FORM 10-Q
SECURITIES & EXCHANGE COMMISSIONWashington, D. C. 20549(Mark(Mark One)
(X)þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934For the quarterly period ended
September 30, 2004 --------------------------------------------------March 31, 2005Or
( )o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934For the transition period fromto
--------------------- ------------------------Commission file number 0-9068
-------------------WEYCO GROUP, INC.
- -------------------------------------------------------------------------------- (Exact(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.)
WISCONSIN 39-0702200 (State or other jurisdiction of
incorporation or organization)(I.R.S. Employer
Identification No.)333 W. Estabrook Boulevard
P. O. Box 1188
Milwaukee, Wisconsin 53201---------------------------------------- (Address(Address of principal executive offices)(Zip(Zip Code)(414) 908-1600
-------------- (Registrant's(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
Xþ No------- ------Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
Yes
Xþ No------- ------As of
November 1, 2004April 25, 2005 the following shares were outstanding:Common Stock, $1.00 par value 4,430,407 Shares Class B Common Stock, $1.00 par value 1,303,343 Shares
Common Stock, $1.00 par value 8,987,624 Shares Class B Common Stock, $1.00 par value 2,600,620 Shares TABLE OF CONTENTSPART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
The
consolidatedcondensed 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 acceptedaccounting 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 theCompany'sCompany’s latest annual report on Form 10-K.WEYCO GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)
ASSETS September 30 December 31 2004 2003 ------------ ------------CURRENT ASSETS: Cash and cash equivalents $ 5,865,563 $ 9,091,567 Marketable securities 940,560 4,206,100 Accounts receivable, net 38,145,332 29,900,197 Accrued income tax receivable -- 228,074 Inventories - finished shoes 52,234,327 43,727,578 Deferred income tax benefits 2,162,417 2,483,037 Prepaid expenses and other current assets 1,109,380 968,264 ------------ ------------ Total current assets 100,457,579 90,604,817 MARKETABLE SECURITIES 9,835,260 6,273,638 OTHER ASSETS 13,728,082 13,750,574 PLANT AND EQUIPMENT 40,177,966 40,914,250 Less - Accumulated depreciation 11,840,007 11,224,993 ------------ ------------ 28,337,959 29,689,257 TRADEMARK 10,867,969 10,867,969 ------------ ------------ $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 ============ ============
March 31, December 31, 2005 2004 ASSETS CURRENT ASSETS: Cash and cash equivalents $ 18,997,366 $ 10,514,707 Marketable securities 30,000 180,000 Accounts receivable, net 37,467,642 30,774,337 Inventories – finished shoes 35,124,238 47,620,220 Deferred income tax benefits 777,835 1,681,135 Prepaid expenses and other current assets 1,331,473 1,779,189 Total current assets 93,728,554 92,549,588 MARKETABLE SECURITIES 12,479,176 11,123,795 OTHER ASSETS 13,893,105 13,904,006 PLANT AND EQUIPMENT 40,656,361 40,415,998 Less – Accumulated depreciation 13,094,167 12,505,694 27,562,194 27,910,304 TRADEMARK 10,867,969 10,867,969 $ 158,530,998 $ 156,355,662 LIABILITIES & SHAREHOLDERS’ INVESTMENT CURRENT LIABILITIES: Short-term borrowings $ 10,011,955 $ 11,359,536 Accounts payable 6,927,415 6,661,241 Dividend payable 633,190 631,351 Accrued liabilities 5,083,975 8,496,615 Accrued income taxes 2,247,290 751,622 Total current liabilities 24,903,825 27,900,365 LONG-TERM PENSION LIABILITY 3,371,703 3,312,860 DEFERRED INCOME TAX LIABILITIES 5,324,026 5,394,516 SHAREHOLDERS’ INVESTMENT: Common stock 8,977,124 4,440,565 Class B common stock 2,600,620 1,302,110 Capital in excess of par value 1,941,996 6,820,136 Reinvested earnings 111,034,907 106,747,060 Accumulated other comprehensive income 376,797 438,050 Total shareholders’ investment 124,931,444 119,747,921 $ 158,530,998 $ 156,355,662 The accompanying notes to consolidated condensed financial statements are an integral part of these financial statements.
