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,June 30, 2003
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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.
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(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.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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Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes X No
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As of May 6,July 31, 2003 the following shares were outstanding:
Common Stock, $1.00 par value 2,917,6962,926,768 Shares
Class B Common Stock, $1.00 par value 876,418874,546 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 accounting principles generally accepted in the United
States of America 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
------
MarchJune 30 December 31
2003 December 31
(unaudited)(Unaudited) 2002
---------------- -------------- -------------
CURRENT ASSETS:
Cash and cash equivalents $ 14,228,32612,745,476 $ 7,301,104
Marketable securities 1,795,0001,655,001 2,099,140
Accounts receivable, net 41,215,18829,858,297 32,170,795
Accrued income tax receivable --674,039 1,008,079
Inventories -
Finished shoes 50,690,55444,499,435 48,951,574
Shoes in process 192,58968,748 337,221
Raw materials and supplies 314,906293,383 452,138
------------ -------------------------
Total inventories 51,198,04944,861,566 49,740,933
Deferred income tax benefits 2,274,0002,443,000 2,421,000
Prepaid expenses and other current assets 479,855574,186 803,108
------------ -------------------------
Total current assets 111,190,41892,811,565 95,544,159
MARKETABLE SECURITIES 7,813,8779,532,805 8,026,127
OTHER ASSETS 9,637,0059,576,380 9,683,252
PLANT AND EQUIPMENT 32,130,05236,346,754 31,087,254
Less - Accumulated depreciation 9,594,1139,834,655 8,927,271
------------ -------------
22,535,939------------
Plant and Equipment, net 26,512,099 22,159,983
TRADEMARK 10,821,68110,612,970 10,821,681
------------ -------------
$161,998,920------------
$149,045,819 $146,235,202
============ =========================
LIABILITIES & SHAREHOLDERS' INVESTMENT
--------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 18,112,5846,066,090 $ 11,268,713
Dividend payable 492,949531,736 490,810
Accrued liabilities 7,320,5548,482,986 8,473,373
Accrued income taxes 2,540,252 --
------------ -------------------------
Total current liabilities 28,466,33915,080,812 20,232,896
DEFERRED INCOME TAX LIABILITIES 3,380,0003,338,000 3,416,000
LONG TERMLONG-TERM DEBT 40,952,70937,903,679 37,801,992
SHAREHOLDERS' INVESTMENT:
Common stock 3,791,6143,798,614 3,789,064
Other shareholders' investment 85,408,25888,924,714 80,995,250
------------ -------------
$161,998,920 $ 146,235,202------------
$149,045,819 $146,235,202
============ =========================
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 THREE MONTHSPERIODS ENDED MARCH 31,JUNE 30, 2003 AND 2002 (UNAUDITED)
--------------------------------------------------------------
Three Months ended June 30 Six Months ended June 30
----------------------------------- -----------------------------------
2003 2002 ----------- -----------2003 2002
------------- ------------- ------------- -------------
NET SALES $60,379,924 $35,722,349$ 51,000,284 $ 32,532,514 $ 111,380,208 $ 68,254,863
COST OF SALES 40,195,100 26,245,278
----------- -----------33,386,388 22,444,040 73,581,488 48,689,318
------------- ------------- ------------- -------------
Gross earnings 20,184,824 9,477,07117,613,896 10,088,474 37,798,720 19,565,545
SELLING AND ADMINISTRATIVE EXPENSES 12,447,444 6,187,136
----------- -----------11,794,325 7,506,185 24,241,770 13,693,321
------------- ------------- ------------- -------------
Earnings from operations 7,737,380 3,289,9355,819,571 2,582,289 13,556,950 5,872,224
INTEREST INCOME 149,826 266,803122,142 216,403 271,968 483,206
INTEREST EXPENSE (351,962) (16,356)(310,390) (249,996) (662,352) (266,352)
OTHER INCOME AND EXPENSE, 20,950 (17,350)
----------- -----------net 177,121 292 198,072 (17,058)
------------- ------------- ------------- -------------
Earnings before provision for
income taxes 7,556,194 3,523,0325,808,444 2,548,988 13,364,638 6,072,020
PROVISION FOR INCOME TAXES 2,885,000 1,250,000
----------- -----------2,215,000 900,000 5,100,000 2,150,000
------------- ------------- ------------- -------------
Net earnings $ 4,671,1943,593,444 $ 2,273,032
=========== ===========1,648,988 $ 8,264,638 $ 3,922,020
============= ============= ============= =============
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING
(Note 4)
Basic 3,790,339 3,748,0063,795,489 3,758,318 3,793,100 3,752,818
Diluted 3,895,893 3,797,0133,932,050 3,840,569 3,915,054 3,820,698
EARNINGS PER SHARE (Note 4):
Basic $1.23 $.61$.95 $.44 $2.18 $1.05
==== ==== ===== =====
Diluted $.91 $.43 $2.11 $1.03
==== Diluted $1.20 $.60==== ===== =========
CASH DIVIDENDS PER SHARE $.14 $.13 $.12$.27 $.25
==== ==== ========= =====
The accompanying notes to consolidated condensed financial statements are an
integral part of these statements.
