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 JuneSeptember 30, 2004
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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. 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 July 23,November 1, 2004 the following shares were outstanding:
Common Stock, $1.00 par value 4,415,3884,430,407 Shares
Class B Common Stock, $1.00 par value 1,304,6931,303,343 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 accounting principles generally accepted in the United
States of Americaaccounting 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 (UNAUDITED)
ASSETS
JuneASSETS
September 30 December 31
2004 2003
------------ ------------
CURRENT ASSETS:
Cash and cash equivalents.................................equivalents $ 8,759,5855,865,563 $ 9,091,567
Marketable securities..................................... 2,017,295securities 940,560 4,206,100
Accounts receivable, net.................................. 30,621,665net 38,145,332 29,900,197
Accrued income tax receivable............................. 270,380receivable -- 228,074
Inventories - finished shoes.............................. 50,238,390shoes 52,234,327 43,727,578
Deferred income tax benefits.............................. 1,975,919benefits 2,162,417 2,483,037
Prepaid expenses and other current assets................. 1,115,182assets 1,109,380 968,264
------------ ------------
Total current assets.......................................... 94,998,416assets 100,457,579 90,604,817
MARKETABLE SECURITIES.......................................... 7,905,307SECURITIES 9,835,260 6,273,638
OTHER ASSETS................................................... 13,715,457ASSETS 13,728,082 13,750,574
PLANT AND EQUIPMENT............................................ 40,837,599EQUIPMENT 40,177,966 40,914,250
Less - Accumulated depreciation.............................. 11,946,242depreciation 11,840,007 11,224,993
------------ ------------
28,891,35728,337,959 29,689,257
TRADEMARK......................................................TRADEMARK 10,867,969 10,867,969
------------ ------------
$156,378,506$163,226,849 $151,186,255
============ ============
LIABILITIES & SHAREHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Short-term borrowings $ 26,956,972 $ 27,944,830
Accounts payable 6,449,669 7,465,606
Dividend payable 630,022 563,642
Accrued liabilities 7,289,485 8,279,846
Accrued income taxes 1,480,526 --
------------ ------------
Total current liabilities 42,806,674 44,253,924
LONG-TERM PENSION LIABILITY 3,242,128 3,077,285
DEFERRED INCOME TAX LIABILITIES 4,904,789 5,009,158
SHAREHOLDERS' INVESTMENT:
Common stock 5,728,225 5,630,418
Other shareholders' investment 106,545,033 93,215,470
------------ ------------
$163,226,849 $151,186,255
============ ============
LIABILITIES & SHAREHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Short-term borrowings..................................... $ 22,961,572 $ 27,944,830
Accounts payable.......................................... 9,154,141 7,465,606
Dividend payable.......................................... 613,773 563,642
Accrued liabilities....................................... 7,207,606 8,279,846
------------ ------------
Total current liabilities...................................... 39,937,092 44,253,924
LONG-TERM PENSION LIABILITY.................................... 3,169,263 3,077,285
DEFERRED INCOME TAX LIABILITIES................................ 4,939,645 5,009,158
SHAREHOLDERS' INVESTMENT:
Common stock.............................................. 5,720,081 5,630,418
Other shareholders' investment............................ 102,612,425 93,215,470
------------ ------------
$156,378,506 $151,186,255
============ ============
SeeThe accompanying 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 PERIODS ENDED JUNESEPTEMBER 30, 2004 AND 2003 (UNAUDITED)
Three Months ended JuneSeptember 30 SixNine Months ended JuneSeptember 30
--------------------------------- ----------------------------------------------------------------- --------------------------------
2004 2003 2004 2003
------------- ------------- ------------- -------------
NET SALES................................................SALES $ 49,786,36055,841,100 $ 51,000,28449,817,256 $ 111,529,729167,370,829 $ 111,380,208161,197,464
COST OF SALES............................................ 31,616,365 33,229,404 72,101,075 73,270,016SALES 35,866,719 32,774,309 107,967,795 106,355,797
------------- ------------- ------------- -------------
Gross earnings............................ 18,169,995 17,770,880 39,428,654 38,110,192earnings 19,974,381 17,042,947 59,403,034 54,841,667