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WEYCO GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
FOR THEPERIODSTHREE MONTHS ENDEDSEPTEMBER 30,MARCH 31, 2005 AND 2004AND 2003(UNAUDITED)
2005 2004 NET SALES $ 57,830,807 $ 61,743,369 COST OF SALES 37,209,141 40,484,710 Gross earnings 20,621,666 21,258,659 SELLING AND ADMINISTRATIVE EXPENSES 12,212,283 12,776,351 Earnings from operations 8,409,383 8,482,308 INTEREST INCOME 145,306 120,863 INTEREST EXPENSE (73,268 ) (167,485 ) OTHER INCOME (EXPENSE) (21,859 ) (32,990 ) Earnings before provision for income taxes 8,459,562 8,402,696 PROVISION FOR INCOME TAXES 3,260,000 3,250,000 Net earnings $ 5,199,562 $ 5,152,696 WEIGHTED AVERAGE SHARES* OUTSTANDING (Note 2) Basic 11,526,611 11,275,586 Diluted 11,978,328 11,675,146 EARNINGS PER SHARE (Note 2)* Basic $ .45 $ .46 Diluted $ .43 $ .44 CASH DIVIDENDS PER SHARE* $ .05 1/2 $ .05
Three Months ended September 30 Nine Months ended September 30 -------------------------------- -------------------------------- 2004 2003 2004 2003 ------------- ------------- ------------- -------------NET SALES $ 55,841,100 $ 49,817,256 $ 167,370,829 $ 161,197,464 COST OF SALES 35,866,719 32,774,309 107,967,795 106,355,797 ------------- ------------- ------------- ------------- Gross earnings 19,974,381 17,042,947 59,403,034 54,841,667 SELLING AND ADMINISTRATIVE EXPENSES 12,919,417 11,887,045 37,502,695 36,128,815 ------------- ------------- ------------- ------------- Earnings from operations 7,054,964 5,155,902 21,900,339 18,712,852 INTEREST INCOME 119,460 131,378 360,466 403,346 INTEREST EXPENSE (101,923) (421,998) (368,261) (1,084,350) OTHER INCOME AND EXPENSE, net (2,268) 43,692 (45,401) 241,764 ------------- ------------- ------------- ------------- Earnings before provision for income taxes 7,070,233 4,908,974 21,847,143 18,273,612 PROVISION FOR INCOME TAXES 2,700,000 1,400,000 8,350,000 6,500,000 ------------- ------------- ------------- ------------- Net earnings $ 4,370,233 $ 3,508,974 $ 13,497,143 $ 11,773,612 ============= ============= ============= ============= WEIGHTED AVERAGE SHARES OUTSTANDING (Note 2) Basic 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 $ .76 $ .62 $ 2.38 $ 2.07 ============= ============= ============= ============= Diluted $ .74 $ .59 $ 2.30 $ 2.00 ============= ============= ============= ============= CASH DIVIDENDS PER SHARE $ .11 $ .10 $ .32 $ .28 ============= ============= ============= =============* All share and per share amounts have been adjusted to reflect the two-for-one stock split distributed to shareholders on April 1, 2005 (See Note 7). The accompanying notes to consolidated condensed financial statements are an integral part of these financial statements.
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WEYCO GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED
STATEMENTSSTATEMENT OF CASH FLOWS
FOR THENINETHREE MONTHS ENDEDSEPTEMBER 30,MARCH 31, 2005 AND 2004AND 2003(UNAUDITED)
2004 2003 ------------ ------------CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings $ 13,497,143 $ 11,773,612 Adjustments to reconcile net earnings to net cash provided by operating activities - Depreciation 2,003,050 1,643,335 Amortization 66,962 140,265 Deferred income taxes 216,251 (443,000) Deferred compensation expense 37,800 147,969 Pension expense 534,720 610,000 Loss (Gain) on sale of assets 116,174 (25,819) Increase in cash surrender vale of life insurance (306,000) (279,000) Changes in operating assets and liabilities - Accounts receivable (8,245,135) (2,196,389) Inventories (8,506,749) 6,424,915 Prepaids and other current assets (141,116) 244,696 Accounts payable (1,015,937) (5,515,193) Accrued liabilities and other (1,287,958) 634,247 Accrued income taxes 1,708,600 770,838 ------------ ------------ Net cash (used for) provided by operating activities (1,322,195) 13,930,476 ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of marketable securities (4,260,081) (3,400,000) Proceeds from maturities of marketable securities 3,957,915 4,499,248 Purchase of plant and equipment (928,955) (8,379,073) Proceeds from sales of plant and equipment 230,706 37,623 ------------ ------------ Net cash used for investing activities (1,000,415) (7,242,202) ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Cash dividends paid (1,750,137) (1,594,878) Shares purchased and retired -- (212,102) Proceeds from stock options exercised 1,834,601 449,363 Net (repayments) borrowings under revolving credit agreement (987,858) (2,839,719) ------------ ------------ Net cash used for financing activities (903,394) (4,197,336) ------------ ------------ Net (decrease) increase in cash and cash equivalents (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 $ 5,865,563 $ 9,792,042 ============ ============ SUPPLEMENTAL CASH FLOW INFORMATION: Income taxes paid, net of refunds $ 6,413,534 $ 5,694,925 ============ ============ Interest paid $ 335,763 $ 916,603 ============ ============
