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, 2013

 

Or

 

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

 

For the transition period from ___________to _____________to _____________________ to _____________________

 

Commission File Number:0-9068

 

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

WEYCO GROUP, INC.

(Exact name of registrant as specified in its charter)

 

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 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). Yesx No¨

 

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, 2013, there were 10,802,91610,828,541 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, 
  2013  2012 
  (Dollars in thousands) 
ASSETS:        
Cash and cash equivalents $13,782  $17,288 
Marketable securities, at amortized cost  7,017   8,004 
Accounts receivable, net  56,282   49,048 
Accrued income tax receivable  -   1,136 
Inventories  53,619   65,366 
Deferred income tax benefits  351   649 
Prepaid expenses and other current assets  3,318   4,953 
Total current assets  134,369   146,444 
         
Marketable securities, at amortized cost  34,369   36,216 
Deferred income tax benefits  1,369   792 
Property, plant and equipment, net  36,827   37,218 
Goodwill  11,112   11,112 
Trademarks  34,748   34,748 
Other assets  18,776   18,791 
Total assets $271,570  $285,321 
         
LIABILITIES AND EQUITY:        
Short-term borrowings $38,000  $45,000 
Accounts payable  6,393   11,133 
Accrued liabilities  8,900   13,888 
Accrued income tax payable  532   - 
Total current liabilities  53,825   70,021 
         
Long-term pension liability  27,885   27,530 
Other long-term liabilities  6,462   6,381 
         
Equity:        
Common stock  10,807   10,831 
Capital in excess of par value  29,261   26,184 
Reinvested earnings  148,938   149,664 
Accumulated other comprehensive loss  (12,685)  (12,514)
Total Weyco Group, Inc. equity  176,321   174,165 
Noncontrolling interest  7,077   7,224 
Total equity  183,398   181,389 
Total liabilities and equity $271,570  $285,321 

  June 30,  December 31, 
  2013  2012 
  (Dollars in thousands) 
ASSETS:        
Cash and cash equivalents $7,048  $17,288 
Marketable securities, at amortized cost  6,981   8,004 
Accounts receivable, net  42,717   49,048 
Accrued income tax receivable  2,628   1,136 
Inventories  52,332   65,366 
Deferred income tax benefits  396   649 
Prepaid expenses and other current assets  5,298   4,953 
     Total current assets  117,400   146,444 
         
Marketable securities, at amortized cost  30,915   36,216 
Deferred income tax benefits  1,440   792 
Property, plant and equipment, net  35,706   37,218 
Goodwill  11,112   11,112 
Trademarks  34,748   34,748 
Other assets  21,666   18,791 
     Total assets $252,987  $285,321 
         
LIABILITIES AND EQUITY:        
Short-term borrowings $20,000  $45,000 
Accounts payable  4,524   11,133 
Dividend payable  1,938   - 
Accrued liabilities  9,013   13,888 
     Total current liabilities  35,475   70,021 
         
Long-term pension liability  28,216   27,530 
Other long-term liabilities  6,695   6,381 
         
Equity:        
Common stock  10,804   10,831 
Capital in excess of par value  29,932   26,184 
Reinvested earnings  148,696   149,664 
Accumulated other comprehensive loss  (13,375)  (12,514)
     Total Weyco Group, Inc. equity  176,057   174,165 
Noncontrolling interest  6,544   7,224 
     Total equity  182,601   181,389 
     Total liabilities and equity $252,987  $285,321 

 

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 EARNINGS AND COMPREHENSIVE INCOME (UNAUDITED)

 

  Three Months Ended March 31, 
  2013  2012 
  (In thousands, except per share amounts) 
       
Net sales $73,590  $75,314 
Cost of sales  45,891   47,283 
Gross earnings  27,699   28,031 
         
Selling and administrative expenses  23,011   22,198 
Earnings from operations  4,688   5,833 
         
Interest income  412   483 
Interest expense  (127)  (129)
Other income and expense, net  (89)  58 
         