SELLING AND ADMINISTRATIVE EXPENSES...................... 11,806,927 11,951,309 24,583,278 24,553,242EXPENSES 12,919,417 11,887,045 37,502,695 36,128,815
------------- ------------- ------------- -------------
Earnings from operations.................. 6,363,068 5,819,571 14,845,376 13,556,950operations 7,054,964 5,155,902 21,900,339 18,712,852
INTEREST INCOME.......................................... 120,143 122,142 241,006 271,968INCOME 119,460 131,378 360,466 403,346
INTEREST EXPENSE......................................... (98,853) (310,390) (266,338) (662,352)EXPENSE (101,923) (421,998) (368,261) (1,084,350)
OTHER INCOME AND EXPENSE, net............................ (10,143) 177,121 (43,133) 198,072net (2,268) 43,692 (45,401) 241,764
------------- ------------- ------------- -------------
Earnings before provision for
income taxes......................... 6,374,215 5,808,444 14,776,911 13,364,638taxes 7,070,233 4,908,974 21,847,143 18,273,612
PROVISION FOR INCOME TAXES............................... 2,400,000 2,215,000 5,650,000 5,100,000TAXES 2,700,000 1,400,000 8,350,000 6,500,000
------------- ------------- ------------- -------------
Net earnings..............................earnings $ 3,974,2154,370,233 $ 3,593,4443,508,974 $ 9,126,91113,497,143 $ 8,264,63811,773,612
============= ============= ============= =============
WEIGHTED AVERAGE SHARES OUTSTANDING (Note 2)
Basic.......................................... 5,666,843 5,693,234 5,653,375 5,689,650
Diluted........................................ 5,854,174 5,898,075 5,838,322 5,872,581Basic 5,725,533 5,700,959 5,675,568 5,693,346
Diluted 5,903,247 5,903,141 5,856,138 5,881,725
EARNINGS PER SHARE (Note 2):
Basic..........................................
Basic $ .70.76 $ .63.62 $ 1.612.38 $ 1.452.07
============= ============= ============= =============
Diluted........................................Diluted $ .68.74 $ .61.59 $ 1.562.30 $ 1.412.00
============= ============= ============= =============
CASH DIVIDENDS PER SHARE.................................SHARE $ .11 $ .09.10 $ .21.32 $ .18.28
============= ============= ============= =============
The accompanying notes to consolidated condensed financial statements are an
integral part of these financial statements.
-2-
WEYCO GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTSTATEMENTS OF CASH FLOWS
FOR THE SIXNINE MONTHS ENDED JUNESEPTEMBER 30, 2004 AND 2003 (UNAUDITED)
2004 2003
------------- ------------------------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings ................................................................... $ 9,126,91113,497,143 $ 8,264,63811,773,612
Adjustments to reconcile net earnings to net cash
provided by operating activities -
Depreciation .............................................................. 1,318,821 1,023,6862,003,050 1,643,335
Amortization .............................................................. 65,801 93,51066,962 140,265
Deferred income taxes ..................................................... 437,605 (100,000)216,251 (443,000)
Deferred compensation expense ............................................. 27,600 98,64637,800 147,969
Pension expense ........................................................... 356,480 300,000
Gain534,720 610,000
Loss (Gain) on sale of assets .................................................... (88,392) (22,194)116,174 (25,819)
Increase in cash surrender valuevale of life insurance ........................ (204,000) (186,000)(306,000) (279,000)
Changes in operating assets and liabilities -
Accounts receivable ....................................................... (721,468) 2,312,498(8,245,135) (2,196,389)
Inventories ............................................................... (6,510,812) 4,879,367(8,506,749) 6,424,915
Prepaids and other current assets ......................................... (146,918) 228,922(141,116) 244,696
Accounts payable .......................................................... 1,688,535 (5,202,623)(1,015,937) (5,515,193)
Accrued liabilities and other ............................................. (1,318,715) 485,336(1,287,958) 634,247
Accrued income taxes ...................................................... (42,306) 334,0401,708,600 770,838
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Net cash (used for) provided by operating activities ............................ 3,989,142 12,509,826(1,322,195) 13,930,476
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities .............................................. (2,324,390)(4,260,081) (3,400,000)