-2-
WEYCO GROUP, INC. AND SUBSIDIARIES
----------------------------------
CONSOLIDATED CONDENSED STATEMENTSTATEMENTS OF CASH FLOWS
FOR THE THREESIX MONTHS ENDED MARCH 31,JUNE 30, 2003 AND 2002 (UNAUDITED)
--------------------------------------------------------------
2003 2002
----------- ----------------------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash provided by operating activities $ 4,725,52812,509,826 $ 4,921,608
----------- -----------6,666,688
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Florsheim business -- (47,467,870)
Purchase of marketable securities (700,000) (2,304,235)(3,400,000) (5,504,235)
Proceeds from maturities of marketable securities 1,216,390 1,175,9342,337,462 6,158,289
Purchase of plant and equipment (1,038,628) (68,877)
----------- -----------(5,370,406) (6,338,547)
Proceeds from sales of plant and equipment 29,123 --
------------ ------------
Net cash used for investing activities (522,238) (1,197,178)
----------- -----------(6,403,821) (53,152,363)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash dividends paid (490,810) (449,258)(1,024,685) (937,872)
Shares purchased and retired -- (195,500)
Proceeds from stock options exercised 64,025 118,624261,365 394,499
Net borrowings (repayments) under
revolving credit agreement 3,150,717 (4,809,904)
----------- -----------101,687 44,367,226
Debt issuance costs -- (345,000)
------------ ------------
Net cash (used for) provided by (used for)
financing activities 2,723,932 (5,336,038)
----------- -----------(661,633) 43,283,353
------------ ------------
Net increase (decrease) in cash and
cash equivalents 6,927,222 (1,611,608)5,444,372 (3,202,322)
CASH AND CASH EQUIVALENTS at beginning
of period 7,301,104 16,850,998
----------- ----------------------- ------------
CASH AND CASH EQUIVALENTS at end
of period $14,228,326 $15,239,390
=========== ===========$ 12,745,476 $ 13,648,676
============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Income taxes (refunded) paid $ (937,710)4,602,590 $ 712,782
=========== ===========2,703,007
============ ============
Interest paid $ 396,679684,772 $ 16,497
=========== ===========115,882
============ ============
The accompanying notes to consolidated condensed financial statements are an
integral part of these statements.
-3-
NOTES: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 March
31,June 30, 2003, are not necessarily indicative of results for
the full year.
(2) On May 20, 2002, the Company acquired certain assets of Florsheim Group,
Inc.'s domestic wholesale and retail operations. On July 1 and July 27,
2002, the Company acquired certain assets and assumed the operating
liabilities of Florsheim Europe S.r.l. and Florsheim France SARL,
respectively. The total purchase price was $48.5 million, and the Company
entered into a two-year $60 million revolving line of credit to fund the
acquisition and related expenses. In accordance with the original
agreement, the revolving line of credit was reduced to $50 million on
April 30, 2003. On May 5, 2003, the revolving line of credit agreement
was extended an additional year, to April 30, 2005. See the Company's
December 31, 2002 annual report on Form 10-K for further information
regarding the acquisition and borrowings under the line of credit. During
the second quarter of 2003, the Company finalized the purchase price
allocation which resulted in a $209,000 reduction in the value of the
trademark since December 31, 2002.
