FORM 10-Q
SECURITIES & EXCHANGE COMMISSION
Washington, D. C. 20549
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2003March 31, 2004
--------------------------
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
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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 W. 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)X No
( )------- ------
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes (X)X No
( )------- ------
As of November 3, 2003April 26, 2004 the following shares were outstanding:
Common Stock, $1.00 par value 4,420,8034,338,875 Shares
Class B Common Stock, $1.00 par value 1,310,9151,306,043 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 accounting principlesin 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 (UNAUDITED)
ASSETS
September 30March 31 December 31
2004 2003
(Unaudited) 2002
---------------------------- ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 9,792,0427,911,001 $ 7,301,1049,091,567
Marketable securities 1,700,000 2,099,1403,729,197 4,206,100
Accounts receivable, net 34,367,184 32,170,79538,835,619 29,900,197
Accrued income tax receivable 237,241 1,008,079-- 228,074
Inventories -
Finished-- finished shoes 43,113,316 48,951,574
Shoes in process 7,104 337,221
Raw materials and supplies 195,598 452,138
------------ ------------
Total inventories 43,316,018 49,740,93336,736,510 43,727,578
Deferred income tax benefits 2,387,000 2,421,0001,985,878 2,483,037
Prepaid expenses and other current assets 558,412 803,108949,681 968,264
------------ ------------
Total current assets 92,357,897 95,544,15990,147,886 90,604,817
MARKETABLE SECURITIES 7,325,979 8,026,1277,535,243 6,273,638
OTHER ASSETS 9,341,419 9,683,25213,730,819 13,750,574
PLANT AND EQUIPMENT 39,293,859 31,087,25440,651,798 40,914,250
Less - Accumulated depreciation 10,394,161 8,927,27111,310,433 11,224,993
------------ ------------
Plant and equipment, net 28,899,698 22,159,98329,341,365 29,689,257
TRADEMARK 10,867,969 10,821,68110,867,969
------------ ------------
$148,792,962 $146,235,202$151,623,282 $151,186,255
============ ============
LIABILITIES & SHAREHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Short-term borrowings $ 24,969,660 $ 27,944,830
Accounts payable $ 5,753,520 $ 11,268,7135,813,425 7,465,606
Dividend payable 570,233 490,810555,462 563,642
Accrued liabilities 8,964,239 8,473,3736,310,449 8,279,846
Accrued income taxes 2,263,958 --
------------ ------------
Total current liabilities 15,287,992 20,232,89639,912,954 44,253,924
LONG-TERM PENSION LIABILITY 3,109,154 3,077,285
DEFERRED INCOME TAX LIABILITIES 2,939,000 3,416,000
LONG-TERM DEBT 34,962,273 37,801,9925,006,478 5,009,158
SHAREHOLDERS' INVESTMENT:
Common stock 5,701,937 3,789,0645,644,918 5,630,418
Other shareholders' investment 89,901,760 80,995,25097,949,778 93,215,470
------------ ------------
$148,792,962 $146,235,202$151,623,282 $151,186,255
============ ============
The accompanyingSee notes to consolidated condensed financial statements are an
integral part of these financial statements.