Proceeds from maturities of marketable securities .............................. 2,876,603 2,337,4623,957,915 4,499,248
Purchase of plant and equipment ................................................ (538,288) (5,370,406)(928,955) (8,379,073)
Proceeds from sales of plant and equipment ..................................... 95,111 29,123230,706 37,623
------------ ------------
Net cash provided by (used for)used for investing activities ............................................. 109,036 (6,403,821)(1,000,415) (7,242,202)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash dividends paid ............................................................ (1,136,363) (1,024,685)(1,750,137) (1,594,878)
Shares purchased and retired -- (212,102)
Proceeds from stock options exercised .......................................... 1,689,461 261,3651,834,601 449,363
Net (repayments) borrowings under
revolving credit agreement ................................................ (4,983,258) 101,687(987,858) (2,839,719)
------------ ------------
Net cash used for financing activities ............................... (4,430,160) (661,633)(903,394) (4,197,336)
------------ ------------
Net (decrease) increase in cash and cash equivalents ........................... (331,982) 5,444,372
------------ ------------(3,226,004) 2,490,938
CASH AND CASH EQUIVALENTS at beginning of period .................................... $ 9,091,567 $ 7,301,104
------------ ------------
CASH AND CASH EQUIVALENTS at end of period .......................................... $ 8,759,5855,865,563 $ 12,745,4769,792,042
============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Income taxes paid, net of refunds .............................................. $ 5,134,5006,413,534 $ 4,602,5905,694,925
============ ============
Interest paid .................................................................. $ 235,850335,763 $ 684,772916,603
============ ============
SeeThe accompanying notes to consolidated condensed financial statements are an
integral part of these financial 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 sixnine months
ended JuneSeptember 30, 2004, are not necessarily indicative of results for the
full year.
(2) The following table sets forth the computation of net earnings per share
and diluted net earnings per share:
Three Months Ended JuneSeptember 30 SixNine Months Ended JuneSeptember 30
-------------------------- ------------------------------------------------------- ------------------------------
2004 2003 2004 2003
------------ ----------- ---------- --------------------- ----------- -----------
Numerator:
Net Earnings ......................................... $3,974,215 $3,593,444 $9,126,911 $8,264,638
========== ========== ========== ==========.......................... $ 4,370,233 $ 3,508,974 $13,497,143 $11,773,612
=========== =========== =========== ===========
Denominator:
Basic weighted average shares ........................ 5,666,843 5,693,234 5,653,375 5,689,650......... 5,725,533 5,700,959 5,675,568 5,693,346
Effect of dilutive securities:
Employee stock options ............................. 187,331 204,841 184,947 182,931
---------- ---------- ---------- ----------.............. 177,714 202,182 180,570 188,379
----------- ----------- ----------- -----------
Diluted weighted average shares ...................... 5,854,174 5,898,075 5,838,322 5,872,581
========== ========== ========== ==========....... 5,903,247 5,903,141 5,856,138 5,881,725
=========== =========== =========== ===========
Basic earnings per share ............................................... $ .70.76 $ .63.62 $ 1.612.38 $ 1.45
========== ========== ========== ==========2.07
=========== =========== =========== ===========
Diluted earnings per share ........................................... $ .68.74 $ .61.59 $ 1.562.30 $ 1.41
========== ========== ========== ==========2.00
=========== =========== =========== ===========
Diluted weighted average shares outstanding for the three months and sixnine months
ended JuneSeptember 30, 2004 exclude outstanding options to purchase 5,412155,250
shares of common stock at a weighted-average price of $33.70 and 5,412 shares at a
weighted-average price of $36.94, respectively, because they are
antidilutive. Diluted weighted average shares outstanding for the three months and
sixnine months ended JuneSeptember 30, 2003 exclude outstanding options to
purchase 156,375155,625 shares of common stock at a weighted-average price of
$33.69$33.70 because they are antidilutive.