2005 2004 CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings $ 5,199,562 $ 5,152,696 Adjustments to reconcile net earnings to net cash provided by operating activities – Depreciation 572,384 678,422 Amortization 13,481 48,649 Deferred income taxes 832,810 494,479 Deferred compensation — 17,400 Pension expense 221,151 150,000 Loss (Gain) on sale of assets 1,017 (84,704 ) Increase in cash surrender value of life insurance (111,000 ) (102,000 ) Changes in operating assets and liabilities - Accounts receivable (6,693,305 ) (8,935,422 ) Inventories 12,495,982 6,991,068 Prepaids and other current assets 447,716 18,584 Accounts payable 266,174 (1,652,181 ) Accrued liabilities and other (3,500,302 ) (2,103,152 ) Accrued income taxes 1,495,668 2,492,032 Net cash provided by operating activities 11,241,338 3,165,871 CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of marketable securities (2,905,250 ) (1,412,909 ) Proceeds from maturities of marketable securities 1,686,388 626,313 Purchase of plant and equipment (239,799 ) (345,023 ) Proceeds from sales of plant and equipment 510 90,611 Net cash used for investing activities (1,458,151 ) (1,041,008 ) CASH FLOWS FROM FINANCING ACTIVITIES: Cash dividends paid (631,351 ) (572,272 ) Shares purchased and retired (285,025 ) — Proceeds from stock options exercised 963,429 242,013 Repayments under revolving credit agreement (1,347,581 ) (2,975,170 ) Net cash used for financing activities (1,300,528 ) (3,305,429 ) Net increase (decrease) in cash and cash equivalents 8,482,659 (1,180,566 ) CASH AND CASH EQUIVALENTS at beginning of period $ 10,514,707 $ 9,091,567 CASH AND CASH EQUIVALENTS at end of period $ 18,997,366 $ 7,911,001 SUPPLEMENTAL CASH FLOW INFORMATION: Income taxes paid, net of refunds $ 938,949 $ 129,500 Interest paid $ 109,254 $ 153,745 The accompanying notes to consolidated condensed financial statements are an integral part of these financial statements.
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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 or nine months ended September 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:NOTES:
Three Months Ended September 30 Nine Months Ended September 30 ------------------------------- ------------------------------ 2004 2003 2004 2003 ----------- ----------- ----------- -----------Numerator: Net1. Financial Statements 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 ended March 31, 2005, are not necessarily indicative of results for the full year. All share and per share amounts in this document have been adjusted to reflect the two-for-one stock split distributed to shareholders on April 1, 2005 (See Note 7). 2. Earnings .......................... $ 4,370,233 $ 3,508,974 $13,497,143 $11,773,612 =========== =========== =========== =========== Denominator: Basic weighted average shares ......... 5,725,533 5,700,959 5,675,568 5,693,346 EffectPer ShareThe following table sets forth the computation of dilutive securities: Employee stock options .............. 177,714 202,182 180,570 188,379 ----------- ----------- ----------- -----------earnings per share and diluted earnings per share:
Three Months Ended March 31, 2005 2004 Numerator: Net Earnings $ 5,199,562 $ 5,152,696 Denominator: Basic weighted average shares outstanding 11,526,611 11,275,586 Effect of dilutive securities: Employee stock options 451,717 399,560 Diluted weighted average shares outstanding 11,978,328 11,675,146 Basic earnings per share $ .45 $ .46 Diluted earnings per share $ .43 $ .44
Diluted weighted average shares ....... 5,903,247 5,903,141 5,856,138 5,881,725 =========== =========== =========== =========== Basicoutstanding for the first quarter of 2005 include all outstanding options, as none are antidilutive. Diluted weighted average shares outstanding for the first quarter of 2004 exclude outstanding options to purchase 10,824 shares of common stock at a price of $18.47 because they were antidilutive.-4-
3. Employee Retirement Plans The components of the Company’s net periodic pension cost are:
Three Months Ended March 31, 2005 2004 Benefits earned during the period $ 196,000 $ 196,000 Interest cost on projected benefit obligation 396,000 396,000 Expected return on plan assets (478,000 ) (498,000 ) Net amortization and deferral 107,000 56,000 Net pension expense $ 221,000 $ 150,000
