UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

 

FORM 10-Q

  

(Mark One)

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31,June 30, 2012

 

Or

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ________________to _____________________________________________to_______________

 

Commission File Number:0-9068

 

WEYCO GROUP, INC.
(Exact name of registrant as specified in its charter)

 

WISCONSIN39-0702200
(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 of principal executive offices)

(Zip Code)

 

(414) 908-1600

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yesx No¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YesxNo¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer¨Accelerated filerx Non-accelerated filer¨Smaller reporting company

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes¨Nox

 

As of April 30,August 1, 2012, there were 10,901,14310,873,612 sharesof common stock outstanding.

 

 
 

 

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

 

The consolidated condensed financial statements included herein have been prepared by Weyco Group, Inc. (the “Company”), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations. It is suggested that these financial statements be read in conjunction with the financial statements and notes thereto included in the Company’s latest annual report on Form 10-K.

 

WEYCO GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)

 

 March 31,   December 31,  June 30, December 31, 
 2012  2011  2012  2011 
 (Dollars in thousands)  (Dollars in thousands) 
ASSETS:                
Cash and cash equivalents $10,543  $10,329  $9,266  $10,329 
Marketable securities, at amortized cost  6,538   4,745   5,513   4,745 
Accounts receivable, net  54,104   43,636   38,246   43,636 
Accrued income tax receivable  -   816   1,211   816 
Inventories  51,338   62,689   60,615   62,689 
Deferred income tax benefits  91   395   100   395 
Prepaid expenses and other current assets  5,210   5,613   5,178   5,613 
Total current assets  127,824   128,223   120,129   128,223 
                
Marketable securities, at amortized cost  44,590   46,839   43,118   46,839 
Deferred income tax benefits  3,991   3,428   4,205   3,428 
Property, plant and equipment, net  31,260   31,077   31,583   31,077 
Goodwill  11,112   11,112   11,112   11,112 
Trademarks  34,748   34,748   34,748   34,748 
Other assets  18,234   18,081   18,270   18,081 
Total assets $271,759  $273,508  $263,165  $273,508 
                
LIABILITIES AND EQUITY:                
Short-term borrowings $39,000  $37,000  $34,000  $37,000 
Accounts payable  5,926   12,936   4,405   12,936 
Dividend payable  1,742   1,742   1,848   1,742 
Accrued liabilities  15,066   13,217   14,387   13,217 
Accrued income taxes  1,417   - 
Total current liabilities  63,151   64,895   54,640   64,895 
                
Long-term pension liability  26,772   26,344   27,107   26,344 
Other long-term liabilities  6,979   10,879   7,832   10,879 
                
Equity:                
Common stock  10,925   10,922   10,882   10,922 
Capital in excess of par value  22,671   22,222   24,730   22,222 
Reinvested earnings  148,260   146,266   145,104   146,266 
Accumulated other comprehensive loss  (13,043)  (13,419)  (13,325)  (13,419)
Total Weyco Group, Inc. equity  168,813   165,991   167,391   165,991 
Noncontrolling interest  6,044   5,399   6,195   5,399 
Total equity  174,857   171,390   173,586   171,390 
Total liabilities and equity $271,759  $273,508  $263,165  $273,508 

 

The accompanying notes to consolidated condensed financial statements (unaudited) are an integral part of these financialstatements.

WEYCO GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME (UNAUDITED)

 

 Three Months Ended March 31,   Three Months Ended June 30, Six Months Ended June 30, 
 2012  2011  2012  2011  2012  2011 
 (In thousands, except per share amounts)   (In thousands, except per share amounts) 
                 
Net sales $75,314  $65,146  $60,333  $56,550  $135,647  $121,696 
Cost of sales  47,283   40,321   37,455   33,887   84,738   74,208 
Gross earnings  28,031   24,825   22,878   22,663   50,909   47,488 
                        
Selling and administrative expenses  22,198   20,016   19,476   19,930   41,674   39,946 
Earnings from operations  5,833   4,809   3,402   2,733   9,235   7,542 
                        
Interest income  483   590   483   586   966   1,176 
Interest expense  (129)  (90)  (116)  (137)  (245)  (227)
Other income and expense, net  58   56   (123)  52   (65)  108 
                        
Earnings before provision for income taxes  6,245   5,365   3,646   3,234   9,891   8,599 
                        
Provision for income taxes  2,190   1,863   1,094   946   3,284   2,809 
                        
Net earnings  4,055   3,502   2,552   2,288   6,607   5,790 
                        
Net earnings attributable to noncontrolling interest  186   130   333   351   519   481 
                        
Net earnings attributable to Weyco Group, Inc. $3,869  $3,372  $2,219  $1,937  $6,088  $5,309 
                        
Weighted average shares outstanding                        
Basic  10,888   11,322   10,865   11,120   10,877   11,221 
Diluted  11,028   11,366   10,982   11,239   11,005   11,358 
                        
Earnings per share                        
Basic $0.36  $0.30  $0.20  $0.17  $0.56  $0.47 
Diluted $0.35  $0.30  $0.20  $0.17  $0.55  $0.47 
                        
Cash dividends per share $0.16  $0.16  $0.17  $0.16  $0.33  $0.32 
                        
Comprehensive income $4,890  $4,002  $2,088  $2,689  $6,978  $6,691 
                        
Comprehensive income attributable to noncontrolling interest  645   190   151   420   796   610 
                        
Comprehensive income attributable to Weyco Group, Inc. $4,245  $3,812  $1,937  $2,269  $6,182  $6,081 

The accompanying notes to consolidated condensed financial statements (unaudited) are an integral part of these financial statements.

WEYCO GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)

 

 Three Months Ended March 31,   Six Months Ended June 30, 
 2012  2011  2012  2011 
 (Dollars in thousands)   (Dollars in thousands) 
CASH FLOWS FROM OPERATING ACTIVITIES:                
Net earnings $4,055  $3,502  $6,607  $5,790 
Adjustments to reconcile net earnings to net cash provided by operating activities -                
Depreciation  800   657   1,603   1,342 
Amortization  94   46   184   83 
Bad debt expense  78   26   152   99 
Deferred income taxes  (442)  (61)  (841)  (957)
Net gain on remeasurement of contingent consideration  (518)  -   (1,219)  - 
Net foreign currency transaction gains  (51)  (47)
Net foreign currency transaction losses (gains)  90   (121)
Stock-based compensation  299   268   598   597 
Pension expense  989   737   1,869   1,474 
Net gains on disposal of assets  (3)  (13)
Net losses (gains) on disposal of property, plant and equipment  3   (13)
Increase in cash surrender value of life insurance  (135)  (141)  (115)  (127)
Changes in operating assets and liabilities, net of effects from acquisitions -                
Accounts receivable  (10,554)  (5,895)  5,244   8,083 
Inventories  11,351   7,884   2,082   4,662 
Prepaids and other assets  315   405   376   1,060 
Accounts payable  (7,021)  (3,938)  (8,547)  (3,484)
Accrued liabilities and other  (1,155)  (1,629)  (1,099)  (1,320)
Accrued income taxes  2,233   957   (392)  (2,281)
Net cash provided by operating activities  335   2,758   6,595   14,887 
                