(3) The components of the Company's net periodic pension cost are:
Three Months Ended JuneSept. 30 SixNine Months Ended JuneSept. 30
-------------------------- ---------------------------------------------------- ----------------------------
2004 2003 2004 2003
--------- --------- --------- -------------------- ----------- ----------- -----------
Benefits earned during the period ....................................... $ 196,000 $ 143,000 $ 392,000588,000 $ 286,000429,000
Interest cost on projected benefit obligation ............... 396,000 366,000 792,000 732,0001,188,000 1,098,000
Expected return on plan assets ............................................. (498,000) (418,000) (996,000) (836,000)(1,494,000) (1,254,000)
Net amortization and deferral ........................... 112,000 59,000 168,000 118,000
--------- --------- --------- ---------.................... 85,000 219,000 253,000 337,000
----------- ----------- ----------- -----------
Net pension expense ............................................................. $ 206,000179,000 $ 150,000310,000 $ 356,000535,000 $ 300,000610,000
The Company has not and does not expect to make any contributions to its
defined benefit pension plan in 2004.
-4-
4)(4) The Company continues to operate in two business segments: wholesale
distribution and retail sales of men's footwear. Summarized segment data
for the periods ended JuneSeptember 30, 2004 and 2003 is:
Wholesale
Distribution Retail Total
------------ ------------ ------------
THREE MONTHS ENDED JUNESEPTEMBER 30
-------------------------------
2004
----
Product sales ...................................................... $ 42,315,00049,333,000 $ 6,521,0005,628,000 $ 48,836,00054,961,000
Licensing revenues ....................... 950,000..................... 880,000 -- 950,000880,000
------------ ------------ ------------
Net sales .............................. 43,265,000 6,521,000 49,786,000............................ $ 50,213,000 $ 5,628,000 $ 55,841,000
Earnings from operations ................. 5,335,000 1,028,000 6,363,000............... 6,521,000 534,000 7,055,000
2003
----
Product sales ...................................................... $ 44,096,00043,147,000 $ 6,150,0005,874,000 $ 50,246,00049,021,000
Licensing revenues ....................... 754,000..................... 796,000 -- 754,000796,000
------------ ------------ ------------
Net sales .............................. 44,850,000 6,150,000 51,000,000............................ $ 43,943,000 $ 5,874,000 $ 49,817,000
Earnings from operations ................. 4,802,000 1,018,000 5,820,000
SIX............... 4,338,000 818,000 5,156,000
NINE MONTHS ENDED JUNESEPTEMBER 30
------------------------------
2004
----
Product sales ...................................................... $146,188,000 $ 96,856,000 $ 12,972,000 $109,828,00018,600,000 $164,788,000
Licensing revenues ....................... 1,702,000..................... 2,583,000 -- 1,702,0002,583,000
------------ ------------ ------------
Net sales .............................. 98,558,000 12,972,000 111,530,000............................ $148,771,000 $ 18,600,000 $167,371,000
Earnings from operations ................. 12,920,000 1,925,000 14,845,000............... 19,441,000 2,459,000 21,900,000
2003
----
Product sales ...................................................... $141,185,000 $ 98,038,000 11,828,000 $109,866,00017,703,000 $158,888,000
Licensing revenues ....................... 1,514,000..................... 2,309,000 -- 1,514,0002,309,000
------------ ------------ ------------
Net sales .............................. 99,552,000 11,828,000 111,380,000............................ $143,494,000 $ 17,703,000 $161,197,000
Earnings from operations ................. 11,940,000 1,617,000 13,557,000............... 16,277,000 2,436,000 18,713,000
(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 stockCommon Stock on the date of grant.
-5-
The following table illustrates the effect on 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, to stock-based employee compensation.