The Company has not made and does not expect to make any contributions to its defined benefit pension plan in 2005. 4. Segment Information The Company continues to operate in two operating segments; wholesale distribution and retail sales of men’s footwear, which also constitute its reportable segments. The chief operating decision maker, the Company’s Chief Executive Officer, evaluates the performance of its segments based on earnings per share ................ $ .76 $ .62 $ 2.38 $ 2.07 =========== =========== =========== =========== Diluted earnings per share .............. $ .74 $ .59 $ 2.30 $ 2.00 =========== =========== =========== ===========Diluted weighted average shares outstanding for the three and nine months ended September 30, 2004 exclude outstanding options to purchase 155,250 shares 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 and nine months ended September 30, 2003 exclude outstanding options to purchase 155,625 shares of common stock at a weighted-average price of $33.70 because they are antidilutive. (3) The components of the Company's net periodic pension cost are:
Three Months Ended Sept. 30 Nine Months Ended Sept. 30 ---------------------------- ---------------------------- 2004 2003 2004 2003 ----------- ----------- ----------- -----------Benefits earned during the period ................ $ 196,000 $ 143,000 $ 588,000 $ 429,000 Interest cost on projected benefit obligation .... 396,000 366,000 1,188,000 1,098,000 Expected return on plan assets ................... (498,000) (418,000) (1,494,000) (1,254,000) Net amortization and deferral .................... 85,000 219,000 253,000 337,000 ----------- ----------- ----------- ----------- Net pension expense ........................... $ 179,000 $ 310,000 $ 535,000 $ 610,000The 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 the periods ended September 30, 2004 and 2003 is:
Wholesale Distribution Retail Total ------------ ------------ ------------THREE MONTHS ENDED SEPTEMBER 30 ------------------------------- 2004 ---- Product sales .......................... $ 49,333,000 $ 5,628,000 $ 54,961,000 Licensing revenues ..................... 880,000 -- 880,000 ------------ ------------ ------------ Net sales ............................ $ 50,213,000 $ 5,628,000 $ 55,841,000 Earningsfrom operations............... 6,521,000 534,000 7,055,000 2003 ---- Product sales .......................... $ 43,147,000 $ 5,874,000 $ 49,021,000 Licensing revenues ..................... 796,000 -- 796,000 ------------ ------------ ------------ Net sales ............................ $ 43,943,000 $ 5,874,000 $ 49,817,000 Earnings from operations ............... 4,338,000 818,000 5,156,000 NINE MONTHS ENDED SEPTEMBER 30 ------------------------------and accordingly, interest revenue and expense are not allocated to the segments. Summarized segment data for the quarters ended March 31, 2005 and 2004---- Product sales .......................... $146,188,000 $ 18,600,000 $164,788,000 Licensing revenues ..................... 2,583,000 -- 2,583,000 ------------ ------------ ------------ Net sales ............................ $148,771,000 $ 18,600,000 $167,371,000 Earnings from operations ............... 19,441,000 2,459,000 21,900,000 2003 ---- Product sales .......................... $141,185,000 $ 17,703,000 $158,888,000 Licensing revenues ..................... 2,309,000 -- 2,309,000 ------------ ------------ ------------ Net sales ............................ $143,494,000 $ 17,703,000 $161,197,000 Earnings from operations ............... 16,277,000 2,436,000 18,713,000is:(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."
Wholesale Three Months Ended March 31, Distribution Retail Total Wholesale sales $ 49,884,000 $ 6,737,000 $ 56,621,000 Licensing revenues 1,210,000 — 1,210,000 Net sales 51,094,000 6,737,000 57,831,000 Earnings from operations 7,222,000 1,187,000 8,409,000 Wholesale sales $ 54,540,000 $ 6,451,000 $ 60,991,000 Licensing revenues 752,000 — 752,000 Net sales 55,292,000 6,451,000 61,743,000 Earnings from operations 7,585,000 897,000 8,482,000 -5-
5. Stock-Based Compensation Plans 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. -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 September 30 Nine Months ended September 30 2004 2003 2004 2003 ----------- ----------- ------------ ------------Net earnings, as reported ...................... $ 4,370,233 $ 3,508,974 $ 13,497,143 $ 11,773,612 Deduct: Totalstock-based employee compensation expensedeterminedhas 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 based methodrecognition provisions of FASB Statement No. 123, “Accounting forall awards, netStock-Based Compensation,” as amended by SFAS No. 148, to stock-based employee compensation.