-1-
WEYCO GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
FOR THE PERIODSTHREE MONTHS ENDED SEPTEMBER 30,MARCH 31, 2004 AND 2003 AND 2002 (UNAUDITED)
Three Months ended September 30 Nine Months ended September 30
-------------------------------- --------------------------------2004 2003
2002 2003 2002
------------- ------------- ------------- ------------------------- ------------
NET SALES $ 49,817,25661,743,369 $ 58,762,489 $ 161,197,464 $ 127,017,35260,379,924
COST OF SALES 32,774,309 39,998,767 106,355,797 88,688,085
------------- ------------- ------------- -------------40,484,710 40,195,100
------------ ------------
Gross earnings 17,042,947 18,763,722 54,841,667 38,329,26721,258,659 20,184,824
SELLING AND ADMINISTRATIVE EXPENSES 11,887,045 11,233,478 36,128,815 24,926,799
------------- ------------- ------------- -------------12,776,351 12,447,444
------------ ------------
Earnings from operations 5,155,902 7,530,244 18,712,852 13,402,4688,482,308 7,737,380
INTEREST INCOME 131,378 199,864 403,346 683,070120,863 149,826
INTEREST EXPENSE (421,998) (545,035) (1,084,350) (811,387)(167,485) (351,962)
OTHER INCOME AND EXPENSE, net 43,692 (2,630) 241,764 (19,688)
------------- ------------- ------------- -------------(EXPENSE) (32,990) 20,950
------------ ------------
Earnings before provision for
income taxes 4,908,974 7,182,443 18,273,612 13,254,4638,402,696 7,556,194
PROVISION FOR INCOME TAXES 1,400,000 2,650,000 6,500,000 4,800,000
------------- ------------- ------------- -------------3,250,000 2,885,000
------------ ------------
Net earnings $ 3,508,9745,152,696 $ 4,532,443 $ 11,773,612 $ 8,454,463
============= ============= ============= =============4,671,194
============ ============
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES
OUTSTANDING (Note 4)*2)
Basic 5,700,959 5,642,352 5,693,346 5,633,3155,637,793 5,685,509
Diluted 5,903,141 5,791,789 5,881,725 5,747,9445,837,573 5,843,840
EARNINGS PER SHARE (Note 4)*2)
Basic $ .62.91 $ .82
============ ============
Diluted $ .88 $ .80
$ 2.07 $ 1.50
============= ============= ============= =============
Diluted $ .59 $ .78 $ 2.00 $ 1.47
============= ============= ============= ========================= ============
CASH DIVIDENDS PER SHARE*SHARE $ .10 $ .09
$ .28 $ .25
============= ============= ============= ========================= ============
*All per share figures have been adjusted to reflect the October 1, 2003 50%
stock dividend.
The accompanyingSee notes to consolidated condensed financial statements are an
integral part of these financial statements.
-2-
WEYCO GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTSSTATEMENT OF CASH FLOWS
FOR THE NINETHREE MONTHS ENDED SEPTEMBER 30,MARCH 31, 2004 AND 2003 AND 2002 (UNAUDITED)
2004 2003
2002
------------ ----------------------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings .............................................................. $ 5,152,696 $ 4,671,194
Adjustments to reconcile net earnings to net cash
provided by operating activities $ 13,930,476 $ 2,146,279
------------ --------------
Depreciation ......................................................... 678,422 667,439
Amortization ......................................................... 48,649 46,755
Deferred income taxes ................................................ 494,479 111,000
Deferred compensation expense ........................................ 17,400 49,323
Pension expense ...................................................... 150,000 150,000
Gain on sale of assets ............................................... (84,704) --
Increase in cash surrender value of life insurance ................... (102,000) (93,000)
Changes in operating assets and liabilities --
Accounts receivable .................................................. (8,935,422) (9,044,392)
Inventories .......................................................... 6,991,068 (1,457,116)
Prepaids and other current assets .................................... 18,584 323,253
Accounts payable ..................................................... (1,652,181) 6,843,872
Accrued liabilities and other ........................................ (2,103,152) (1,091,131)
Accrued income taxes ................................................. 2,492,032 3,548,331
----------- -----------
Net cash provided by operating activities ....................... 3,165,871 4,725,528
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Florsheim business -- (48,408,859)
Purchase of marketable securities (3,400,000) (6,004,234)......................................... (1,412,909) (700,000)
Proceeds from maturities of marketable securities 4,499,248 7,139,405......................... 626,313 1,216,390
Purchase of plant and equipment (8,379,073) (6,745,417)........................................... (345,023) (1,038,628)
Proceeds from sales of plant and equipment 37,623................................ 90,611 --
------------ ----------------------- -----------
Net cash used for investing activities (7,242,202) (54,019,105)
------------ ------------.......................... (1,041,008) (522,238)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash dividends paid (1,594,878) (1,427,006)