Three Months ended JuneSeptember 30 SixNine Months ended JuneSeptember 30
2004 2003 2004 2003
------------- ------------- ------------- ------------------------ ----------- ------------ ------------
Net earnings, as reported ............................................................... $ 3,974,2154,370,233 $ 3,593,4443,508,974 $ 9,126,91113,497,143 $ 8,264,63811,773,612
Deduct: Total stock-based employee
compensation expense determined
under the fair value based method for
all awards, net of related tax effects ......................... 64,126 265,159 64,126 348,329
------------- ------------- ------------- -------------..... 155,983 558,563 220,109 906,892
----------- ----------- ------------ ------------
Pro forma net income ......................................................................... $ 3,910,0894,214,250 $ 3,328,2852,950,411 $ 9,062,78513,277,034 $ 7,916,309
------------- ------------- ------------- -------------10,866,720
=========== =========== ============ ============
Earnings per share
Basic - as reported ........................................................................ $ .70.76 $ .63.62 $ 1.612.38 $ 1.452.07
=========== =========== ============ ============
Basic - pro forma ............................................................................ $ .69.74 $ .58.52 $ 1.602.34 $ 1.391.91
=========== =========== ============ ============
Diluted - as reported .................................................................... $ .68.74 $ .61.59 $ 1.562.30 $ 1.412.00
=========== =========== ============ ============
Diluted - pro forma ........................................................................ $ .67.71 $ .56.50 $ 1.552.27 $ 1.351.85
=========== =========== ============ ============
(6) Comprehensive income for the periods ended JuneSeptember 30, 2004 and 2003 is
as follows (in thousands):
Three Months Ended JuneSeptember 30 SixNine Months ended JuneSeptember 30
2004 2003 2004 2003
------- ------- ------- --------------- -------- -------- --------
Net earnings........................................................earnings $ 3,9744,370 $ 3,5933,509 $ 9,12713,497 $ 8,26511,774
Foreign currency translation
adjustments...................................................... (61) 266 (143) 438
------- ------- ------- -------adjustments 55 (35) (88) 403
-------- -------- -------- --------
Total comprehensive income.....................................income $ 3,9134,425 $ 3,8593,474 $ 8,98413,409 $ 8,70312,177
The components of Accumulated Other Comprehensive Loss as recorded on the
accompanying balance sheets are as follows (in thousands):
JuneSeptember 30, 2004 December 31, 2003
------------------------------- -----------------
Foreign currency translation adjustments.......... $(34)adjustments $21 $109
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of OperationsOperations.
OVERVIEW
The Company designs and markets moderately priced and better-grade men's branded
footwear for casual, fashion and dress lifestyles. The principal brands of shoes
sold by the Company are Florsheim, Nunn Bush, Nunn Bush NXXT, Brass Boot, Stacy
Adams and SAO by Stacy Adams. 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 department store chains, shoe store
chains, specialty shoe stores and shoe boutiques primarily in North America,
with some distribution in Europe. The Company also has a retail division, which
consists of 2928
-6-
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.
-6-
Overall, net earnings increased from $3,593,000,$3.5 million, or $.61$.59 per diluted share for
the secondthird quarter of 2003, to $3,974,000,$4.4 million, or $.68$.74 per diluted share for the
secondthird quarter of 2004. For the sixnine months ended JuneSeptember 30, net earnings
increased from $8,265,000,$11.8 million, or $1.41$2.00 per diluted share in 2003, to $9,127,000$13.5
million or $1.56$2.30 per diluted share in 2004. A detailed analysis of operating
results follows.
RESULTS OF OPERATIONS
Overall net sales for the third quarter ended September 30, 2004 of $55.8
million have increased 12.1% compared with $49.8 million for the third quarter
of 2003. The higher results were primarily driven by growth in the Company's
wholesale division. Wholesale net sales for the current quarter were $49.3
million, as compared with $43.1 million for the same period in 2003. Retail net
sales for the quarter ended September 30, 2004 were $5.6 million, down slightly
from $5.9 million in 2003. Licensing revenues were $881,000 for the quarter
ended September 30, 2004 as compared with $796,000 in 2003.
The current quarter net sales growth in the wholesale division was attributable
to increases at all three of the Company's major brands. Florsheim net sales
were up 24% due to the addition of a major new department store group and
significant increases in business with several existing customers. Current
quarter net sales of the Company's Stacy Adams brand increased 19%. Net sales in
the Stacy Adams SAO casual business were down, but were more than offset by an
increase in net sales in its dress shoe business which benefited from the
overall market trend towards dressing up and the recent interest from department
stores in carrying a lifestyle brand targeted at urban consumers. The Company's
Nunn Bush brand continued to strengthen its market position in the quarter, with
net sales rising 5% above the prior year quarter.