CASH FLOWS FROM INVESTING ACTIVITIES:                
Acquisition of businesses, net of cash acquired  -   (27,023)  -   (27,023)
Purchase of marketable securities  -   (16)  -   (80)
Proceeds from maturities of marketable securities  431   1,658   2,905   4,035 
Proceeds from the sale of assets  -   13 
Proceeds from the sale of property, plant and equipment  -   13 
Life insurance premiums paid  (155)  (155)
Purchase of property, plant and equipment  (891)  (654)  (2,128)  (3,117)
Net cash used for investing activities  (460)  (26,022)
Net cash provided by (used for) investing activities  622   (26,327)
                
CASH FLOWS FROM FINANCING ACTIVITIES:                
Cash dividends paid  (1,748)  (1,817)  (3,496)  (3,634)
Shares purchased and retired  (133)  (305)  (3,812)  (10,205)
Proceeds from stock options exercised  136   172   1,566   725 
Repayment of debt assumed in acquisition  -   (3,814)  -   (3,814)
Net borrowings of commercial paper  -   17,045   -   19,950 
Proceeds from bank borrowings  2,000   15,000   9,000   31,000 
Repayments of bank borrowings  -   (3,000)  (12,000)  (20,000)
Income tax benefits from stock-based compensation  22   5   469   341 
Net cash provided by financing activities  277   23,286 
Net cash (used for) provided by financing activities  (8,273)  14,363 
                
Effect of exchange rate changes on cash and cash equivalents  62   22   (7)  102 
                
Net increase in cash and cash equivalents $214  $44 
Net (decrease) increase in cash and cash equivalents $(1,063) $3,025 
                
CASH AND CASH EQUIVALENTS at beginning of period  10,329   7,150   10,329   7,150 
                
CASH AND CASH EQUIVALENTS at end of period $10,543  $7,194  $9,266  $10,175 
                
SUPPLEMENTAL CASH FLOW INFORMATION:                
Income taxes paid, net of refunds $419  $1,073  $4,010  $4,751 
Interest paid $103  $74  $191  $221 

 

The accompanying notes to consolidated condensed financial statements (unaudited) are an integral part of these financial statements.

NOTES:

 

1.Financial Statements

 

In the opinion of management, the accompanying unaudited consolidated condensed financial statements contain all adjustments necessary to present fairly the Company’s financial position, results of operations and cash flows for the periods presented. The results of operations for the three month periodand six months ended June 30, 2012 are not necessarily indicative of the results for the full year.

 

2.Acquisition

 

On March 2, 2011, the Company acquired 100% of the outstanding shares of The Combs Company, the owner of the BOGS and Rafters footwear brands. Hereinafter in this document, The Combs Company will be referred to as “Bogs” and the individual BOGS brand will be referred to as “BOGS.” The Company acquired Bogs from its former shareholders for $29.3 million in cash plus assumed debt of approximately $3.8 million and contingent payments after two and five years (in 2013 and 2016), which are dependent on Bogs achieving certain performance measures. In accordance with the agreement, $2.0 million of the cash portion of the purchase price was held back to be used to help satisfy any claims of indemnification by the Company, and any amounts not used therefore will be paid to the seller 18 months from the date of acquisition. At the acquisition date, the Company estimatedCompany’s estimate of the fair value of the two contingent payments was approximately $9.8 million in aggregate. For more information regarding the contingent payments, including an estimate of fair value as of March 31,June 30, 2012, see Note 10. The acquisition of Bogs was funded with available cash and short-term borrowings under the Company’s $50 million borrowing facility.

 

The acquisition of Bogs was accounted for in these consolidated condensed financial statements as a business combination under Accounting Standards Codification (“ASC”) 805,Business Combinations (“ASC 805”). Under ASC 805, the total purchase price is allocated to tangible and intangible assets acquired and liabilities assumed based on their respective fair values at the acquisition date. The Company’s final allocation of the purchase price was as follows (dollars in thousands):

 

Cash $317 
Accounts receivable, less reserves of $316  3,839 
Inventory  2,932 
Prepaids  15 
Property, plant and equipment, net  7 
Goodwill  11,112 
Trademark  22,000 
Other intangible assets  3,700 
Accounts payable  (454)
Accrued liabilities  (561)
  $42,907 

 

Other intangible assets consist of customer relationships and a non-compete agreement. Goodwill reflects the excess purchase price over the fair value of net assets, and has been assigned to the Company’s North American wholesale segment (“wholesale”). All of the goodwill is expected to be deductible for tax purposes. For more information on the intangible assets acquired, see Note 5.

 

The operating results of Bogs have been consolidated into the Company’s wholesale segment since the date of acquisition. Accordingly, the Company’s first quarter 2012 results included Bogs’ operations from January 1 through March 31,June 30, 2012, while 2011 only included Bogs’ operations from March 2 through March 31,June 30, 2011. Bogs net sales were $5.8$9.4 million in the first quarterhalf of 2012 compared to $2.2$4.9 million in 2011.

 

4

Pro Forma Results of Operations

 

The following table provides consolidated results of operations for the threesix months ended March 31,June 30, 2012 compared to unaudited pro forma results of operations for the threesix months ended March 31,June 30, 2011, as if Bogs had been acquired on January 1, 2011. The unaudited pro forma results include adjustments to reflect additional amortization of intangible assets, interest expense and a corresponding estimate of the provision for income taxes.

  Three Months Ended March 31, 
 Actual  Pro forma 
 2012  2011 
 (Dollars in thousands)  
Net sales $75,314  $69,514 
Net earnings attributable to Weyco Group, Inc. $3,869  $3,141 

   Six Months Ended June 30, 
  Actual  Pro forma 
  2012  2011 
   (Dollars in thousands)  
Net sales $135,647  $126,064 
Net earnings attributable to Weyco Group, Inc. $6,088  $5,138 

  

The unaudited pro forma information presented above is not necessarily indicative of either the results of operations that would have occurred had the acquisition of Bogs been effective on January 1, 2011 or of the Company’s future results of operations.