The following table sets forth the unaudited proforma information for the
Company as if the acquisition had occurred as of January 1, 2002 (in
thousands, except per share data):
Three Months ended March 31, 2002
---------------------------------
Net Sales $56,176
Net Earnings $ 3,040
Basic Earnings Per Share $.81
Diluted Earnings Per Share $.80
Three Months ended June 30, 2002 Six Months ended June 30, 2002
-------------------------------- ------------------------------
Net Sales $45,278 $101,455
Net Earnings $2,753 $5,793
Basic Earnings Per Share $.73 $1.54
Diluted Earnings Per Share $.72 $1.52
(3) 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 adoption of this statement in 2003 did not have a
material impact on the Company's financial statements.
-4-
In November 2002, the FASB issued Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others" ("FIN 45"). FIN 45 requires that
the guarantor recognize, at the inception of certain guarantees, a
liability for the fair value of the obligation undertaken in issuing such
guarantee. FIN 45 also requires additional disclosure requirements about
the guarantor's obligations under certain guarantees that it has issued.
The initial recognition and measurement provisions of this interpretation
are applicable on a prospective basis to guarantees issued or modified
after December 31, 2002. The disclosure requirements of this
interpretation are effective for financial statement periods ending after
December 15, 2002. The adoption of FIN 45 did not have a material impact
on the Company's consolidated financial position, results of operations
or cash flows.
-4-
(4) The following table sets forth the computation of net earnings per share
and diluted net earnings per share:
March 31,Three Months Ended June 30 Six Months Ended June 30
-------------------------- ------------------------
2003 March 31, 2002 -------------- --------------2003 2002
---------- ---------- ---------- ----------
Numerator:
Net Earnings . . . . . . . . . . . . . . . . . $4,671,194 $2,273,032..................... $3,593,444 $1,648,988 $8,264,638 $3,922,020
========== ========== ========== ==========
Denominator:
Basic weighted average shares . . . . . . . . . 3,790,339 3,748,006.... 3,795,489 3,758,318 3,793,100 3,752,818
Effect of dilutive securities:
Employee stock options . . . . . . . . . 105,554 49,007......... 136,561 82,251 121,954 67,880
---------- ---------- ---------- ----------
Diluted weighted average shares . . . . . . 3,895,893 3,797,013.. 3,932,050 3,840,569 3,915,054 3,820,698
========== ========== ========== ==========
Basic earnings per share . . . . . . . . . $1.23 $.61........... $.95 $.44 $2.18 $1.05
==== ==== ===== =========
Diluted earnings per share . . . . . . . . $1.20 $.60......... $.91 $.43 $2.11 $1.03
==== ==== ===== =========
Diluted weighted average shares outstanding for the first quarter of 2003
include all outstanding options, as none are antidilutive. Diluted
weighted average shares outstanding for the first quarter of 2002 exclude outstanding
options to purchase 7,130104,250 shares of common stock at a weighted-average
price of $28.05$50.54 because they are antidilutive. Diluted weighted average
shares outstanding for 2002 include all outstanding options, as none were
antidilutive.
-5-
(5) The Company continues to operate in two business segments: wholesale
distribution and retail sales of men's footwear. Summarized segment data
for the quarters ended March 31,June 30, 2003 and 2002 is:
Wholesale
Distribution Retail Total
-------------- ------------ -----------------------
THREE MONTHS ENDED JUNE 30
--------------------------
2003
----
MARCH 31, 2003
Net Sales . . . . . . . . . . $54,701,000 $5,679,000 $60,380,000........................... $ 44,850,000 $ 6,150,000 $ 51,000,000
Earnings from operations . . . 7,138,000 599,000 7,737,000
MARCH 31,............ 4,802,000 1,018,000 5,820,000
2002
----
Net Sales. . . . . . . . . . . $34,634,000 $1,088,000 $35,722,000Sales ........................... $ 29,603,000 $ 2,930,000 $ 32,533,000
Earnings from operations . . . 3,348,000 (58,000) 3,290,000............ 2,212,000 370,000 2,582,000
SIX MONTHS ENDED JUNE 30
--------------------------
2003
----
Net Sales ........................... $ 99,552,000 $ 11,828,000 $111,380,000
Earnings from operations ............ 11,940,000 1,617,000 13,557,000
2002
----
Net Sales ........................... $ 64,236,000 $ 4,019,000 $ 68,255,000
Earnings from operations ............ 5,560,000 312,000 5,872,000
(6) The Company has stock option plans under which options to purchase Common
Stock are granted to officers and key employees at prices not less than
the fair market value of the Common Stock on the date of the grant. The
Company accounts for such stock option grants under the provisions of APB
Opinion #16,#25, "Accounting for Stock Issued to Employees." No stock-based
employee compensation expense has been reflected in net income, as all
options granted under those plans had an exercise price equal to or
greater than the market value of the underlying common stock on the date
of grant.