The decrease in the Company's retail net sales in the three months ended
September 30, 2004 in comparison to the prior year reflects the closing of three
stores in 2004, partially offset by the opening of one new store on July 31,
2004 and a 1% decline in same store sales. The decline in same store sales
resulted from lower sales at the Company's seven Florida stores, which were
adversely impacted by the hurricanes that hit Florida during the quarter. The
Company's other same store net sales were slightly above the prior year period.
For the nine months ended September 30, 2004, net sales were $167.4 million, as
compared to $161.2 million for the same period in 2003. Wholesale net sales
through September 30, 2004 were $146.2 million as compared to $141.2 million for
-7-
the same period of 2003. The Company's Stacy Adams and Nunn Bush brands were up
over the prior year 8.3% and 2.4%, respectively. The growth in Stacy Adams was
attributable to the strengthening of its dress shoe business in general, and
more specifically, in department stores that are seeking a moderately priced
fashion brand that targets contemporary dress as well as urban consumers. The
current year increase in Nunn Bush reflects the consistent nature of the brand.
Florsheim net sales were flat in comparison to the prior year, due primarily to
increases in the current quarter, offset by the decline in the FLS by Florsheim
sub-brand, which is consistent with management's strategy to reposition the
Florsheim brand and align it with department stores and "better" shoe and
clothing stores that provide an environment and image that properly represent
the brand. Sales of the other Florsheim brands were up 12.5% over the prior
year.
Retail net sales to date in 2004 were 5% above the prior year period, reaching
$18.6 million. This growth reflects the 7.5% increase in same store sales for
the nine months ended September 30, 2004 slightly offset by the effects of the
store closings discussed above. Licensing revenues to date in 2004 were $2.6
million, up 11.9% from $2.3 million in the same period one year ago.
Gross earnings as a percent of net sales for the third quarter increased from
34.2% in 2003 to 35.8% in 2004. Gross earnings as a percent of net sales for the
nine months ended September 30 increased from 34.0% in 2003 to 35.5% in 2004.
Wholesale gross earnings as a percent of net sales increased from 29.0% for the
third quarter of 2003 to 31.4% for the third quarter of 2004, and from 29.3% for
the nine months ended September 30, 2003 to 30.8% for the same period of 2004.
Retail gross earnings as a percent of net sales increased from 63.6% for the
third quarter of 2003 to 64.2% for the third quarter of 2004, and from 63.2% for
the nine months ended September 30, 2003 to 63.3% for the same period of 2004.
The increases in gross earnings as a percent of net sales for the quarter and
nine months ended September 30, 2004 as compared with 2003 was principally due
to changes in product mix.
Selling and administrative expenses as a percent of net sales for the third
quarter decreased from 23.9% in 2003 to 23.1% in 2004, reflecting the Company's
efforts in leveraging fixed costs on higher volumes. For the nine months ended
September 30, 2004 and 2003, selling and administrative expenses as a percent of
net sales were 22.4%. Wholesale selling and administrative expenses as a percent
of net sales decreased from 20.8% for the quarter ended September 30, 2003 to
20.0% for the quarter ended September 30, 2004, and decreased from 19.4% for the
nine months ended September 30, 2003 to 19.3% for the same period in 2004.
Retail selling and administrative expenses as a percent of net sales increased
from 49.7% for the quarter ended September 30, 2003 to 54.7% for the quarter
ended September 30, 2004, and from 49.4% for the nine months ended September 30,
2003 to 50.1% for the nine months ended September 30, 2004. The increase in
retail selling and administrative expenses as a percent of net sales was
primarily due to an $82,000 fixed asset write-off in the current quarter
associated with the closing of a store.
-8-
Interest expense for the quarter ended September 30, 2004 was $102,000 as
compared to $422,000 for the same period in 2003. For the nine months ended
September 30, 2004, interest expense was $368,000 as compared to $1,084,000 for
the nine months ended September 30, 2003. This decrease is primarily due to a
reduction in the average balance of borrowings.