 

3.Earnings Per Share

 

The following table sets forth the computation of earnings per share and diluted earnings per share:

 

 Three Months Ended March 31,  Three Months Ended June 30,  Six Months Ended June 30, 
 2012  2011  2012  2011  2012  2011 
 (In thousands, except per share amounts)  (In thousands, except per share amounts) 
Numerator:                        
Net earnings attributable to Weyco Group, Inc. $3,869  $3,372  $2,219  $1,937  $6,088  $5,309 
                        
Denominator:                        
Basic weighted average shares outstanding  10,888   11,322   10,865   11,120   10,877   11,221 
Effect of dilutive securities:                        
Employee stock-based awards  140   44   117   119   128   137 
Diluted weighted average shares outstanding  11,028   11,366   10,982   11,239   11,005   11,358 
                        
Basic earnings per share $0.36  $0.30  $0.20  $0.17  $0.56  $0.47 
                        
Diluted earnings per share $0.35  $0.30  $0.20  $0.17  $0.55  $0.47 

 

Diluted weighted average shares outstanding for the three and six months ended March 31,June 30, 2012 exclude anti-dilutive unvested restricted stock and outstanding stock options totaling 717,030805,000 shares of common stock at a weighted average price of $25.67.$25.38. Diluted weighted average shares outstanding for the three and six months ended March 31,June 30, 2011 exclude anti-dilutive unvested restricted stock and outstanding stock options totaling 461,950460,675 shares of common stock at a weighted average price of $26.80.

 

4.Investments

 

As noted in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011, all of the Company’s investments are classified as held-to-maturity securities and reported at amortized cost pursuant to ASC 320,Investments – Debt and Equity Securities (“ASC 320”) as the Company has the intent and ability to hold all security investments to maturity.

 

The amortized cost of all marketable securities as of March 31,June 30, 2012 and December 31, 2011 as reported in the Consolidated Condensed Balance Sheets (Unaudited) was $51.1$48.6 million and $51.6 million, respectively. The estimated fair market value of those marketable securities at March 31,as of June 30, 2012 and December 31, 2011 was $53.5$51.2 million and $54.2 million, respectively.

 

The unrealized gains and losses on investment securities at March 31,as of June 30, 2012 and December 31, 2011 were as follows:

 March 31, 2012  December 31, 2011 
 Unrealized  Unrealized  Unrealized  Unrealized 
 Gains  Losses  Gains  Losses 
 (Dollars in thousands) 
Municipal bonds $2,599  $200  $2,797  $200 
  June 30, 2012  December 31, 2011 
  Unrealized  Unrealized  Unrealized  Unrealized 
  Gains  Losses  Gains  Losses 
  (Dollars in thousands) 
Municipal bonds $2,756  $200  $2,797  $200 

 

The estimated market values provided are level 2 valuations as defined by ASC 820,Fair Value Measurements and Disclosures (“ASC 820”). The Company reviewed its portfolio of investments as of March 31,June 30, 2012 and determined that no other-than-temporary market value impairment exists.

5.Intangible Assets

 

The Company’s indefinite-lived and amortizable intangible assets as recorded in the Consolidated Condensed Balance Sheets (Unaudited) consisted of the following as of March 31,June 30, 2012:

 

    March 31, 2012     June 30, 2012 
 Weighted Gross      Weighted Gross     
 Average Carrying Accumulated    Average Carrying Accumulated   
 Life (Yrs)  Amount  Amortization  Net  Life (Yrs)  Amount  Amortization  Net 
  (Dollars in thousands)    (Dollars in thousands) 
Indefinite-lived intangible assets:                              
Goodwill    $11,112  $-  $11,112      $11,112  $-  $11,112 
Trademarks     34,748   -   34,748      34,748   -   34,748 
Total indefinite-lived intangible assets    $45,860  $-  $45,860     $45,860  $-  $45,860 
                              
Amortizable intangible assets:                              
Non-compete agreement  5  $200  $(43) $157   5  $200  $(53) $147 
Customer relationships  15   3,500   (253)  3,247   15   3,500   (311)  3,189 
Total amortizable intangible assets    $3,700  $(296) $3,404     $3,700  $(364) $3,336 

  

The Company’s indefinite-lived and amortizable intangible assets as recorded in the Consolidated Condensed Balance Sheets (Unaudited) consisted of the following as of December 31, 2011:

 

     December 31, 2011 
  Weighted  Gross       
  Average  Carrying  Accumulated    
  Life (Yrs)  Amount  Amortization  Net 
     (Dollars in thousands) 
Indefinite-lived intangible assets:                
Goodwill     $11,112  $-  $11,112 
Trademarks      34,748   -   34,748 
Total indefinite-lived intangible assets     $45,860  $-  $45,860 
                 
Amortizable intangible assets:                
Non-compete agreement  5  $200  $(33) $167 
Customer relationships  15   3,500   (195)  3,305 
Total amortizable intangible assets     $3,700  $(228) $3,472 

 

The Company’s amortizable intangible assets are included within other assets in the Consolidated Condensed Balance Sheets (Unaudited).

6.Segment Information

 

The Company has two reportable segments: North American wholesale operations (“wholesale”) and North American retail operations (“retail”). The chief operating decision maker, the Company’s Chief Executive Officer, evaluates the performance of its segments based on earnings from operations and accordingly, interest income or expense, other income or expense, and income taxes are not allocated to the segments. The “other” category in the tables below includes the Company’s wholesale and retail operations in Australia, South Africa, Asia Pacific and Europe, which do not meet the criteria for separate reportable segment classification. Summarized segment data for the three and six months ended March 31,June 30, 2012 and 2011 was:was as follows:

 

Three Months Ended                  
March 31, Wholesale Retail Other Total 
June 30, Wholesale  Retail  Other  Total 
 (Dollars in thousands)  (Dollars in thousands) 
2012                         
Product sales $55,902  $5,660  $13,027  $74,589  $43,076  $5,589  $11,129  $59,794 
Licensing revenues  725   -   -   725   539   -   -   539 
Net sales $56,627  $5,660  $13,027  $75,314  $43,615  $5,589  $11,129  $60,333 
Earnings from operations $4,470  $(5) $1,368  $5,833  $2,092  $37  $1,273  $3,402 
                                
2011                                
Product sales $47,639  $5,577  $11,426  $64,642  $38,838  $5,866  $11,289  $55,993 
Licensing revenues  504   -   -   504   557   -   -   557 
Net sales $48,143  $5,577  $11,426  $65,146  $39,395  $5,866  $11,289  $56,550 
Earnings from operations $3,637  $(60) $1,232  $4,809  $1,017  $202  $1,514  $2,733 