Shares purchased and retired (212,102) (195,500)....................................................... (572,272) (490,810)
Proceeds from stock options exercised 449,363 462,813..................................... 242,013 64,025
Net (repayments) borrowings (repayments) under
revolving credit agreement (2,839,719) 46,454,096
Debt issuance costs -- (374,057)
------------ ------------........................................... (2,975,170) 3,150,717
----------- -----------
Net cash (used for) provided by financing activities (4,197,336) 44,920,346
------------ ------------............ (3,305,429) 2,723,932
----------- -----------
Net (decrease) increase (decrease) in cash and cash equivalents 2,490,938 (6,952,480)...................... (1,180,566) 6,927,222
----------- -----------
CASH AND CASH EQUIVALENTS at beginning of period ............................... $ 9,091,567 $ 7,301,104
16,850,998
------------ ----------------------- -----------
CASH AND CASH EQUIVALENTS at end of period ..................................... $ 9,792,042 $ 9,898,518
============ ============7,911,001 $14,228,326
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Income taxes paid, net of refunds ......................................... $ 5,694,925129,500 $ 4,167,678
============ ============(937,710)
=========== ===========
Interest paid ............................................................. $ 916,603153,745 $ 601,524
============ ============396,679
=========== ===========
The accompanyingSee notes to consolidated condensed financial statements are an
integral part of these financial statements.
-3-
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS: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, 2003,March 31, 2004, are not necessarily indicative of results for the full
year.
(2) On July 28, 2003 the Board of Directors of 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 were issued on October 1, 2003, to shareholders of record on August
29, 2003. The stock dividend has been reflected in the shareholders equity
accounts as of September 30, 2003. All per share information in these
financial statements and notes have been restated 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.
(3) 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 $48.7 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 third
quarter of 2003, the Company finalized the purchase price allocation which
resulted in a $46,000 net increase 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):
Nine Months ended September 30
2002
----------
Net Sales $ 160,216
Net Earnings $ 10,322
Basic Earnings Per Share $ 1.83
Diluted Earnings Per Share $ 1.79
-4-
(4) The following table sets forth the computation of basicnet earnings per share
and diluted net earnings per share:
Three Months Ended September 30 Nine Months Ended September 30
-------------------------------- --------------------------------March 31, 2004 March 31, 2003
2002 2003 2002
----------- ----------- ----------- ------------------------- --------------
Numerator:
Net Earnings ..................................................... $ 3,508,9745,152,696 $ 4,532,443 $11,773,612 $ 8,454,463
=========== =========== =========== ===========4,671,194
============== ==============
Denominator:
Basic weighted average shares..... 5,700,959 5,642,352 5,693,346 5,633,315shares .............. 5,637,793 5,685,509
Effect of dilutive securities:
Employee stock options ......... 202,182 149,437 188,379 114,629
----------- ----------- ----------- -----------................... 199,780 158,331
-------------- --------------
Diluted weighted average shares .. 5,903,141 5,791,789 5,881,725 5,747,944
=========== =========== =========== ===========............. 5,837,573 5,843,840
============== ==============
Basic earnings per share ................................. $ .62.91 $ .80 $ 2.07 $ 1.50
=========== =========== =========== ===========.82
============== ==============
Diluted earnings per share ............................. $ .59.88 $ .78 $ 2.00 $ 1.47
=========== =========== =========== ===========.80
============== ==============
Diluted weighted average shares outstanding for 2003the first quarter of 2004
exclude outstanding options to purchase 155,6255,412 shares of common stock at a
weighted-average
price of $33.70$36.94 because they are antidilutive. Diluted weighted average
shares outstanding for 2002the first quarter of 2003 include all outstanding
options, as none wereare antidilutive.
(5)(3) The components of the Company's net periodic pension cost are:
March 31, 2004 March 31, 2003
-------------- --------------
Benefits earned during the period ....................... $ 196,000 $ 143,000
Interest cost on projected benefit obligation ........... 396,000 366,000
Expected return on plan assets .......................... (498,000) (418,000)
Net amortization and deferral ........................... 56,000 59,000
-------------- --------------
Net pension expense .................................. $ 150,000 $ 150,000
The Company has not and does not expect to make any contributions to its
defined benefit pension plan in 2004.