Three Months Ended March 31, 2005 2004 Net earnings, as reported $ 5,199,562 $ 5,152,696 Deduct: Total stock-based employee compensation expense determined under the fair value based method for all awards, net of related tax effects 3,567 — Pro forma net income $ 5,195,995 $ 5,152,696 Earnings per share Basic — as reported $ .45 $ .46 Basic — pro forma $ .45 $ .46 Diluted — as reported $ .43 $ .44 Diluted — pro forma $ .43 $ .44
6. Comprehensive Income Comprehensive income for the three months ended March 31, 2005 and 2004 is as follows (in thousands):
Three Months Ended March 31, 2005 2004 Net earnings $ 5,199 $ 5,153 Foreign currency translation adjustments (61 ) (82 ) Total comprehensive income $ 5,138 $ 5,071
The components of related tax effects ..... 155,983 558,563 220,109 906,892 ----------- ----------- ------------ ------------ Pro forma net income ........................... $ 4,214,250 $ 2,950,411 $ 13,277,034 $ 10,866,720 =========== =========== ============ ============ EarningsAccumulated Other Comprehensive Income as recorded on the accompanying balance sheets are as follows (in thousands):
March 31, December 31, 2005 2004 Foreign currency translation adjustments $ 377 $ 438 -6-
7. Stock Split On January 31, 2005, the Company’s Board of Directors approved a two-for-one split of the Company’s Common Stock and Class B Common Stock without a change in par value of either class. The stock split was distributed on April 1, 2005 to shareholders of record on February 16, 2005. The stock split resulted in the issuance of approximately 4.5 million additional shares of Common Stock and approximately 1.3 million additional shares of Class B Common Stock. All share and per share Basic -amounts disclosed in this document have been adjusted to reflect the split. In addition, the stock split has been reflected in the shareholders equity accounts asreported .......................... $ .76 $ .62 $ 2.38 $ 2.07 =========== =========== ============ ============ Basic - pro forma ............................ $ .74 $ .52 $ 2.34 $ 1.91 =========== =========== ============ ============ Diluted -of March 31, 2005.8. New Accounting Pronouncement In December 2004, the FASB issued SFAS No. 123(R), “Accounting for Stock- Based Compensation”. The revised statement establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. This statement focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions. SFAS No. 123(R) requires a public entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. That cost is to be recognized over the period during which the employee is required to provide service in exchange for the award. On April 14, 2005, the Securities and Exchange Commission postponed the adoption of SFAS No. 123(R), which would have been effective for the Company as reported ........................ $ .74 $ .59 $ 2.30 $ 2.00 =========== =========== ============ ============ Diluted - pro forma .......................... $ .71 $ .50 $ 2.27 $ 1.85 =========== =========== ============ ============of July 1, 2005. As a result, SFAS No. 123(R) will be effective January 1, 2006. The Company is currently evaluating the impact this pronouncement will have on its financial statements.(6) Comprehensive income for the periods ended September 30, 2004 and 2003 is as follows (in thousands):
Three Months Ended September 30 Nine Months ended September 30 2004 2003 2004 2003 -------- -------- -------- --------Net earnings $ 4,370 $ 3,509 $ 13,497 $ 11,774 Foreign currency translation adjustments 55 (35) (88) 403 -------- -------- -------- -------- Total comprehensive income $ 4,425 $ 3,474 $ 13,409 $ 12,177The components of Accumulated Other Comprehensive Loss as recorded on the accompanying balance sheets are as follows (in thousands):
September 30, 2004 December 31, 2003 ------------------ -----------------Foreign currency translation adjustments $21 $109Item 2.