Six Months Ended            
June 30, Wholesale  Retail  Other  Total 
  (Dollars in thousands) 
2012                
Product sales $98,978  $11,249  $24,156  $134,383 
Licensing revenues  1,264   -   -   1,264 
Net sales $100,242  $11,249  $24,156  $135,647 
Earnings from operations $6,562  $32  $2,641  $9,235 
                 
2011                
Product sales $86,385  $11,443  $22,715  $120,543 
Licensing revenues  1,153   -   -   1,153 
Net sales $87,538  $11,443  $22,715  $121,696 
Earnings from operations $4,654  $142  $2,746  $7,542 

 

7.Employee Retirement Plans

 

The components of the Company’s net pension expense were:were as follows:

 

 Three Months Ended March 31,  Three Months Ended June 30,  Six Months Ended June 30, 
 2012  2011  2012  2011  2012  2011 
 (Dollars in thousands)  (Dollars in thousands) 
Benefits earned during the period $399  $321  $369  $321  $768  $642 
Interest cost on projected benefit obligation  602   595   573   595   1,175   1,191 
Expected return on plan assets  (482)  (505)  (492)  (505)  (974)  (1,010)
Net amortization and deferral  470   326   430   326   900   651 
Net pension expense $989  $737  $880  $737  $1,869  $1,474 

7

 

8.Stock-Based Compensation Plans

 

During the three and six months ended March 31,June 30, 2012, the Company recognized approximately $299,000 and $598,000, respectively, of compensation expense associated with stock option and restricted stock awards granted in the years 2008 through 2011. During the three and six months ended March 31,June 30, 2011, the Company recognized approximately $268,000$329,000 and $597,000, respectively, of compensation expense associated with stock option and restricted stock awards granted in the years 2007 through 2010.

 

The following table summarizes the stock option activity under the Company’s plans for the three monthsix-month period ended March 31,June 30, 2012:

 

      Weighted          Weighted  �� 
   Weighted Average      Weighted Average   
   Average Remaining Aggregate    Average Remaining Aggregate 
   Exercise Contractual Intrinsic    Exercise Contractual Intrinsic 
 Shares  Price  Term (Years)  Value*  Shares  Price  Term (Years)  Value* 
Outstanding at December 31, 2011  1,307,488  $21.76           1,307,488  $21.76         
Exercised  (7,900) $17.17           (125,496) $12.48         
Forfeited or expired  (5,550) $27.98           (10,150) $26.73         
Outstanding at March 31, 2012  1,294,038  $21.76   2.7  $3,975,641 
Exercisable at March 31, 2012  808,760  $20.13   1.7  $3,923,608 
Outstanding at June 30, 2012  1,171,842  $22.71   2.64  $2,339,032 
Exercisable at June 30, 2012  689,564  $21.48   1.63  $2,331,355 

 

* The aggregate intrinsic value of outstanding and exercisable stock options is defined as the difference between the market value at March 30,of the Company's stock on June 29, 2012, the last trading day of the quarter, of $23.70$23.18 and the exercise price.

The following table summarizes stock option activity for the three and six months ended March 31,June 30, 2012 and 2011:

 

  Three Months Ended March 31, 
  2012  2011 
  (Dollars in thousands) 
Total intrinsic value of stock options exercised $57  $11 
Cash received from stock option exercises $136  $172 
Income tax benefit from the exercise of stock options $22  $5 

  Three Months Ended June 30,  Six Months Ended June 30, 
  2012  2011  2012  2011 
  (Dollars in thousands) 
Total intrinsic value of stock options exercised $1,147  $862  $1,204  $874 
Cash received from stock option exercises $1,430  $553  $1,566  $725 
Income tax benefit from the exercise of stock options $447  $336  $469  $341 

 

The following table summarizes the Company’s restricted stock award activity for three monthsix-month period ended March 31,June 30, 2012:

 

      Weighted          Weighted    
   Weighted Average      Weighted Average   
 Shares of Average Remaining Aggregate  Shares of Average Remaining Aggregate 
 Restricted Grant Date Contractual Intrinsic  Restricted Grant Date Contractual Intrinsic 
 Stock  Fair Value  Term (Years)  Value*  Stock  Fair Value  Term (Years)  Value* 
Non-vested at December 31, 2011  38,000  $24.47           38,000  $24.47         
Issued  -   -           -   -         
Vested  -   -           -   -         
Forfeited  -   -           -   -         
Non-vested at March 31, 2012  38,000  $24.47   3.1  $900,600 
Non-vested at June 30, 2012  38,000  $24.47   2.53  $880,840 

 

* The aggregate intrinsic value of non-vested restricted stock was calculated using the market value of the Company's stock on on March 30,June 29, 2012, the last trading day of the quarter, of $23.70$23.18 multiplied by the number of non-vested restricted shares outstanding.

 

8

 

9.Short-Term Borrowings

 

At March 31,June 30, 2012, the Company had a $50 million unsecured revolving line of credit. At the end of the firstsecond quarter, the Company had $39$34 million of bank borrowings outstanding at an interest rate of approximately 1.0%1.2%. The Company’s borrowing facility includes one financial covenant that specifies a minimum level of net worth. The Company was in compliance with the covenant at March 31,June 30, 2012. The line of credit agreement expired on April 30, 2012 and was renewed for another term that expires on April 30, 2013. Under the newcurrent line of credit agreement, the interest rate on bank borrowings was changed tois LIBOR plus 100 basis points. Based on LIBOR rates as of April 30, 2012, the new interest rate would be approximately 1.2%.

 

10.Contingent Consideration

 

Contingent consideration is comprised of two contingent payments that the Company is obligated to pay the former shareholders of Bogs two and five years following the Bogs acquisition date (in 2013 and 2016). The estimate of contingent consideration is formula-driven and is based on Bogs achieving certain levels of gross margin dollars between January 1, 2011 and December 31, 2015. In accordance with ASC 805, the Company remeasures its estimate of the fair value of the contingent payments at each reporting date. The change in fair value is recognized in earnings.

 

The Company’s estimate of the fair value of the contingent payments as recorded in the Consolidated Condensed Balance Sheets (Unaudited) was as follows:

 

 March 31, December 31,  June 30, December 31, 
 2012  2011  2012  2011 
 (Dollars in thousands)  (Dollars in thousands) 
Current portion $3,411  $-  $2,025  $- 
Long-term portion  5,789   9,693   6,496   9,693 
Total contingent consideration $9,200  $9,693  $8,521  $9,693 

 

The fair value of the contingent payments was recorded at present value. Accordingly, the two components of the change in contingent consideration between December 31, 2011 and March 31,June 30, 2012 were the net gain on remeasurement of contingent consideration of $518,000approximately $1,219,000 less interest expense of $25,000.$47,000. The net gain was recorded within selling and administrative expenses in the Consolidated Condensed Statements of Earnings and Comprehensive Income (Unaudited). The reduction in the liability was largely due to a decrease in the Company’s estimate of the 2013 contingent payment, as a result of lower Bogs net sales relative to the Company’s original projections.