-5-
The following table illustrates the effect on quarterly net earnings per share as if
the Company had applied the fair value recognition provisions of FASB
Statement No. 123, "Accounting for Stock-Based Compensation", as amended
by SFAS No. 148,No.148, to stock-based employee compensation.
March 31 March 31Three Months ended June 30 Six Months ended June 30
2003 2002 2003 2002
---------- --------------------- ---------- ----------
Net earnings, as reported $4,671,194 $2,273,032.................... $3,593,444 $1,648,988 $8,264,638 $3,922,020
Deduct: Total stock-based employee
compensation expense determined
under the fair value based method for
all awards, net of related tax effects. . . 83,170effects ... 265,159 -- 348,329 142,653
---------- --------------------- ---------- ----------
Pro forma net income . . . . . . . . . . . . . $4,588,024 $2,130,379
========== ==========......................... $3,328,285 $1,648,988 $7,916,309 $3,779,367
---------- ---------- ---------- ----------
Earnings per share
Basic - as reported . . . . . . . . . . . . . $1.23 $.61........................ $.95 $.44 $2.18 $1.05
Basic - pro forma . . . . . . . . . . . . . . $1.21 $.57.......................... $.88 $.44 $2.09 $1.01
Diluted - as reported . . . . . . . . . . . . $1.20 $.60...................... $.91 $.43 $2.11 $1.03
Diluted - pro forma . . . . . . . . . . . . . $1.18 $.56........................ $.85 $.43 $2.02 $.99
-6-
(7) Comprehensive income for the three monthsperiods ended March 31,June 30, 2003 and 2002 is as
follows (in thousands):
Three Months Ended
--------------------------
March 31 March 31
2003 2002
---------- ---------
Net earnings $4,671 $2,273
Foreign currency translation adjustments 173 --
------ ------
Total comprehensive income $4,844 $2,273
====== ======
Three Months Ended June 30 Six Months ended June 30
2003 2002 2003 2002
------ ------ ------ ------
Net earnings $3,593 $1,649 $8,265 $3,922
Foreign currency translation
adjustments 266 -- 438 --
--------- ---------- -------- ----------
Total comprehensive income $3,859 $1,649 $8,703 $3,922
The components of Accumulated Other Comprehensive Loss as recorded on the
accompanying balance sheets are as follows (in thousands):
March 31
June 30, 2003 December 31, 2002
------------- -----------------
Foreign currency translation adjustments $206 $(232)
Additional minimum pension liability, net
net of tax of $553 (864) (864)
------ ---------
Accumulated other comprehensive loss $(658) $(1,096)
(8) On July 28, 2003 2002
---------- -----------
Foreign currency translation adjustments $ (59) $ (232)
Additional minimum pension liability,
netthe Board of taxDirectors of $553 (864) (864)
------- --------
Accumulated other comprehensive loss $ (923) $(1,096)
======= ========
-6-
the Company declared a 50%
stock dividend on the Company's Common Stock, $1.00 par value, and on the
Company's Class B Common Stock, $1.00 par value, so as to affect a
three-for-two stock split without a change in par value. The additional
shares will be issued on October 1, 2003, to shareholders of record on
August 29, 2003. No earnings per share information in this document has
been adjusted to reflect this stock dividend.
The Board also declared a quarterly dividend of $.10 per share, adjusted
for the stock dividend, payable October 1, 2003. This represents a 7%
increase in the Company's quarterly dividend.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
ACQUISITION
On May 20, 2002, the Company acquired certain assets of Florsheim Group, Inc.'s
domestic wholesale and retail operations. On July 1 and July 27, 2002, the
Company acquired certain assets and assumed the operating liabilities of
Florsheim Europe S.r.l. and Florsheim France SARL, respectively. The total
purchase price was $48.5 million, and the Company entered into a two-year $60
million revolving line of credit to fund the acquisition and related expenses.
See the Company's December 31, 2002 annual report on Form 10-K and Note 2 to
these financial statements for further information regarding the acquisition and
borrowings under the line of credit.
