inc. and its
subsidiaries (collectively, "Florsheim"), certain assets of Florsheim's
U.S. wholesale business, including its accounts receivable, trademarks,
and other information assets, wholesale inventory (with specified
exceptions) and other specified assets, as well as the leaseholds and
associated assets for 23 retail and outlet shoe stores (collectively, the
"Acquired Business").
Florsheim has been an international distributor of men's dress and casual
footwear. As a result of the acquisition, the Company has acquired a
leading brand name in the men's footwear industry with worldwide name
recognition. Weyco believes that the brand will complement the Company's
current brands, and will enhance the Company's position as a leading
distributor of men's casual and dress footwear. The Company also expects
to achieve certain economies of scale.
The total price of the Acquired Business was $47.5 million, including
$1.5 million of acquisition costs. The acquisition has been accounted for
using the purchase method of accounting and accordingly, the purchase
price was allocated on a preliminary basis to identifiable assets
acquired and liabilities assumed based upon their estimated fair values.
The results of operations of the Acquired Business have been included in
the Consolidated Condensed Financial Statements since the date of
acquisition. Final adjustments to the purchase price allocation are not
expected to be material to the Consolidated Condensed Financial
Statements.
In accordance with SFAS No. 142, "Goodwill and Other Intangible Assets,"
the acquired Florsheim trademark of $10.2 million is not being amortized,
as it has an indefinite life. The Company will complete the required
impairment test for this trademark by the end of 2002.
As part of the asset purchase agreement, the Company also agreed to
purchase certain assets of Florsheim Europe and Florsheim France, two
wholly-owned subsidiaries of Florsheim. The acquisition of Florsheim
Europe closed on July 1, 2002 for approximately $400,000 plus the
assumption of operating liabilities. The acquisition of Florsheim France
closed on July 27, 2002, for approximately $10,000 plus the assumption of
certain operating liabilities. The results of operations for Florsheim
Europe and Florsheim France have not yet been included in the Company's
Consolidated Condensed Financial Statements since the acquisitions
occurred after June 30, 2002.
-4-
The following table sets forth the unaudited proforma information for the
Company as if the acquisitions of the Acquired Business, Florsheim Europe
and Florsheim France had occurred as of the beginning of each respective
period (in thousands, except per share data):
Three Months ended June 30 Six Months ended June 30
-------------------------- -------------------------
2002 2001 2002 2001
----------- ------------ ----------- -----------
Net Sales $ 45,278 $ 53,404 $ 101,455 $ 116,376
Net Earnings $ 2,753 $ 804 $ 5,793 $ 3,424
Basic Earnings Per Share $ .73 $ .21 $ 1.54 $ .88
Diluted Earnings Per Share $ .72 $ .21 $ 1.52 $ .87
(3) Long Term Debt
On May 17, 2002, the Company entered into a 2-year $60 million unsecured
Revolving Line of Credit (the "Line of Credit") with a group of banks. On
May 20, 2002, the Company borrowed $49.2 million under the Line of Credit
to fund the acquisition of the Acquired Business and future capital
needs. The Line of Credit allows for the issuance of up to $20 million in
non-rated commercial paper at market interest rates and additional bank
borrowings at an interest rate of LIBOR plus from 150 to 250 basis
points. The average interest rate for the borrowings for the quarter was
3.23% and the initial borrowing remains outstanding at June 30, 2002. The
Company incurred $345,000 of debt issuance costs related to this new Line
of Credit. These costs are included in Other Assets and are being
amortized over the term of the Line of Credit. The Line of Credit
requires certain financial covenants, including minimum net worth and
EBITDA levels and a minimum ratio of funded debt to EBITDA. As of June
30, 2002 the Company is in compliance with all covenants.
(4) In June 2001, the Financial Accounting Standards Board (FASB) issued
Statement 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. In the second quarter of 2002, the
acquisition of the Acquired Business was recorded in accordance with
these rules.
-5-
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.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities" (SFAS 146). SFAS 146
nullifies Emerging Issues Task Force Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to
Exit an Activity (including Certain Costs Incurred in a Restructuring)"
and requires that a liability for a cost associated with an exit or
disposal activity be recognized when the liability is incurred. SFAS 146
is effective for exit or disposal activities that are initiated after
December 31, 2002. The Company does not expect the adoption of this
statement to have a material impact on the Company's results of
operations or financial position.