The current portion of contingent consideration is recorded within accrued liabilities in the Consolidated Condensed Balance Sheets (Unaudited). The long-term portion is recorded within other long-term liabilities in the Consolidated Condensed Balance Sheets (Unaudited). The total contingent consideration has been assigned to the Company’s wholesale segment.

 

The fair value measurement of the contingent consideration is based on significant inputs not observed in the market and thus represents a level 3 valuation as defined by ASC 820. The fair value measurement was determined using a probability-weighted model which includes various estimates related to Bogs’ future sales levels and gross margins. As of June 30, 2012, management estimates that the range of potential payments is $5 million to $12 million in aggregate.

9

11.Comprehensive Income

 

Comprehensive income for the three and six months ended March 31,June 30, 2012 and 2011 was as follows:

 

 Three Months Ended March 31,  Three Months Ended June 30,  Six Months Ended June 30, 
 2012  2011  2012  2011  2012  2011 
 (Dollars in thousands)  (Dollars in thousands) 
Net earnings $4,055  $3,502  $2,552  $2,288  $6,607  $5,790 
Foreign currency translation adjustments  549   301   (743)  203   (194)  504 
Pension liability, net of tax  286   199 
Pension liability, net of tax of $178, $127, $361 and $254, respectively  279   198   565   397 
Total comprehensive income $4,890  $4,002  $2,088  $2,689  $6,978  $6,691 

 

The components of accumulated other comprehensive loss as recorded on the Consolidated Condensed Balance Sheets (Unaudited) were as follows:

 

 March 31, December 31,  June 30, December 31, 
 2012  2011  2012  2011 
 (Dollars in thousands)  (Dollars in thousands) 
Foreign currency translation adjustments $1,013  $923  $452  $923 
Pension liability, net of tax  (14,056)  (14,342)  (13,777)  (14,342)
Total accumulated other comprehensive loss $(13,043) $(13,419) $(13,325) $(13,419)

 

In 2012, the Company adopted new accounting guidance from the Financial Accounting Standards Board (“FASB”) related to the financial statement presentation of comprehensive income. This guidance does not change the nature of or accounting for items reported within comprehensive income, and the adoption of this guidance did not impact the Company’s results of operations or financial condition.

 

12.Equity

 

A reconciliation of the Company’s equity for the threesix months ended March 31,June 30, 2012 is as follows:

 

       Accumulated          Accumulated   
   Capital in   Other      Capital in   Other   
 Common Excess of Reinvested Comprehensive Noncontrolling  Common Excess of Reinvested Comprehensive Noncontrolling 
 Stock  Par Value  Earnings  Loss  Interest  Stock  Par Value  Earnings  Loss  Interest 
 (Dollars in thousands) (Dollars in thousands) 
                      
Balance, December 31, 2011 $10,922  $22,222  $146,266  $(13,419) $5,399  $10,922  $22,222  $146,266  $(13,419) $5,399 
                                        
Net earnings  -   -   3,869   -   186   -   -   6,088   -   519 
Foreign currency translation adjustments  -   -   -   90   459   -   -   -   (471)  277 
Pension liability adjustment, net of tax  -   -   -   286   -   -   -   -   565   - 
Cash dividends declared  -   -   (1,748)  -   -   -   -   (3,603)  -   - 
Stock options exercised  8   128   -   -   -   125   1,441   -   -   - 
Stock-based compensation expense  -   299   -   -   -   -   598   -   -   - 
Income tax benefit from stock options exercised  -   22   -   -   -   -   469   -   -   - 
Shares purchased and retired  (5)  -   (127)  -   -   (165)  -   (3,647)  -   - 
                                        
Balance, March 31, 2012 $10,925  $22,671  $148,260  $(13,043) $6,044 
Balance, June 30, 2012 $10,882  $24,730  $145,104  $(13,325) $6,195 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

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. The reader is cautioned that these forward-looking statements are subject to a number of risks, uncertainties or other factors that may cause actual results to differ materially from those described in the forward-looking statements. These risks and uncertainties include, but are not limited to, the risk factors described under Item 1A, “Risk Factors,” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.

 

GENERAL

 

The Company designs and markets quality and innovative footwear for men, women and children under a portfolio of well-recognized brand names including: “Florsheim,” “Nunn Bush,” “Stacy Adams,” “BOGS,” “Rafters,” and “Umi.” Inventory is purchased from third-party overseas manufacturers. The majority of foreign-sourced purchases are denominated in U.S. dollars.

 

The Company has two reportable segments, North American wholesale operations (“wholesale”) and North American retail operations (“retail”). In the wholesale segment, the Company’s products are sold to leading footwear, department, and specialty stores, primarily in the United States and Canada. As of March 31,June 30, 2012, the Company also had licensing agreements with third parties who sell its branded apparel, accessories and specialty footwear in the United States, as well as its footwear in Canada, Mexico and certain markets overseas. Licensing revenues are included in the Company’s wholesale segment. The Company’s retail segment consisted of 27Company-owned26Company-owned retail stores in the United States and an Internet business as of March 31,June 30, 2012. Sales in retail outlets are made directly to consumers by Company employees.

 

The Company’s “other” operations include the Company’s wholesale and retail businesses in Australia, South Africa, Asia Pacific (collectively, “Florsheim Australia”) and Europe (“Florsheim Europe”). The majority of the Company’s operations are in the United States, and its results are primarily affected by the economic conditions and the retail environment in the United States.

 

EXECUTIVE OVERVIEW

 

Recent Acquisition

 

On March 2, 2011, the Company acquired 100% of the outstanding shares of The Combs Company (“Bogs”) from its former shareholders for $29.3 million in cash plus assumed debt of approximately $3.8 million and contingent payments after two and five years (in 2013 and 2016), which are dependent on Bogs achieving certain performance measures. In accordance with the agreement, $2.0 million of the cash portion of the purchase price was held back to be used to help satisfy any claims of indemnification by the Company, and any amounts not used therefore will be paid to the seller 18 months from the date of acquisition. At the acquisition date, the Company’s estimate of the fair value of the contingent payments was approximately $9.8 million in aggregate. At March 31,June 30, 2012, the Company’s estimate of the fair value of the contingent payments was approximately $9.2$8.5 million in aggregate. See Note 10.