-4-
(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,the quarters ended March 31, 2004 and 2003 and 2002 is:
Wholesale
Distribution Retail Total
------------ ------------ ----------------------- ----------- -----------
THREE MONTHS ENDED SEPTEMBER 30
2003MARCH 31, 2004
Product sales .................... $54,540,000 $ 6,451,000 $60,991,000
Licensing revenues ............... 752,000 -- 752,000
----------- ----------- -----------
Net Sales....................... $ 43,943,000 $ 5,874,000 $ 49,817,000sales ..................... 55,292,000 6,451,000 61,743,000
Earnings from operations........ 4,338,000 818,000 5,156,000
2002operations ......... 7,585,000 897,000 8,482,000
MARCH 31, 2003
Product sales .................... $53,944,000 $ 5,679,000 $59,623,000
Licensing revenues ............... 757,000 -- 757,000
----------- ----------- -----------
Net Sales....................... $ 53,490,000 $ 5,272,000 $ 58,762,000sales ..................... 54,701,000 5,679,000 60,380,000
Earnings from operations........ 7,037,000 493,000 7,530,000
NINE MONTHS ENDED SEPTEMBER 30
2003
Net Sales....................... $143,494,000 $ 17,703,000 $161,197,000
Earnings from operations........ 16,277,000 2,436,000 18,713,000
2002
Net Sales....................... $117,726,000 $ 9,291,000 $127,017,000
Earnings from operations........ 12,597,000 805,000 13,402,000operations .......... 7,138,000 599,000 7,737,000
-5-
(6)(5) 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 #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.
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.
Three Months ended September 30 Nine Months ended September 30March 31 March 31
2004 2003
2002 2003 2002
-------------- -------------- -------------- --------------------------- -------------
Net earnings, as reported ......................... $ 3,508,9745,152,696 $ 4,532,443 $ 11,773,612 $ 8,454,4634,671,194
Deduct: Total stock-based employee
compensation expense determined
under the fair value based method for
all awards, net of related tax effects ........ 558,563 253,004 906,892 395,657
-------------- -------------- -------------- ---------------- 83,170
------------- -------------
Pro forma net income .............................. $ 2,950,4115,152,696 $ 4,279,439 $ 10,866,720 $ 8,058,806
============== ============== ============== ==============4,588,024
============= =============
Earnings per share
Basic - as reported ............................. $ .62.91 $ .80 $ 2.07 $ 1.50
============== ============== ============== ==============.82
Basic - pro forma ............................... $ .52.91 $ .76 $ 1.91 $ 1.43
============== ============== ============== ==============.81
Diluted - as reported ........................... $ .59.88 $ .78 $ 2.00 $ 1.47
============== ============== ============== ==============.80
Diluted - pro forma ............................. $ .50.88 $ .74 $ 1.85 $ 1.40
============== ============== ============== ==============.79
(7)-5-
(6) Comprehensive income for the periodsthree months ended September 30,March 31, 2004 and 2003 and 2002 is
as follows (in thousands):
Three Months ended September 30 Nine Months ended September 30Ended
--------------------------
March 31 March 31
2004 2003
2002 2003 2002
-------------- -------------- -------------- --------------------- ---------
Net earnings $ 3,509 $ 4,532 $ 11,774 $ 8,454$5,153 $4,671
Foreign currency translation adjustments (35) -- 403 --
-------------- -------------- -------------- --------------(82) 173
------ ------
Total comprehensive income $ 3,474 $ 4,532 $ 12,177 $ 8,454$5,071 $4,844
====== ======
The components of Accumulated Other Comprehensive LossIncome as recorded on
the accompanying balance sheets are as follows (in thousands):
September 30, 2003March 31 December 31
2002
------------------ -----------------2004 2003
-------- -----------
Foreign currency translation adjustments $ 171 $ (232)
Additional minimum pension liability, net
of tax of $553 (864) (864)
------ --------
Accumulated other comprehensive loss $ (693) $ (1,096)$27 $109
-6-
(8) 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.