Management'sManagement’s Discussion and Analysis of Financial Condition and Results ofOperations.OperationsOVERVIEW
The Company
designsis a distributor of men’s casual, dress andmarkets moderately priced and better-grade men's branded footwear for casual,fashionand dress lifestyles. The principal brands ofshoessold byunder theCompany areFlorsheim, Nunn Bush, Nunn Bush NXXT, Brass Boot, Stacy Adams and SAO by StacyAdams.Adams brand names. Inventory is purchased from third party overseas manufacturers. The majority of foreign-sourced purchases are denominated inU.S.U. S. dollars. TheCompany'sCompany’s products are sold todepartment store chains,shoestore chains,specialtyshoestores, department stores andshoe boutiquesclothing retailers primarily in North America, with some distribution in Europe. The Company also has a retail division, which consists of28 -6-29 Company-owned retail stores in the United States, which includes one that opened in April 2005, 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'sCompany’s results are primarily impacted by the economic conditions and the retail environment in the United States.Overall,-7-
In the first quarter of 2005, the Company achieved net earnings
increased from $3.5of $5.20 million,or $.591% above the prior year’s $5.15 million. Diluted earnings perdilutedsharefor the third quarter of 2003,decreased to$4.4 million, or $.74 per diluted share for the third quarter of 2004. For the nine months ended September 30, net earnings increased from $11.8 million, or $2.00$.43 per diluted share in2003, to $13.5 million or $2.302005 from $.44 per diluted share in 2004. The decrease in diluted earnings per share year-over-year results from an increase in the number of weighted average shares outstanding. Consolidated net sales for the quarter decreased 6% compared with the prior year. Sales were down in the Company’s wholesale division, but were up in the Company’s retail division. Despite the overall lower net sales in the current quarter, operating earnings as a percent of net sales increased to 14.5% from 13.7% for the same period last year. A more detailed analysis of operating results follows.RESULTS OF OPERATIONS
OverallConsolidated net sales for the
thirdfirst quarterended September 30, 2004of$55.82005 were $57.8 million,have increased 12.1%6.3% lower than the prior year’s $61.7 million. Net sales of the Company’s retail division grew 4.4% in the quarter, and net sales of the wholesale division were down 7.6%. Sales in the Company’s wholesale division, which includes both wholesale sales and licensing revenues, were $51.1 million in 2005 compared with$49.8$55.3 millionfor the third quarter of 2003. The higher resultsin 2004. Wholesale sales wereprimarily driven by growth$49.9 million inthe Company's wholesale division. Wholesale net sales for the current quarter were $49.3 million,2005 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$54.5 million in2003.2004. Licensing revenues were$881,000$1.2 million in 2005, up from $750,000 in 2004.Wholesale sales by brand for the
quarterthree-month periods endedSeptember 30,March 31, 2005 and 2004 were ascompared with $796,000 in 2003.follows:Wholesale Sales
Three months ended March 31, 2005 2004 % change Stacy Adams $ 17,147,179 $ 17,509,780 -2.1 % Nunn Bush 17,781,087 21,672,092 -18.0 % Florsheim 13,336,562 14,221,786 -6.2 % Foreign 1,618,807 1,136,989 42.4 % Total $ 49,883,635 $ 54,540,647 -8.5 % The
current quarter net sales growth in the wholesale division was attributable to increases at all threeperformance of theCompany's major brands. Florsheim net sales were up 24% due to the addition of a major new department store group and significant increasesStacy Adams brand was comparable between periods. The 18% decline inbusiness with several existing customers. Currentfirst quarter net sales of theCompany'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'sNunn Bush brandcontinued to strengthen its market positionreflects the challenging retail environment in thequarter,moderately priced men’s footwear market. Additionally, the Company is going through some product transitions withnetsome of its major accounts. Net salesrising 5% aboveof the Florsheim brand decreased 6.2% in comparison to the prior year period. During the quarter, the Company made the decision to discontinue the FLS product line in the United States. FLS is a lower priced sub brand in the Florsheim division. Sales of FLS were down $1.1 million or 51% for the quarter. Sales of all other Florsheim products increased 3% in the quarter. ThedecreaseCompany estimates that the effect on total Florsheim sales resulting from the discontinuance of FLS in theCompany's retailUnited States will be $5-$6 million for 2005.The increase in licensing revenues is attributable to year-over-year growth of 7% and higher than estimated fourth quarter 2004 royalties adjusted in the first quarter of 2005.
-8-
Retail net sales were $6.7 million this year, up 4.4% from last year’s $6.5 million. Same store sales increased 7.6% in the first quarter of 2005.