 

The operating results of Bogs have been consolidated into the Company’s wholesale segment since the date of acquisition. Accordingly, the Company’s first quarter 2012 results included Bogs’ operations from January 1 through March 31,June 30, 2012, while 2011 only included Bogs’ operations from March 2 through March 31,June 30, 2011. Bogs net sales were $5.8$9.4 million infor the first quarter ofsix months ended June 30, 2012 compared to $2.2$4.9 million in 2011. See Note 2.

 

Sales and EarningsSecond Quarter Highlights

 

Consolidated net sales for the firstsecond quarter of 2012 were $75$60.3 million, up 16%7% over last year’s firstsecond quarter net sales of $65$56.6 million. North American wholesale net sales were up $8.5$4.2 million for the quarter compared with the firstsecond quarter of 2011. The improvements in 2012 were mainly due toacross the inclusion of Bogs for the entire quarter as well as higher sales volumes of certainmajority of the Company’s other wholesale brands. Retail net sales were updecreased approximately $100,000 this$277,000 in the second quarter compared to the same period last year. Net sales of the Company’s other businesses increased by $1.6 million.were relatively flat compared with the second quarter of 2011.

 

Consolidated gross earnings were $28$22.9 million this quarter compared with $25$22.7 million forin the firstsecond quarter of 2011. This increase was largely achieved through higher sales volumes across the Company, slightly offset by lower gross earnings as a percent of net sales, which were 37%37.9% for the firstsecond quarter of 2012 and 38%40.1% for the firstsecond quarter of 2011. Selling and administrative expenses were 29%32% of sales for the firstsecond quarter of 2012 as compared with 31%35% in 2011. Consolidated earnings from operations for this year’s firstsecond quarter were $5.8$3.4 million, up from $4.8$2.7 million last year.

The Company’s net earnings attributable to Weyco Group, Inc. this quarter were $3.9$2.2 million compared with $3.4$1.9 million in the same quarter last year. Diluted earnings per share for the three months ended March 31,June 30, 2012 were $0.35$0.20 per share compared with $0.30$0.17 per share in last year’s second quarter.

Year to Date Highlights

Consolidated net sales for the first quarter.half of 2012 were $135.6 million compared with $121.7 million last year. North American wholesale sales increased to $100.2 million in the first half of this year compared with $87.5 million last year. These increases were primarily due to higher sales volumes across the majority of the Company’s wholesale brands. The acquisition of Bogs also contributed to the wholesale sales increase this year. Bogs contributed $9.4 million in net sales this year, compared with $4.9 million last year. Sales in the retail segment were relatively flat year-to-date, and sales in the Company’s other businesses increased $1.4 million.

Consolidated gross earnings were $50.9 million this year compared with $47.5 million last year. This was achieved through higher sales volumes across the wholesale brands, slightly offset by lower gross margins. Selling and administrative expenses as a percent of sales decreased slightly since last year, as wholesale selling and administrative expenses as a percent of sales decreased while retail selling and administrative expenses as a percent of sales increased slightly. Consolidated earnings from operations year to date in 2012 were $9.2 million compared with $7.5 million last year.

Consolidated net earnings attributable to Weyco Group, Inc. for the six months ended June 30, 2012 were $6.1 million compared with $5.3 million in 2011. Diluted earnings per share to date through June 30, 2012 were $0.55 compared with $0.47 for the same period in 2011.

 

Financial Position Highlights

 

At March 31,June 30, 2012 cash and marketable securities totaled $62$58 million and total outstanding debt was $39$34 million. At December 31, 2011, cash and marketable securities totaled $62 million and total outstanding debt was $37 million.

 

SEGMENT ANALYSIS

 

Net sales and earnings from operations for the Company’s segments in the three and six months ended March 31,June 30, 2012 and 2011 were as follows:

 

  Three Months Ended March 31,  % 
  2012  2011  Change 
  (Dollars in thousands)    
Net Sales            
North American Wholesale $56,627  $48,143   18%
North American Retail  5,660   5,577   1%
Other  13,027   11,426   14%
Total $75,314  $65,146   16%
             
Earnings from Operations            
North American Wholesale $4,470  $3,637   23%
North American Retail  (5)  (60)  92%
Other  1,368   1,232   11%
Total $5,833  $4,809   21%

  Three Months Ended June 30,  %  Six Months Ended June 30,  % 
  2012  2011  Change  2012  2011  Change 
  (Dollars in thousands)    
Net Sales                        
North American Wholesale $43,615  $39,395   11% $100,242  $87,538   15%
North American Retail  5,589   5,866   -5%  11,249   11,443   -2%
Other  11,129   11,289   -1%  24,156   22,715   6%
Total $60,333  $56,550   7% $135,647  $121,696   11%
                         
Earnings from Operations                        
North American Wholesale $2,092  $1,017   106% $6,562  $4,654   41%
North American Retail  37   202   -82%  32   142   -77%
Other  1,273   1,514   -16%  2,641   2,746   -4%
Total $3,402  $2,733   24% $9,235  $7,542   22%

12

 

North American Wholesale Segment

 

Net Sales

 

Net sales in the Company’s North American wholesale segment for the three and six months ended March 31,June 30, 2012 and 2011 were as follows:

 

North American Wholesale Segment Net Sales

North American Wholesale Segment Net Sales

   

 Three Months Ended March 31, %  Three Months Ended June 30, % Six Months Ended June 30, % 
 2012  2011  Change  2012  2011  Change  2012  2011  Change 
 (Dollars in thousands)     (Dollars in thousands)     (Dollars in thousands)    
North American Net Sales                                    
Stacy Adams $18,429  $15,747   17% $13,172�� $11,658   13% $31,601  $27,405   15%
Nunn Bush  18,135   16,085   13%  15,410   14,091   9%  33,545   30,176   11%
Florsheim  12,066   12,363   -2%  10,550   10,024   5%  22,616   22,387   1%
BOGS/Rafters  5,834   2,242   160%  3,538   2,644   34%  9,372   4,885   92%
Umi  1,438   1,110   30%  406   421   -4%  1,844   1,532   20%
Total North American Wholesale $55,902  $47,547   18% $43,076  $38,838   11% $98,978  $86,385   15%
Licensing  725   596   22%  539   557   -3%  1,264   1,153   10%
Total North American Wholesale Segment $56,627  $48,143   18% $43,615  $39,395   11% $100,242  $87,538   15%

  

The increases in Stacy Adams second quarter and Nunn Bush first quarteryear to date net sales were driven by higher sales volumes to department stores and national shoe chains. The increases in Nunn Bush second quarter and year to date net sales were driven by higher sales volumes to department stores. Florsheim net sales were down 2% for the quarter, primarilyincreased due to delayed shipments from one of the Company’s major Florsheim suppliers.higher sales volumes with national shoe chains and independents. Bogs was acquired on March 2, 2011. Accordingly, the Company’s 2012 results included Bogs’ operations from January 1 through March 31,June 30, 2012, while 2011 only included Bogs’ operations from March 2 through March 31,June 30, 2011.