LIQUIDITY & CAPITAL RESOURCES
The Company's primary source of liquidity is its cash and short-term marketable
securities, which aggregated approximately $16,023,000$14,400,000 at March 31,June 30, 2003 as
compared with $9,400,000 at December 31, 2002. In the firstsecond quarter of 2003,
the primary sources of cash were operations draws on the line of credit facility, and proceeds from the maturities of
marketable securities. The primary uses of cash were purchases of marketable
securities and plant and equipment.
-7-
Net cash provided by operating activities for the first quarter ofto date in 2003 was flatincreased by $5.8
million compared with the same period in 2002. Increases in net earnings for the
period as well as increasesaccounted for most of the increase, while decreases in accounts payable and accrued income taxes,inventories also
had a positive impact on operating cash flows. These gains, however,improvements were partially
offset primarily due toby the increasedecrease in accounts receivablepayable for the period. In general,
the increases in net earnings, accounts payable, accrued income taxes and
accounts receivable are all due to increased volumes since the acquisition in
May 2002.
In late 2002, the Company began a $9 million construction project to expand and
reconfigure the distribution center to more efficiently handle the increased
volumes resulting from the acquisition. In the first quarter ofThrough June 30, 2003, approximately
$600,000$5.1 million has been spent on this project, of purchases of plant and equipment were related to this
project. Subsequently, in April 2003, the first progress payment of $1.3which $4.3 million was made to the general contractor for the project. Other significant first
quarter capital expenditures include approximately $250,000 of costs associated
with the implementation of a new point of sale systempaid in
the 30 domestic retail
stores.2003. Draws are made on the revolving line of credit as needed to fund
expenditures. At March 31,June 30, 2003, $41$38 million was outstanding under the line of
credit facility. The Company was in compliance with all debt covenants as of
March 31,June 30, 2003.
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 in 2003.
-7-
RESULTS OF OPERATIONS
Overall net sales increased 67%57%, from $35,722,000$32,533,000 for the firstsecond quarter of 2002
to $60,380,000$51,000,000 for the firstsecond quarter of 2003. The increase resulted from
increases in both the wholesale and retail segments.net sales. Wholesale net sales for the current
quarter were $54.7 million versus $34.6 million$44,850,000 as compared with $29,603,000 for the same period in
the first quarter
last year.2002. Retail net sales for the quarter ended June 30, 2003 were $5.7 million this year,$6,150,000 as
compared with $1.1
million last year.
Net$2,930,000 in 2002.
For the six months ended June 30, net sales increased 63%, from $68,255,000 in
2002 to $111,380,000 in 2003. Wholesale net sales were $99,552,000 for the six
months ended June 30, 2003 as compared with $64,236,000 for the same period in
2002. Retail net sales for firstthe six months ended June 30, 2003 were $11,828,000
as compared with $4,019,000 for the same period in 2002.
The increases in net sales for the quarter 2003are primarily due to the acquisition
of the domestic wholesale business and twenty-three retail stores of Florsheim
Group, Inc. on May 20, 2002. The increases in net sales for the second quarter
relating to the new FlorsheimFlorsheim's wholesale and retail operations were $18.2$13.1 million and
$4.9$3.5 million, respectively. The Company's Nunn Bush and Stacy Adams divisions
also contributed to the increases with net sales for the firstsecond quarter up 10%5%
and 6%10%, respectively.
ExcludingFor the Florsheimsix months ended June 30, the increases in net sales between years
relating to Florsheim's wholesale business,and retail operations were $30.1 million and
$8.4 million, respectively. In addition, the year to date net sales of both the
Nunn Bush and Stacy Adams divisions increased 7% between years.
-8-
Gross earnings as a percent of net sales for Weyco's existing wholesale business
were up $1.9 millionthe second quarter increased from
31.0% in 2002 to 34.5% in 2003. Gross earnings as a percent of net sales for the
first quarter. On the retail side, excluding the
Florsheim retail business, retailsix months ended June 30 increased from 28.7% in 2002 to 33.9% in 2003. The
increases in gross earnings as a percent of net sales were down $300,000 for the quarter.