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.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
ACQUISITION
On May 20, 2002,Operations
OVERVIEW
The Company is a distributor of men's casual, dress and fashion shoes under the
Florsheim, Nunn Bush, Nunn Bush NXXT, Brass Boot, Stacy Adams and SAO by Stacy
Adams brand names. Inventory is purchased from third party overseas
manufacturers. The majority of foreign-sourced purchases are denominated in U.S.
dollars. The Company's products are sold to shoe specialty stores, department
stores and clothing retailers primarily in North America, with some distribution
in Europe. The Company also has a retail division, which consists of 30
Company-owned retail stores in the United States and three in Europe. Sales in
retail outlets are made directly to consumers by Company employees. The Company
also has licensing agreements with third parties who sell its branded shoes
overseas, as well as licensing agreements with apparel and accessory
manufacturers in the United States. As such, the Company's results are primarily
impacted by the economic conditions and the retail environment in the United
States.
Overall, net earnings increased from $4,671,000, or $.80 per diluted share for
the first quarter of 2003, to $5,153,000, or $.88 per diluted share for the
first quarter of 2004. For the first quarter of 2004, the Company acquired certain assets of Florsheim Group, Inc.'s
domestichad increases
in both its wholesale and retail operations. On July 1 and July 27, 2002,These increases along with a 1%
increase in overall gross margins resulted in the Company acquired certain assets and assumedincrease in earnings for the
quarter. A more detailed analysis of 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 3 to
these financial statements for further information regarding the acquisition and
borrowings under the line of credit.results follows.
LIQUIDITY & CAPITAL RESOURCES
The Company's primary source of liquidity is its cash and short-term marketable
securities, which aggregated approximately $11,492,000$11,640,000 at September 30, 2003March 31, 2004 as
compared with $9,400,000$13,298,000 at December 31, 2002. To date in 2003,2003. In the first quarter of 2004,
the primary source of cash was operations, while the primary use of cash was the
repayment of long term debt.
-6-
Net cash provided by operating activities for the first quarter of 2004 was down
$1.6 million compared with the same period in 2003. The increase in net earnings
of $.5 million, offset by a $1.5 million deferred compensation payment (which is
included in accrued liabilities and other) were the principal items affecting
the change in cash provided by operations. The primary useschanges in inventory and accounts
payable are due to timing, and together had no impact on the decrease in
operating cash flows.
The increase in net cash used for investing activities is primarily due to an
increase in marketable securities during the first quarter of cash are purchases2004, as compared
with a decrease during the same period of plant2003. This is due to differences in
the timing of investments and equipment, repaymentsmaturities between periods. Also, in the first
quarter of long-term debt,2003, $600,000 of the $1 million of capital expenditures was related
to the 2003 expansion and paymentreconfiguration of cash dividends.
-7-
the Company's distribution center.
The lower capital spending in 2004 represents a more normal level of quarterly
expenditures.
Cash flows from operations for the nine months ended September 30, 2003 were
generated principally by net earningsfinancing activities decreased due to first quarter 2004
repayments of $11.8 million plus $1.8 millionborrowings. As of depreciation and amortization. Cash flows for operations for the nine months
ended September 30, 2002 were generated by net earnings of $8.5 million plus
$1.5 million of depreciation and amortization. This was offset by an $8.4
million increase in accounts receivable, due primarily to the buildup of
Florsheim accounts receivable after the May 20, 2002 acquisition.
During the third quarterMarch 31, 2004, the Company completed the construction projecthad a total of $50
million available under its existing borrowing facility, of which total
borrowings were $25.0 million. This facility includes certain financial
covenants, including minimum net worth levels, minimum levels of Earnings Before
Interest, Taxes, Depreciation and Amortization (EBITDA) and a minimum ratio of
funded debt to expand and reconfigure the distribution center to more efficiently handle the
increased volumes resulting from the acquisition. The total cost was
approximately $8.5 million.EBITDA. As of September 30, 2003, approximately $8.2 million
has been paid. The Company expects capital expenditures to return to a more
normalized level overMarch 31, 2004 the next twelve months. The Company estimates normal
capital expenditures to be $1 to $2 million.