Licensing revenues consist of royalties earned on the sales of branded apparel, accessories and specialty footwear in the United States and on branded footwear in Canada, Mexico, and certain overseas markets. The increase in 2012 was primarily due to the addition of Bogs, which contributed approximately $130,000 more licensing revenues during the quarter as compared to last year.

 

Earnings from Operations

 

Earnings from operations in the North American wholesale segment were $4.5$2.1 million in the firstsecond quarter of 2012, compared to $3.6$1.0 million in 2011. The increase in operatingFor the six months ended June 30, 2012, earnings was primarilyfrom operations for the North American wholesale segment were $6.6 million, up from $4.7 million from the same period last year.

Wholesale gross earnings increased $480,000 and $2.9 million for the three and six months ended June 30, 2012, respectively, due to higher sales volumes, across the majoritywhich were slightly offset by lower gross margins as a percent of the Company’s footwear brands.

net sales. Wholesale gross earnings were 30.5%29.3% of net sales in the firstsecond quarter of 2012 compared with 30.9%31.3% in last year’s firstsecond quarter. For the six months ended June 30, wholesale gross earnings were 30.0% of net sales in 2012 compared with 31.1% in 2011. This decrease was primarily due to upward cost pressures from the Company’s third-party overseas factories, primarily located in China and India. There continues to be upward cost pressures from those countries due to a variety of factors including higher labor, material and freight costs and changes in the strength of the U.S. dollar.costs. Where possible, the Company has increased its selling prices to offset the effect of these increased costs, but management believes the Company will continue to incur increasing costs in the near to medium term.costs.

 

The Company’s cost of sales does not include distribution costs (e.g., receiving, inspection or warehousing costs). Distribution costs for the three-month periods ended March 31,June 30, 2012 and 2011 were $2.6$2.3 million and $2.1$2.0 million, respectively. For the six month periods ended June 30, 2012 and 2011, distribution costs were $4.9 million and $4.0 million, respectively. These costs were included in selling and administrative expenses. The Company’s gross earnings may not be comparable to other companies, as some companies may include distribution costs in cost of sales.

 

North American wholesale segment selling and administrative expenses include, and are primarily related to, distribution costs, salaries and commissions, advertising costs, employee benefit costs and depreciation. As a percent of net sales, wholesale selling and administrative expenses were 23% in the first25% this quarter of 2012 and 24%compared with 29% in the same periodquarter last year. For the six months ended June 30, wholesale selling and administrative expenses were 24% of net sales in 2012 and 26% of net sales in 2011. The decreases in selling and administrative expenses as a percent of sales were mainly due to sales volume increases, as many of the Company’s selling and administrative expenses are fixed in nature. In addition, during 2012, selling and administrative expenses for the quarter and year-to-date were reduced by approximately $700,000 and $1.2 million, respectively, for period end remeasurements of the estimated liability for future payments due to the former owners of the BOGS and Rafters brands. The reduction in the estimated liability was due to lower Bogs net sales relative to the Company’s original projections. Sales volumes in late 2011 and early 2012 were down due to the mild winter experienced in the U.S. This could also affect overall sales in 2012, as retailers often carry over excess stock to the next season.

13

 

North American Retail Segment

 

Net Sales

 

Net sales in the Company’s North American retail segment were up 1%decreased $277,000 or 5% in the firstsecond quarter of 2012, compared to the same period last year and down $194,000 or 2% for the six months ended June 30, 2012 compared with the same period last year. There were sevenfive fewer domestic stores at March 31,June 30, 2012 than at March 31,June 30, 2011, three of which closed duringas the first quarter of 2012.Company has been closing unprofitable stores. Same store sales were up 14%5% for the quarter. The improvement in same store performance more than offset the sales volume losses from the closed locations, resulting in relatively flat salesquarter and up 9% for the quarter.first half of 2012.

 

Earnings from Operations

 

The North AmericanFor the quarter and six months ended June 30, retail segment had a lossearnings from operations of ($5,000)decreased $165,000 and $110,000 respectively, in the first quarter of 2012 compared to a loss of ($60,000) inwith the firstsame periods last year.

Second quarter of 2011. This improvement was due to higher same store sales as well as the closing of underperforming stores during the period. Grossgross earnings as a percent of net retail sales improved to 65%were approximately level with the prior year at 64.1% this quarter, from 64% inyear and 64.0% last year. For the first quarter of 2011, which also contributed to the increase.

Selling and administrative expensessix months ended June 30, gross earnings as a percent of net retail sales remained flat at 65% in the first quarter ofwere 64.4% for 2012 and 2011. 63.9% last year.

Selling and administrative expenses for the retail segment include, and are primarily related to, rent and occupancy costs, employee costs and depreciation. Selling and administrative expenses as a percent of net sales were 64% in the second quarter of 2012 and 61% in last year’s second quarter. To date in 2012, selling and administrative expenses were 64% of net sales compared with 63% of net sales for the first half of 2011. In May 2012, the Company paid a one-time fee of $208,000 to terminate the lease of an unprofitable retail store. This was included in second quarter 2012 selling and administrative expenses and was the cause of the increase in selling and administrative expenses for the quarter and year-to-date, and consequently, represented the majority of the decrease in operating earnings for the periods.

 

Other

 

The Company’s other net sales were up 14%decreased 1% for the quarter.quarter and increased 6% for the first half of the year compared to the same periods last year. The majority of the Company’s other net sales are generated by Florsheim Australia. For the quarter and six months ended March 31,June 30, 2012, Florsheim Australia’s net sales were up 17% compared3% and 9% respectively. The quarter and year to the same period last year. In local currency, Florsheim Australia’s net salesdate increases were up 12% this quarter, due toachieved through higher sales volumes in Florsheim Australia’sboth its wholesale and retail businesses. The rest ofFlorsheim Europe’s sales decreased for the increase was caused by the strengthening of the Australian dollar relativesecond quarter and first six months compared to the U.S. dollar.last year due to lower wholesale sales.

 

Collectively, the operating earnings of the Company’s other businesses infor the first quarter ofand six months ended June 30, 2012 were up $140,000,decreased $241,000 and $105,000, respectively, compared to 2011. The increase in operating earnings was mainly due to higher sales volumes.