Grossquarter and six
months ended June 2003 result primarily from the increases in both wholesale and
retail gross margins as a percent of net sales, but are also due to the increase
in retail net sales relative to overall net sales. Retail sales, which carry a
higher margin, comprise 10.6% of overall net sales to date in 2003 versus 5.9%
last year. This change in mix resulted in an increase of approximately 1.5% in
gross earnings as a percent of net sales for both the three and six months ended
June 30. Wholesale gross earnings as a percent of net sales increased from 26.5%28.1%
for the firstsecond quarter of 2002 to 33.4%30.5% for the firstsecond quarter of 2003, and from
26.8% for the six months ended June 30, 2002 to 30.5% for the same period of
2003. This is the result of
increasedRetail gross earnings as a percent of net sales in the wholesale segment,
which increased from 25.7% in60.5% for
the second quarter of 2002 to 30.4% in63.7% for the second quarter of 2003, as well as inand from
58.1% for the retail
segment, from 51.7% insix months ended June 30, 2002 to 62.1%62.9% for the same period of
2003. Increases in 2003. In both segments, the increases
are due to changes in product mix between years. In addition, a part of the
increase in overallwholesale and retail gross earnings as a percent of net sales
is duefrom 2002 to 2003 are primarily attributable to changes in the mix of wholesale and retail sales as a percentage of total sales. Retail
sales, which carry a higher margin, comprised 9.4% of overall net sales in 2003
versus 3.0% in 2002.product
sold.
Selling and administrative expenses as a percent of net sales were 17.3%flat at 23.1%
for the firstsecond quarter of 2002 versus 20.6%and 2003. For the six months ended June 30,
selling and administrative expenses as a percent of net sales increased from
20.1% in 2002 to 21.8% in 2003. This isWholesale selling and administrative expenses as
a percent of net sales decreased from 20.6% for the resultquarter ended June 30, 2002
to 19.8% for the quarter ended June 30, 2003, and increased from 18.2% for the
six months ended June 30, 2002 to 18.5% for the same period in 2003. Retail
selling and administrative expenses as a percent of increasednet sales decreased from
47.8% for the quarter ended June 30, 2002 to 47.1% for the quarter ended June
30, 2003, and from 50.3% for the six months ended June 30, 2002 to 49.3% for the
six months ended June 30, 2003.
In general, changes in wholesale selling and administrative expenses as a
percent of net sales from
16.1% in 2002include increases this year due to 17.4% in 2003, and decreased retailincreased advertising of
the Florsheim brand, offset by operating efficiencies achieved by the Company
since the acquisition. Retail selling and administrative expenses as a percent
of net sales from 57.0% in 2002have decreased since last year, as the Company has been able to
51.6% in 2003. The
increase in wholesale selling and administrative expenses is primarily due to
increased advertising expense forreduce the Florsheim brand and minor short term
operational inefficiencies until the expansionoperating costs of the distribution center is
completed. The decrease in retail selling and administrative expenses as a
percent of net sales is due to lower operating costs at the stores that were
acquired in the 2002 acquisition.since last year. Overall selling and
administrative expenses as a percent of net sales increased due toare affected by these factors,
and also due toas well as the previously discussed change in the mix of retail andto wholesale net
sales. The retail segment has significantly higher selling and administrative
expenses as a percent of net sales than the wholesale segment.
Interest incomeexpense for the first quarter ofended June 30, 2003 was $150,000$310,000 as compared with
$267,000to
$250,000 for the same period in 2002. This decreaseFor the six months ended June 30, 2003,
interest expense was $662,000 as compared to $266,000 for the six months ended
June 30, 2002. The increase in interest expense between periods was due to reductions in the
average balance of marketable securities outstanding between 2002 and 2003.
-8-
Interest expense for the first quarter of 2003 was $352,000 as compared with
$16,000 for the first quarter of 2002. The increase is primarily due to
borrowings under the line ofrevolving credit subsequent toagreement in the firstsecond quarter of 2002 to
fund the Florsheim acquisition, and related expenses.borrowings (net of repayments) in 2003 to fund the
expansion of the distribution center.
-9-
The effective tax rate was 38% for the firstsecond quarter ofand six months ended June
30, 2003, is 38.2% as compared with 35.5% in35% for the second quarter and six months ended June
30, 2002. The increase in the effective tax rate between years is primarily due
to an increased federal statutory tax rate of 35% which applies to the Company this
year, as compared with 34% last year. Also, tax-exempt municipal bond income
decreased this year relative to pre-taxpretax earnings, resulting in an increase in the
effective tax rate.