(5) The following table sets forth the computation of basic and diluted
earnings per share:
Three Months Ended June 30 Six Months Ended June 30
-------------------------- ------------------------
2002 2001 2002 2001
---------- ---------- ---------- ----------
Numerator:
Net Earnings $1,648,988 $1,627,421 $3,922,020 $3,968,325
========== ========== ========== ==========
Denominator:
Basic weighted average shares 3,758,318 3,840,493 3,752,818 3,889,780
Effect of dilutive securities:
Employee stock options 82,251 25,921 67,880 26,831
---------- ---------- ---------- ----------
Diluted weighted average shares 3,840,569 3,866,414 3,820,698 3,916,611
========== ========== ========== ==========
Basic earnings per share $ .44 $ .42 $ 1.05 $ 1.02
========== ========== ========== ==========
Diluted earnings per share $ .43 $ .42 $ 1.03 $ 1.01
========== ========== ========== ==========
-6-
(6) The Company continues to operate in two business segments: wholesale
distribution and retail sales of men's footwear. Summarized segment data
for June 30, 2002 and 2001 is:
Wholesale
Distribution Retail Total
------------ ----------- -----------
THREE MONTHS ENDED JUNE 30
- --------------------------
2002
----
Net Sales $29,603,000 $ 2,930,000 $32,533,000
Earnings from operations 2,212,000 370,000 2,582,000
2001
----
Net Sales $30,215,000 $ 1,327,000 $31,542,000
Earnings from operations 2,293,000 26,000 2,319,000
SIX MONTHS ENDED JUNE 30
- ------------------------
2002
----
Net Sales $64,236,000 $ 4,019,000 $68,255,000
Earnings from operations 5,560,000 312,000 5,872,000
2001
----
Net Sales $64,314,000 $ 2,586,000 $66,900,000
Earnings from operations 5,206,000 (1,000) 5,205,000
As of June 30, 2002, total assets for the wholesale segment were
$149,746,000 and total assets for the retail segment were $5,615,000. As
of December 31, 2001, total assets for the wholesale segment were
$96,139,000 and total assets for the retail segment were $1,815,000.
Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations
Acquisition
On May 20, 2002 the Company acquired certain assets of the Acquired Business.
See Note 2 to the Consolidated Condensed Financial Statements for additional
information on the acquisition.
Liquidity
The Company's primary source of liquidity is its cash and short-term marketable
securities, which aggregated approximately $16,404,000 at June 30, 2002,
compared with $20,118,000 at December 31, 2001.
Cash flows from operating activities were $6,667,0000 for the six months ended
June 30, 2002, as compared to $2,353,000 for the six months ended June 30, 2001.
The increase in cash flows from operations is due primarily to collections of
accounts receivable and changes in inventory balances. The increase in inventory
and accounts payable balances between December 31, 2001 and June 30, 2002 are
primarily the result of the acquisition of the Acquired Business and subsequent
related activity.
-7-
The use of cash from investing activities in 2002 reflects the acquisition of
the Acquired Business, as well as the purchase of a new $6 million warehouse
facility, which is adjacent to the Company's current distribution center.
Cash flows from financing activities to date in 2002 reflect the borrowings made
under the Line of Credit in 2002 to fund the acquisition and related capital
purchases. See note 3 for additional information regarding the Company's long
term debt.
The Company believes that available cash and marketable securities, cash
provided by operations, and available borrowing facilities will provide adequate
support for the cash needs of the business.
Results of Operations
Overall net sales increased 3%, from $31,542,000 for the second quarter of 2001
to $32,533,000 for the second quarter of 2002. The increase resulted from a
increase in retail net sales, offset by a slight decrease in wholesale net
sales. Retail net sales for the quarter ended June 30, 2002 were $2,930,000 as
compared with $1,327,000 in 2001. Wholesale net sales for the current quarter
were $29,603,000 as compared with $30,215,000 for the same period in 2001.
For the six months ended June 30, net sales increased 2%, from $66,900,000 in
2001 to $68,255,000 in 2002. Retail net sales for the six months ended June 30,
2002 were $4,019,000 as compared with $2,586,000 for the same period in 2001.
Wholesale sales were flat, at $64,236,000 for the six months ended June 30, 2002
as compared to $64,314,000 for the same period in 2001.