At September 30, 2003, $35 million was outstanding under the line of credit
facility. The Company was in compliance with
all debt covenants as of September
30, 2003.
In October 2003, thecovenants.
The Company purchased 86,200 shares ofintends to use its Common Stock for
$2.6 million in a single transaction.2004 operating cash flows primarily to reduce
outstanding borrowings and pay dividends.
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.business in 2004.
RESULTS OF OPERATIONS
Overall net sales increased 2.3%, from $60,380,000 for the thirdfirst quarter ended September 30,of 2003
of $49.8
million have decreased 15.2% compared with $58.8 millionto $61,743,000 for the thirdfirst quarter of 2002, primarily due to a decrease in wholesale net sales. Wholesale net sales
for the current quarter were $43.9 million, as compared with $53.5 million for
the same period in 2002. Wholesale sales for the quarter were down principally
because the Company's Florsheim and Stacy Adams divisions' sales were down 29%
and 21%, respectively.2004. The Company's Nunn Bush division sales were down 6% for
the quarter.
Florsheim sales were down because in the third quarter of 2002, the Company sold
a significant amount of obsolete inventory that was acquired in the Florsheim
acquisition. Those sales did not recur in 2003. Additionally, after the
acquisition of Florsheim on May 20, 2002, the Florsheim warehouse in Jefferson
City, Missouri was closed as inventory was movedincrease resulted from Jefferson City to the
Company's consolidated distribution center in Glendale, Wisconsin. Sales of
Florsheim product resumed in the middle of June 2002. When the Company started
shipping Florsheim product again, the Company received some unusually large
orders to build up retail inventories which were depleted as a result of the
shutdown. The majority of those orders were shipped in the third quarter of
2002.
The Company's Stacy Adams division's sales were down principally as the result
of the Company's SAO sub-brand, as the entire streetwear casual market remains
challenging.
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Retail net sales for the quarter ended September 30, 2003 were $5.9 million as
compared with $5.3 million in 2002, up 11%. Same store sales were up 6% for the
third quarter.
For the nine months ended September 30, 2003, net sales were $161.2 million, as
compared with $127.0 million for the same period in 2002. The 26.9% increase was
due to
increases in both the wholesale and retail divisions. Wholesale net sales through September 30, 2003 were $143.5 million as compared to $117.7 million for
the same periodcurrent quarter were $54.5 million versus $53.9 million in the first quarter
last year. This increase resulted from increases of 2002. Wholesale net sales at9% and 1% in the Company's FlorsheimStacy Adams
and Nunn Bush divisions, respectively, while Florsheim division sales were up 131%, and 3%, respectively, anddown
11% for the quarter. The increase in the Stacy Adams division was down 3%. Salesdue to a 16%
increase in the Company's dress shoe business. The decrease in the Florsheim
division sales was due to the Company discontinuing distribution to several
retailers whose image and environment was not appropriate for the Florsheim
divisionbrand. The Company also sold less closeout product in 2004. While sales of
Florsheim product were up as a result ofdown, the acquisitionCompany still expects to show an increase in
May 2002.Florsheim sales for 2004. Retail net sales were $17.7$6.5 million to datethis year, compared
with $5.7 million last year. Same store sales increased 13% in 2003the first quarter
of 2004. Also included in overall net sales are licensing revenues of $752,000
in the first quarter of 2004 as compared with $9.3 million$757,000 in 2002. The increase is primarily the resultsame period of
the
Florsheim acquisition. Same store sales were flat for the nine months ended
September 30, 2003.
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Gross earnings as a percent of net sales for the third quarter increased from
31.9% in 2002 to 34.2% in 2003. Gross earnings as a percent of net sales for the
nine months ended September 30 increased from 30.2% in 2002 to 34.0% in 2003.