 

12

In June 2012, Florsheim Australia partnered with Pitanco Shoes to expand its wholesale and retail presence in the Chinese market. Pitanco is a manufacturer, distributor and retailer of men’s and woman’s leather shoes, handbags, travel goods, and accessories. It currently operates over 1,000 Pitanco branded shoe stores and shop in shops located in many cities throughout China. This partnership agreement is not material to the Company at this time.

 

Other income and expense and taxes

 

Interest income for the quarter and six months ended June 30, 2012 was down approximately $100,000$103,000 and $210,000, respectively, compared to the first quarter of 2011,same periods last year, primarily due to a lower average investment balance this year compared to last year. Interest expense increased to $129,000 inwas relatively flat for the first quarter of 2012 from $90,000 in 2011. The increase is due to additional debt outstanding on the Company’s revolving line of credit.and year-to-date.

 

The Company’s effective tax rate for the quarter ended March 31,June 30, 2012 was 35.1%30% as compared with 34.7%29% for the same period of 2011. The effective tax rate for the six months ended June 30 was 33% in both 2012 and 2011.

14

 

LIQUIDITY AND CAPITAL RESOURCES

 

The Company’s primary source of liquidity is its cash, short-term marketable securities and its revolving line of credit. During the first threesix months of 2012, the Company generated $335,000$6.6 million of cash from operating activities compared with $2.8$14.9 million in the same period one year ago. The decrease was primarily due to changes in operating assets and liabilities, and most significantly in the accounts receivable and accounts payable balances.balance. Capital expenditures were $891,000$2.1 million in the first three monthshalf of 2012 compared with $654,000 in the first three months of 2011.$3.1 million last year. Management estimates that annual capital expenditures for 2012 are expected to be between $6$7 million and $8 million.

 

The Company paid cash dividends of $1.7$3.5 million and $1.8$3.6 million during the threesix months ended March 31,June 30, 2012 and 2011, respectively.

 

The Company continues to repurchase its common stock under its share repurchase program when the Company believes market conditions are favorable. During the first quarterhalf of 2012, the Company repurchased 5,771165,986 shares at a total cost of $133,000.$3.8 million. As of March 31,June 30, 2012, the Company had 1,103,176942,961 shares available under its previously announced stock repurchase program. See Part II, Item 2, “Unregistered Sales of Equity Securities and Use of Proceeds” below for more information.

 

At March 31,June 30, 2012, the Company had a $50 million unsecured revolving line of credit. At the end of the firstsecond quarter, the Company had $39$34 million of bank borrowings outstanding at an interest rate of approximately 1.0%1.2%. The Company’s borrowing facility includes one financial covenant that specifies a minimum level of net worth. The Company was in compliance with the covenant at March 31,June 30, 2012. The line of credit agreement expired on April 30, 2012 and was renewed for another term that expires April 30, 2013. Under the newcurrent line of credit agreement, the interest rate on bank borrowings was changed tois LIBOR plus 100 basis points. Based on LIBOR rates as of April 30, 2012, the new interest rate would be approximately 1.2%.

 

In conjunction with the Bogs acquisition, the Company has a holdback payment due in the third quarter of 2012 and contingent payments due in 2013 and 2016. See Notes 2 and 10.

 

The Company will continue to evaluate the best uses for its available liquidity, including, among other uses, continued stock repurchases and additional acquisitions.

 

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 for at least one year, although there can be no assurances.

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, 2011.

 

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 Chief Executive Officer and Chief 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. Such officers have also concluded that, as of the Evaluation Date, the Company’s disclosure controls and procedures are effective in accumulating and communicating information in a timely manner, allowing timely decisions regarding required disclosures.

 

There have been no significant 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 have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

 

None

 

Item 1A. Risk Factors.

 

There have been no material changes to the risk factors affecting the Company from those disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

 

The table below presents information pursuant to Item 703(a) of Regulation S-K regarding the purchase of the Company’s common stock by the Company in the three month period ended March 31,June 30, 2012.

 

        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 (1) 
             
1/1/2012 - 1/31/2012  -  $-   -   1,108,947 
                 
2/1/2012 - 2/29/2012  -  $-   -   1,108,947 
                 
3/1/2012 - 3/31/2012  5,771  $22.97   5,771   1,103,176 
                 
Total  5,771  $22.97   5,771     
        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(1) 
             
4/1/2012 - 4/30/2012  23,452  $22.76   23,452   1,079,724 
                 
5/1/2012 - 5/31/2012  95,997  $23.03   95,997   983,727 
                 
6/1/2012 - 6/30/2012  40,766  $22.96   40,766   942,961 
                 
Total  160,215  $22.97   160,215     

 

(1)In April 1998, the Company's Board of Directors first authorized a stock repurchase program to repurchase 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. In February 2009, the Board of Directors extended the stock repurchase program to cover the repurchase of 1,000,000 additional shares, bringing the total authorized since inception to 5,500,000 shares.

(1) In April 1998, the Company's Board of Directors first authorized a stock repurchase program to repurchase 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. In February 2009, the Board of Directors extended the stock repurchase program to cover the repurchase of 1,000,000 additional shares, bringing the total authorized since inception to 5,500,000 shares.

 

Item 6. Exhibits.

 

See the Exhibit Index included herewith for a listing of exhibits.

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.

 

Dated: May 8, 2012

 WEYCO GROUP, INC.
  
Dated:  August 9, 2012/s/ John F. Wittkowske
 John F. Wittkowske
 Senior Vice President and
Chief Financial Officer

WEYCO GROUP, INC.

(THE “REGISTRANT”)

(COMMISSION FILE NO. 0-9068)

 

EXHIBIT INDEX

TO

CURRENT REPORT ON FORM 10-Q

FOR THE QUARTERLY PERIOD ENDEDMarch 31,June 30, 2012

 

 

Exhibit Description Incorporation Herein By Reference
To

Filed

Herewith

       
10.1(1) Seventh Amendment to Second Amended and Restated Credit Agreement, dated April 30, 2012 Exhibit 10.1 to Form 10-Q filed May 8, 2012 X
       
31.1 Certification of Chief Executive Officer   X
       
31.2 Certification of Chief Financial Officer   X
       
32 Section 906 Certification of Chief Executive Officer and Chief Financial Officer   X
       
101 The following financial information from Weyco Group, Inc.'s Quarterly Report on Form 10-Q for the quarter ended March 31,June 30, 2012 formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Condensed Balance Sheets; (ii) Consoidated Condensed Statements of Earnings;Earnings and Comprehensive Income; (iii) Consolidated Condensed Statements of Cash Flows; and (v) Notes to Consolidated Condensed Financial Statements, furnished herewith   X

 

(1) Represents a non-material amendment to the Amended and Restated Credit Agreement