Net sales for the second quarter relating to the Acquired Business' wholesale
and retail operations were $3,600,000. The increase in retail net sales for both
the second quarter and for the year was due to the additional twenty-three
stores acquired from Florsheim. Wholesale shipments of Florsheim product did not
start until June 10, 2002, as the Company moved all the Florsheim inventory from
Florsheim's warehouse in Jefferson City, Missouri to its distribution center in
Glendale, Wisconsin. Second quarter wholesale net sales, therefore, included
only three weeks of actual shipments of Florsheim product. Shipments of the
Company's other brands were not affected by this move, however, wholesale
shipments have been down in 2002 due to a difficult retail environment.
Gross earnings as a percent of net sales for the second quarter increased from
26.3% in 2001 to 31.0% in 2002. Gross earnings as a percent of net sales for the
six months ended June 30 increased from 26.2% in 2001 to 28.7% in 2002. The
increases in gross earnings as a percent of net sales for the quarter and six
months ended June 2002 result primarily from the increases in wholesale gross
margins as a percent of net sales, but are also due to the increase in retail
net sales relative to overall net sales, as the retail business earns higher
gross margin than the wholesale business. Wholesale gross earnings as a percent
of net sales increased from 25.1% for the second quarter of 2001 to 28.1% for
the second quarter of 2002, and from 25.1% for the six months ended June 30,
2001 to 26.8% for the same period of 2002. Increases in wholesale gross earnings
as a percent of net sales from 2001 to 2002 are primarily attributable to
changes in the mix of product sold.
-8-
Selling and administrative expenses as a percent of net sales increased from
19.0% for the second quarter of 2001 to 23.1% for the second quarter of 2002.
Selling and administrative expenses as a percent of net sales for the six months
ended June 30 increased from 18.4% in 2001 to 20.1% in 2002. Overall, the
increases in selling and administrative expenses as a percent of net sales
result from the ramp up of operations in 2002 to accommodate the acquisition,
but also reflect the increase in retail net sales relative to overall net sales,
as the retail business inherently contributes more to selling and administrative
expenses relative to net sales than wholesale business does. Wholesale selling
and administrative expenses as a percent of net sales increased from 17.5% for
the quarter ended June 30, 2001 to 20.6% for the quarter ended June 30, 2002,
and from 17.0% for the six months ended June 30, 2001 to 18.2% for the same
period in 2002.
Interest expense for the quarter ended June 30, 2002 was $250,000 as compared to
$83,000 for the same period in 2001. For the six months ended June 30, 2002,
interest expense was $266,000 as compared to $167,000 for the six months ended
June 30, 2001. The increase in interest expense between periods was due to the
borrowings under the Line of Credit in 2002 to fund the acquisition.
For the six months ended June 30, 2001, other income and expense included a
$504,000 gain on the sale of other investments recorded in the first quarter.
The effective tax rate was consistent at 35% for all periods reported.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes since the March 25, 2002 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
During the quarter, the Company filed the following reports on Form 8-K:
- Form 8-K dated May 20, 2002, filed on June 4, 2002, which reports
the May 20, 2002 acquisition of certain assets of Florsheim
Group, Inc.
- Form 8-K dated June 14, 2002, filed on June 17, 2002, which
reports the change of certifying accountant.
- Form 8-K/A dated May 20, 2002, filed on August 5, 2002, which
amends the Form 8-K filed on June 4, 2002 to include further
information and financial statements.
See Exhibit Index following the signature page of this report which is
incorporated herein by reference.
-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, 2002 /s/ John Wittkowske
- ----------------------------- -----------------------------
Date John Wittkowske
Senior Vice President &
Chief Financial Officer
-10-
WEYCO GROUP, INC.
(THE "REGISTRANT")
(COMMISSION FILE NO. 0-9068)
EXHIBIT INDEX
TO
CURRENT REPORT ON FORM 10-Q
DATE OF JUNE 30, 2002
INCORPORATED
EXHIBIT HEREIN BY FILED
NUMBER DESCRIPTION REFERENCE TO HEREWITH
------- --------------------------------------- ------------ --------
99.1 Certification pursuant to 18 U.S.C. X
Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley
Act of 2002, Thomas W. Florsheim, Jr.
99.2 Certification pursuant to 18 U.S.C. X
Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley
Act of 2002, John F. Wittkowske