The effective tax rate was 38.2% for the quarter ended September 30, 2004, as
compared with 28.5% for the same period of 2003 and 38.2% for the nine months
ended September 30, 2004 as compared with 35.6% for the same period of 2003. The
lower tax rate in the prior year was due to the impact of a favorable tax
settlement in the third quarter of 2003.
LIQUIDITY & CAPITAL RESOURCES
The Company's primary source of liquidity is its cash and short-term marketable
securities, which aggregated approximately $10,777,000$6.8 million at JuneSeptember 30, 2004 as
compared with $13,298,000$13.3 million at December 31, 2003. To date in 2004, cash and cash
equivalents has decreased approximately $3.2 million, primarily to fund higher
accounts receivable and inventory in comparison to year-end. The change in
short-term marketable securities is due to a shift toward longer term
investments upon maturity.
Net cash from operating activities for the primary
source of cash was operations, whilenine months ended September 30, 2004
decreased $15.3 million in comparison to the primarysame period in the prior year. This
use of cash was the repayment
of long term debt.
Net cash provided by operating activities to date in 2004 decreased by $8.5
million compared with the same period in 2003. This was primarilylargely due to aan $8.2 million increase in accounts receivable
and an $8.5 million buildup of inventory from December 31, 2003. The increase in
accounts receivable was the second quarterresult of 2004timing and the current year sales growth,
while the increase in inventory was attributable to cover increased bookings.the Company's efforts to
buildup inventory from unusually low levels at December 31, 2003.
Cash flows fromused for investing activities increased,decreased, as the Company had $5.1$8.4
million of capital expenditures in 2003 related to the construction project to
expand and reconfigure its distribution center. In 2004, capital expenditures
have returned to normal levels.
Cash flows used for financing activities increaseddecreased in 2004, primarily due to
decreased repayments on borrowings compared to the same period last year, as
well as higher proceeds from the exercise of borrowings.stock options to date this year. As
of JuneSeptember 30, 2004, the Company had a total of $50 million available under
its existing borrowing facility, of which total borrowings were $23$27 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 minimummaximum ratio of funded debt to EBITDA. As of
JuneSeptember 30, 2004 the Company was in compliance with all covenants.
The Company intends to use its 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 in 2004.
RESULTS OF OPERATIONS
Overall net sales decreased 2.4%, from $51,000,000 for the second quarter of
2003 to $49,786,000 for the second quarter of 2004. This resulted from a
decrease in wholesale net sales, which was partially offset by increases in
licensing revenues and retail net sales. Wholesale net sales for the current
quarter were $42,315,000 as compared with $44,096,000 for the same period in
2003. Retail net sales for the quarter ended June 30, 2004 were $6,521,000 as
compared with $6,150,000 in 2003. Licensing revenues were $950,000 for the
quarter ended June 30, 2004 as compared with $754,000 in 2003.
-7--9-
The decrease in wholesale net sales for the quarter was due to decreases in the
Company's Stacy Adams, Nunn Bush, and Florsheim division's net sales of 4.0%,
..8% and 5.2%, respectively. The decline in the Stacy Adams division net sales
was due to decreases in the SAO by Stacy Adams sub-brand, which focuses on the
casual "streetwear" market. Stacy Adams dress shoe net sales increased over last
year. Nunn Bush division net sales remained relatively flat for the quarter,
reflecting the consistent nature of the brand. Florsheim sales are down due
entirely to lower sales of the FLS by Florsheim sub-brand, which focuses on a
more moderate tier of distribution. This is consistent with management's
strategy to reposition the Florsheim brand and align it with department stores
and "better" shoe and clothing stores that provide an environment and image that
properly represent the brand. All other Florsheim sales increased for the
quarter. On the retail side, the increase in net sales of 6.0% for the quarter
was consistent with the increase in same store sales of 6.8%. One store closed
in May, 2004. The increase in retail sales reflects the improved retail
environment this year.
For the six months ended June 30, net sales were flat, at $11,530,000 in 2004
and $11,380,000 in 2003. Wholesale net sales were $96,856,000 for the six months
ended June 30, 2004 as compared with $98,038,000 for the same period in 2003.