FORWARD-LOOKING STATEMENTS
This report contains certain forward-looking statements with respect to the
Company's outlook for the future. These statements represent the Company's
reasonable judgment with respect to future events and are subject to risks and
uncertainties that could cause actual results to differ materially. These
factors could include significant adverse changes in the economic conditions
affecting overseas suppliers or the men's footwear markets served by the
Company. Currently, the presence of Severe Acute Respiratory Syndrome (SARS) in
China could have a negative impact on the Company's supply chain if there were
outbreaks in the suppliers' facilities. To date, SARS has not impacted the
Company's business.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes since the March 24, 2003 filing of the
Company's Annual Report on Form 10-K.
Item 4. Controls and Procedures
An evaluation was performed underThe Company maintains disclosure controls and procedures designed to ensure that
the supervision andinformation the Company must disclose in its filings with the participation of
management, including the Chief Executive Officer (CEO)Securities and
Chief Financial
Officer (CFO), of the effectiveness of the designExchange Commission is recorded, processed, summarized and operation ofreported on a timely
basis. The Company's principal executive officer and principal financial officer
have reviewed and evaluated the Company's disclosure controls and procedures within 90 days beforeas
defined in Rules 13a-15(e) and 15d-15(e) under the filing dateSecurities Exchange Act of
1934, as amended (the "Exchange Act") as of the end of the period covered by
this quarterly report.report (the "Evaluation Date"). Based on thesuch evaluation, management, including the CEO and
CFO,such officers
have concluded that, as of the Evaluation Date, the Company's disclosure
controls and procedures are adequate and effective.effective in bringing to their attention on a timely
basis material information relating to the Company required to be included in
the Company's periodic filings under the Exchange Act.
There have not been no significantany changes in the Company's internal controlscontrol over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) that
occurred during the Company's most recent fiscal quarter that has materially
affected, or in other factors that could significantlyis reasonably likely to materially affect, these
controls subsequent to the evaluation, including any corrective actions with
regard to significant deficiencies or material weaknesses.
-9-
Company's internal
control over financial reporting.
PART II. OTHER INFORMATION
--------------------------
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Shareholders was held April 22, 2003 to elect three
members to the Board of Directors.
Virgis W. Colbert, John W. Florsheim and Frederick P. Stratton, Jr. were
nominated for election to the Board of Directors for terms of three years.
A total of 3,235,994 votes were cast for the nominees, with 3,328 votes
withheld for Mr. Colbert, 8,800 votes withheld for Mr. Florsheim, and 3,328
votes withheld for Mr. Stratton.1. Legal Proceedings
None
Item 6. Exhibits and Reports on Form 8-K
See the Exhibit Index included herewith for a listing of Exhibits. There were nowas one
8-K Filingsfiled during the quarter. On April 21, 2003 the Company filed a press
release announcing its results for the quarter ended March 31, 2003.
-10-
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 12,August 1, 2003 /s/ John Wittkowske
- ----------------- -------------------------------------------------- -----------------------------------
Date John Wittkowske
Senior Vice President &
Chief Financial Officer
-10-
I, John Wittkowske, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Weyco Group, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 12, 2003
/s/ John Wittkowske
--------------------
John Wittkowske
Senior Vice President/CFO
I, Thomas W. Florsheim, Jr., certify that:
1. I have reviewed this quarterly report on Form 10-Q of Weyco Group, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 12, 2003
/s/ Thomas W. Florsheim, Jr.
-----------------------------
Thomas W. Florsheim, Jr.
Chairman and CEO-11-
WEYCO GROUP, INC.
(THE "REGISTRANT")
(COMMISSION FILE NO. 0-9068)
EXHIBIT INDEX
TO
CURRENT REPORT ON FORM 10-Q
DATE OF March 31,JUNE 30, 2003
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
INCORPORATED
EXHIBIT HEREIN BY FILED
NUMBER DESCRIPTION REFERENCE TO HEREWITH
- ------ ---------------------------------------- ------------ --------
31.1 Certification pursuant to Rule 13a-14 X
(a) or 15d-14(a), as adopted pursuant
to Section 302 of the Sarbanes-Oxley
Act of 2002, Thomas W. Florsheim, Jr.
31.2 Certification pursuant to Rule 13a-14 X
(a) or 15d-14(a), as adopted pursuant
to Section 302 of the Sarbanes-Oxley
Act of 2002, John F. Wittkowske
32.1 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.
32.2 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