The increases in gross earnings as a percent of net sales for the quarter and
nine months ended September 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 11% of overall net sales to date in 2003
versus 7% last year. This change in mix resulted in an increase of approximately
1% in gross earnings as a percent of net sales for both the three and nine
months ended September 30. Wholesale gross earnings as a percent of net sales increased from 29.0%33.4% for the third quarter of 2002 to 30.5% for the thirdfirst
quarter of 2003 and from 27.8%to 34.4% for the nine months ended September 30, 2002 to
30.5% forfirst quarter of 2004. This is the same periodresult of
2003. Wholesale gross margins have increased due
principally to increases in gross margins at the Florsheim division as sales in
2003 include less obsolete and off price products. Retail gross earnings as a percent of net sales in the wholesale division,
which increased from 61.8% for the third quarter of 200230.4% in 2003 to 63.6%
for the third quarter of 2003, and from 60.2% for the nine months ended
September 30, 2002 to 63.2% for the same period of 2003.31.2% in 2004. Retail gross margins were
flat. The increase in retailwholesale gross earnings asmargins resulted from an increase in
margins at the Company's Florsheim division. This increase resulted from a
percentreduction of net salescloseout sales. However, the gross margin dollars generated from
2002 to 2003 is primarily
attributable to product mix.the increase in gross margin percentages offset the loss in gross margins
dollars resulting from the decrease in volume for the Florsheim division.
Margins at the Company's Stacy Adams and Nunn Bush divisions were flat.
Selling and administrative expenses as a percent of net sales were 20.6% for the
thirdfirst quarter increased from 19.1%of 2003 versus 20.7% in 2002 to 23.9% in 2003. For the nine months ended
September 30, selling and administrative expenses as a percent of net sales
increased from 19.6% in 2002 to 22.4% in 2003.2004. Wholesale selling and administrative
expenses as a percent of net sales increased from 15.8% for the
quarter ended September 30, 2002 to 20.4% for the quarter ended September 30,were 17.4% in 2003 and increased from 17.1% for the nine months ended September 30, 2002 to
19.1% for the same period17.5% in 2003. Retail2004, and
retail selling and administrative expenses as a percent of net sales decreased from 52.5% for the quarter ended September 30,
2002 to 49.7% for the quarter ended September 30,were 51.6%
in 2003 and from 51.5% for the
nine months ended September 30, 2002 to 49.4% for the nine months ended
September 30, 2003.
-9-
In general, increases48.2% in wholesale2004. The decrease in retail selling and administrative
expenses as a percent of net sales this year wereis primarily due to increased advertisingthe fixed component,
principally rent and occupancy costs, 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 have decreased since last year, as the Company has been ablerelative to reduce the
operating costs of the stores since last year. Overall selling and
administrative expenses as a percent of net sales are affected by these factors,
as well as the previously discussed change in the mix of retail to wholesale net sales.
The retail segment has significantly higher selling and administrative
expenses as a percent of net sales than the wholesale segment.
Interest expenseincome for the first quarter ended September 30, 2003of 2004 was $422,000$121,000 as compared to $545,000with
$150,000 for the same period in 2002.2003. This decrease iswas due to the
decreasereductions in the
average balance of debtcash and marketable securities outstanding which was $34 millionbetween 2003 and
2004.
Interest expense for the thirdfirst quarter 2003of 2004 was $167,000 as compared to $52 millionwith
$352,000 for the thirdfirst quarter of 2002.
For2003. The decrease is primarily due to a
reduction in the nine months ended September 30, 2003, interest expense was $1,084,000average balance of borrowings.
The effective tax rate for the first quarter of 2004 is 38.7% as compared to $811,000 for the nine months ended September 30, 2002.with
38.2% in 2003. This slight increase is due to a higher level of average debt outstandingdecreased municipal bond income
this year relative to pre-tax earnings, which results 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 nine months ended
September 30, 2003, as comparedfuture. These statements represent the Company's
reasonable judgment with respect to 2002, which had significantly lower debt
balances priorfuture events and are subject to the May 20, 2002 acquisition.