Retail net sales for the six months ended June 30, 2004 were $12,972,000 as
compared with $11,828,000 for the same period in 2003. Licensing revenues were
$1,702,000 for the six months ended June 30, 2004 and $1,513,000 for the same
period in 2003.
In the wholesale division, sales in the Company's Stacy Adams and Nunn Bush
divisions were up 3.6% and 1.4%, for the six months ended June 30, while
Florsheim division sales were down 6.8%. The increase at Stacy Adams is due to
increases in the dress shoe business. Nunn Bush is consistent with last year.
The decrease at Florsheim is due to the previously mentioned decreases in FLS.
Retail sales for the period are up 9.7%. This is consistent with the 11.4%
increase in same store net sales, which reflects the improved retail environment
this year.
Gross earnings as a percent of net sales for the second quarter increased from
34.8% in 2003 to 36.5% in 2004. Gross earnings as a percent of net sales for the
six months ended June 30 increased from 34.2% in 2003 to 35.4% in 2004.
Wholesale gross earnings as a percent of net sales increased from 29.7% for the
second quarter of 2003 to 30.5% for the second quarter of 2004, and from 29.7%
for the six months ended June 30, 2003 to 30.9% for the same period of 2004.
Retail gross earnings as a percent of net sales were flat at 63.7% for the
second quarter of 2004 and 2003, and were also flat at 62.9% for the six months
ended June 30, 2004 and 2003.
The increases in gross earnings as a percent of net sales for the quarter and
six months ended June 30, 2004 as compared with 2003 are due to changes in
product mix and a reduction in closeout sales in 2004.
Selling and administrative expenses as a percent of net sales were flat at 23.7%
and 23.4% for the second quarter of 2004 and 2003. For the six months ended June
30, selling and administrative expenses as a percent of net sales were flat at
22.0% in 2004 and 2003.
-8-
Interest expense for the quarter ended June 30, 2004 was $99,000 as compared to
$310,000 for the same period in 2003. For the six months ended June 30, 2004,
interest expense was $266,000 as compared to $662,000 for the six months ended
June 30, 2003. The decrease is primarily due to a reduction in the average
balance of borrowings.
The effective tax rate was 38% for the second quarter and six months ended June
30, 2004 and 2003.
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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes from those reported in the Company's Annual
Report on Form 10-K for the year ended December 31, 2003.
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 officerChief Executive Officer and principal financial officerChief 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.
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 has materially
affected, or is reasonably likely to materially affect, the Company's internal
control over financial reporting.
-9-
PART II. OTHER INFORMATION
Item 2. 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 June 30,
2004. Considering previous years' repurchases, as of June 30, 2004 the
Company had 813,100 shares of Common Stock remaining under the program. The
repurchase authorization does not expire.
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 2006.1. Legal Proceedings
None
Item 6. Exhibits and Reports on Form 8-K
See the Exhibit Index included herewith for a listing of Exhibits. There was one
8-K filed during the quarter. On April 26, 2004 the Company filed a press
release announcing its results for the quarter ended March 31, 2004.
-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.
July 30,November 5, 2004 /s/ John Wittkowske
- ---------------------------------- ------------------------------------------------------- -------------------
Date John Wittkowske
Senior Vice President &and
Chief Financial Officer
-10-
-11-
WEYCO GROUP, INC.
(THE "REGISTRANT")
(COMMISSION FILE NO. 0-9068)
EXHIBIT INDEX
TO
CURRENT REPORT ON FORM 10-Q
DATE OF JuneSeptember 30, 2004
INCORPORATED
EXHIBIT HEREIN BY FILED
NUMBER DESCRIPTION REFERENCE TO HEREWITH
- ------ ---------------------------------------------------- ---------------------------------------------------- ------------ --------
31.1 Section 302 Certification of PrincipalChief Executive Officer X
31.2 Section 302 Certification of PrincipalChief Financial Officer X
32.1 Section 906 Certification of Chief Executive Officer X
32.2 Section 906 Certification of Chief Financial Officer X