Overall gross earnings as a percent of net sales in the three months ended
September 30, 2004March 31, 2005 increased to 35.7% from 34.4% incomparison tothe prior yearreflects 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 yearperiod.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 salesforin thethird quarterwholesale division increased to 32.0% in 2005, up from34.2% in 2003 to 35.8%31.2% in 2004. The increase was due primarily to the increased royalty income. The gross margin on wholesale footwear sales was up 10 basis points. Gross earnings as a percent of net sales in the retail division were 63.7%, up 150 basis points from 62.2% in the first quarter of 2004.The Company’s cost of sales does not include distribution costs (e.g., receiving, inspection or warehousing costs). The Company’s distribution costs of $1,114,000 and $1,234,000 for the
ninethree months endedSeptember 30 increased from 34.0%March 31, 2005 and 2004, respectively, were included in2003 to 35.5% in 2004. Wholesaleselling and administrative expenses. Therefore, the Company’s gross earnings may not be comparable to other companies, asa percentsome companies may include distribution costs in cost ofnet sales increased from 29.0% for the third quarter of 2003sales. The Company’s selling and administrative expenses also include, and are primarily related to,31.4% for the third quarter of 2004,salaries andfrom 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,commissions, advertising costs, employee benefit costs, rent andfrom 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.depreciation.Selling and administrative expenses as a percent of net sales were 21.1% for the
thirdfirst quarterdecreased from 23.9%of 2005 versus 20.7% in2003 to 23.1%2004. Wholesale selling and administrative expenses as a percent of net wholesale sales were 18.3% in 2005 and 17.7% in 2004,reflecting the Company's efforts in leveraging fixed costs on higher volumes. For the nine months ended September 30, 2004and2003,retail selling and administrative expenses as a percent of net sales were22.4%. Wholesale selling46.1% in 2005 andadministrative 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 period48.2% 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.Theincreasedecrease in retail selling and administrative expenses as a percent of net sales wasprimarily due to an $82,000 fixed asset write-off in the current quarter associated with the closing of a store. -8-achieved through cost control efforts. Interest expense for the first quarter
ended September 30, 2004of 2005 was$102,000$73,000 as compared with $167,000 for the first quarter of 2004. The decrease related to lower borrowings in the current year as compared to$422,000 forthesame 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.prior year.The effective tax rate
was 38.2%for the first quarterended September 30, 2004, as compared with 28.5% for the same periodof2003 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 rate2005 is 38.6%, which is comparable to 38.7% in the prior yearwas due to the impact of a favorable tax settlement in the third quarter of 2003.quarter.LIQUIDITY & CAPITAL RESOURCES
The
Company'sCompany’s primary source of liquidity is its cash and short-term marketable securities, which aggregated approximately$6.8$19.0 million atSeptember 30, 2004March 31, 2005 as compared with$13.3$10.7 million at December 31,2003. To date in 2004,2004. In the first quarter of 2005, cash and cash equivalentshas decreasedincreased approximately$3.2$8.5 million primarily due tofund higherincreased cash from operations resulting from a decrease in inventory in comparison to year-end.Net cash provided by operating activities for the first quarter of 2005 was up $8.1 million compared with the same period in 2004. The increase was primarily due to changes in accounts receivable and inventory balances, partially offset by a $1.6 million deferred compensation payment (which is included in
comparison to year-end.accrued liabilities and other).-9-
The
changedecrease inshort-term marketable securities is due to a shift toward longer term investments upon maturity. Net cash from operating activities for the nine months ended September 30, 2004 decreased $15.3 million in comparison to the same period in the prior year. This use of cash was largely due to an $8.2 millioninventory and increase in accounts receivableand an $8.5are seasonal as inventory is normally built up in the fourth quarter followed by higher quarterly sales in the first quarter spring selling season. The $1.6 millionbuildup of inventory from December 31, 2003.deferred compensation payment represents the final payment made to a former executive under a deferred compensation arrangement.The $417,000 increase in
accounts receivable was the result of timing and the current year sales growth, while the increase in inventory was attributable to the Company's efforts to buildup inventory from unusually low levels at December 31, 2003. Cash flowsnet cash used for investing activitiesdecreased, as the Company had $8.4 million of capital expenditures in 2003 relatedis mainly due to theconstruction project to expandtiming of maturities andreconfigure its distribution center. In 2004, capital expenditures have returned to normal levels.purchases of marketable securities during the first quarter of 2005, as compared with 2004.Cash flows used for financing activities decreased
in 2004, primarilylargely due todecreasedlower repaymentsonof borrowings in the first quarter of 2005 compared to thesame period lastprior yearas well as higher proceeds from the exercise of stock options to date this year.period. As ofSeptember 30, 2004,March 31, 2005, the Company had a total of $50 million available under its existing borrowing facility, of which total borrowings were$27$10 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 maximum ratio of funded debt to EBITDA. As ofSeptember 30, 2004March 31, 2005 the Company was in compliance with all covenants. The facility expires on April 30, 2006.The Company’s Board of Directors declared a quarterly dividend of $.07 per share to shareholders of record June 1, 2005, payable July 1, 2005. This represents an increase of 27% in the annual dividend. The impact of this will be to increase cash dividends paid annually by approximately $695,000.