The effective tax rate was 28.5% for the quarter ended September 30, 2003, as
compared with 36.9% for the same period of 2002risks and
35.6% for the nine months
ended September 30, 2003 as compared with 36.2% for the same period of 2002. The
decreaseuncertainties that could cause actual results to differ materially. These
factors could include significant adverse changes in the tax rate foreconomic conditions
affecting overseas suppliers or the quarter and to date in 2003 is due tomen's footwear markets served by the
impact of a favorable settlement of a tax issue which occurred in the third
quarter of 2003.Company.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes since the March 24, 2003 filing offrom those reported in the Company's Annual
Report on Form 10-K.10-K for the year ended December 31, 2003.
-8-
Item 4. Controls and Procedures
The Company maintains disclosure controls and procedures designed to ensure
that the information the Company must disclose in its filings with the
Securities and Exchange Commission is recorded, processed, summarized and
reported 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 as defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934, as amended (the
"Exchange Act") as of the end of the period covered by this report (the
"Evaluation Date"). Based on such evaluation, such officers have concluded
that, as of the Evaluation Date, the Company's disclosure controls and
procedures are 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.
-10-
There have not been any changes in the Company's internal control 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 hashave materially affected, or isare reasonably likely to materially
affect, the Company's internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None2. Changes in Securities, Use of Proceeds and Issuer Purchases of
Equity Securities
In April 1998, the Company first authorized a stock repurchase program to
purchase 750,000 shares of its common stock in open market transactions at
prevailing prices. In April 2000 and again in May 2001, the Board of
Directors extended the stock repurchase program to cover the repurchase of
750,000 additional shares. Therefore, 2.25 million shares have been
authorized for repurchase since the program began. The Company did not
repurchase any shares under the program during the quarter ended March 31,
2004. Considering previous years' repurchases, as of March 31, 2004 the
Company had 813,100 shares of Common Stock remaining under the program. The
repurchase authorization does not expire.
-9-
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Shareholders was held April 27, 2004 to elect two
members to the Board of Directors.
Thomas W. Florsheim and Leonard J. Goldstein were nominated for
election to the Board of Directors for terms of three years. A total of
4,986,563 votes were cast for the nominees, with 4,693,929 votes
cast for and 292,634 votes withheld for Mr. Florsheim, and 4,965,533
votes cast for and 21,030 votes withheld for Mr. Goldstein. Thomas
W. Florsheim, Jr. and Robert Feitler continue as Directors of the Company
for a term expiring in 2005. Virgis W. Colbert, John W. Florsheim, and
Frederick P. Stratton continue as Directors of the Company for a term
expiring in 2006.
Item 6. Exhibits and Reports on Form 8-K
See the Exhibit Index included herewith for a listing of Exhibits. There
was one 8-K filingFiling during the quarter. On July 22, 2003February 23, 2004, the Company
filed a press release announcing its results for the quarter ended June 30,December
31, 2003.
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 10, 2003May 7, 2004 /s/ John F. Wittkowske
- ----------------- ---------------------------------------------------------- -----------------------
Date John F. Wittkowske
Senior Vice President
&
Chief Financial Officer
-11--10-
WEYCO GROUP, INC.
(THE "REGISTRANT")
(COMMISSION FILE NO. 0-9068)
EXHIBIT INDEX
TO
CURRENT REPORT ON FORM 10-Q
DATE OF SEPTEMBER 30, 2003March 31, 2004
INCORPORATED
EXHIBIT HEREIN BY FILED
NUMBER DESCRIPTION REFERENCE TO HEREWITH
- ------ ---------------------------------------------------------------------------------- ------------ --------
31.1 Certification pursuant to Rule 13a-14of Principal Executive Officer 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-14of Principal Financial Officer 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 Certification of the Sarbanes-Oxley
Act of 2002, Thomas W. Florsheim, Jr.Chief
Executive Officer X
32.2 Certification pursuant to 18 U.S.C. X
Section 1350, as adopted pursuant
to Section 906 Certification of the Sarbanes-Oxley
Act of 2002, John F. WittkowskeChief
Financial Officer X