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. -9-2005. 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, as well as changes in interest rates, discount rates, or currency exchange rates.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes from those reported in the
Company'sCompany’s Annual Report on Form 10-K for the year ended December 31,2003.2004.-10-
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'sCompany’s Chief Executive Officer and Chief Financial Officer have reviewed and evaluated theCompany'sCompany’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"“Exchange Act”) as of the end of the period covered by this report (the"Evaluation Date"“Evaluation Date”). Based on such evaluation, such officers have concluded that, as of the Evaluation Date, theCompany'sCompany’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 theCompany'sCompany’s periodic filings under the Exchange Act.There have not been any changes in the
Company'sCompany’s internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) that occurred during theCompany'sCompany’s most recent fiscal quarter thathashave materially affected, orisare reasonably likely to materially affect, theCompany'sCompany’s internal control over financial reporting.-11-
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
In April 1998, the Company first authorized a stock repurchase program to purchase 1,500,000 shares of its common stock in open market transactions at prevailing prices. In April 2000 and again in May 2001, the Company’s Board of Directors extended the stock repurchase program to cover the repurchase of 1,500,000 additional shares. Therefore, 4,500,000 shares have been authorized for repurchase since the program began. The Company also buys back shares of its Common Stock from time to time in private transactions at prevailing prices. The table below presents information pursuant to Item 703(a) of Regulation S-K regarding the repurchase of the Company’s Common Stock by the Company in the three-month period ended March 31, 2005.
Total Number of Maximum Number Total Average Shares Purchased as of Shares Number Price Part of the Publicly that May Yet Be of Shares Paid Announced Purchased Under Period Purchased Per Share Program the Program 13,000 $ 21.93 — 1,626,200 There were no repurchases of stock from January 1 through February 28, 2005.
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Shareholders was held April 26, 2005 to elect two members to the Company’s Board of Directors and to act on a proposal to approve the Weyco Group, Inc. 2005 Equity Incentive Plan (the “2005 Plan”).
Thomas W. Florsheim, Jr. and Robert Feitler were nominated for election to the Board of Directors for terms of three years. A total of 27,924,099 votes were cast for the nominees, with 27,694,411 votes cast “for” and 229,688 votes “withheld” for Mr. Florsheim, and 27,813,579 votes cast “for” and 110,320 votes “withheld” for Mr. Feitler. John W. Florsheim, Cory Nettles, and Frederick P. Stratton continue as Directors of the Company for a term expiring in 2006. Thomas W. Florsheim and Leonard J. Goldstein continue as Directors of the Company for a term expiring in 2007.
A total of 26,408,165 votes were cast “for” approval of the 2005 Plan, 744,595 votes were cast “against” and 48,210 votes “abstained.” There were 723,129 broker non-votes.
Item 6. Exhibits
See the Exhibit Index included herewith for a listing of
Exhibits.exhibits.-12-
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. April 29, 2005 /s/ John F. Wittkowske Date John F. Wittkowske Senior Vice President and Chief Financial Officer -13-
WEYCO GROUP, INC.
November 5, 2004 /s/ John Wittkowske - -------------------------- ------------------- Date John Wittkowske Senior Vice President and Chief Financial Officer -10-WEYCO GROUP, INC. (THE "REGISTRANT"
(THE “REGISTRANT”)(COMMISSION
(COMMISSION FILE NO. 0-9068)EXHIBIT INDEX
TO
CURRENT REPORT ON FORM 10-Q
DATE OFSeptember 30, 2004March 31, 2005
INCORPORATED EXHIBIT HEREIN BY FILED NUMBER DESCRIPTION REFERENCE TO HEREWITH - ------- ---------------------------------------------------- ------------ --------31.1 Section 302Certification of Chief Executive Officer X 31.2 Section 302Certification of Chief Financial Officer X 32.1 Section 906 Certification of Chief Executive Officer X 32.2 Section 906 Certification of Chief Financial Officer X