Earnings before provision for income taxes  4,884   6,245 
         
Provision for income taxes  1,759   2,190 
         
Net earnings  3,125   4,055 
         
Net (loss) earnings attributable to noncontrolling interest  (75)  186 
         
Net earnings attributable to Weyco Group, Inc. $3,200  $3,869 
         
Weighted average shares outstanding        
Basic  10,760   10,888 
Diluted  10,835   11,028 
         
Earnings per share        
Basic $0.30  $0.36 
Diluted $0.30  $0.35 
         
Cash dividends declared (per share) $-  $0.16 
         
Comprehensive income $2,882  $4,890 
         
Comprehensive (loss) income attributable to noncontrolling interest  (147)  645 
         
Comprehensive income attributable to Weyco Group, Inc. $3,029  $4,245 

  Three Months Ended June 30,  Six Months Ended June 30, 
  2013  2012  2013  2012 
  (In thousands, except per share amounts) 
             
Net sales $65,041  $60,333  $138,631  $135,647 
Cost of sales  40,343   37,455   86,234   84,738 
Gross earnings  24,698   22,878   52,397   50,909 
                 
Selling and administrative expenses  21,018   19,476   44,029   41,674 
Earnings from operations  3,680   3,402   8,368   9,235 
                 
Interest income  386   483   798   966 
Interest expense  (112)  (116)  (239)  (245)
Other expense, net  (538)  (123)  (627)  (65)
                 
Earnings before provision for income taxes  3,416   3,646   8,300   9,891 
                 
Provision for income taxes  1,151   1,094   2,910   3,284 
                 
Net earnings  2,265   2,552   5,390   6,607 
                 
Net earnings (loss) attributable to noncontrolling interest  60   333   (15)  519 
                 
Net earnings attributable to Weyco Group, Inc. $2,205  $2,219  $5,405  $6,088 
                 
Weighted average shares outstanding                
Basic  10,763   10,865   10,762   10,877 
Diluted  10,813   10,982   10,824   11,005 
                 
Earnings per share                
Basic $0.20  $0.20  $0.50  $0.56 
Diluted $0.20  $0.20  $0.50  $0.55 
                 
Cash dividends declared (per share) $0.18  $0.17  $0.18  $0.33 
                 
                 
Comprehensive income $982  $2,088  $3,864  $6,978 
                 
Comprehensive (loss) income attributable to noncontrolling interest  (533)  151   (680)  796 
                 
Comprehensive income attributable to Weyco Group, Inc. $1,515  $1,937  $4,544  $6,182 

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, 
  2013  2012 
  (Dollars in thousands) 
CASH FLOWS FROM OPERATING ACTIVITIES:        
Net earnings $3,125  $4,055 
Adjustments to reconcile net earnings to net cash  provided by operating activities -        
Depreciation  953   800 
Amortization  85   94 
Bad debt expense  36   78 
Deferred income taxes  (428)  (442)
Net gains on remeasurement of contingent consideration  -   (518)
Net foreign currency transaction losses (gains)  124   (51)
Stock-based compensation  316   299 
Pension expense  825   989 
Net losses (gains) on disposal of property, plant and equipment  3   (3)
Increase in cash surrender value of life insurance  (135)  (135)
Changes in operating assets and liabilities, net of effects from acquisitions -        
Accounts receivable  (7,272)  (10,554)
Inventories  11,750   11,351 
Prepaids and other assets  1,716   315 
Accounts payable  (4,742)  (7,021)
Accrued liabilities and other  (4,341)  (1,155)
Accrued income taxes  1,669   2,233 
 Net cash provided by operating activities  3,684   335 
         
CASH FLOWS FROM INVESTING ACTIVITIES:        
Proceeds from maturities of marketable securities  2,819   431 
Proceeds from the sale of property, plant and equipment  3   - 
Purchase of property, plant and equipment  (564)  (891)
  Net cash provided by (used for) investing activities  2,258   (460)
         
CASH FLOWS FROM FINANCING ACTIVITIES:        
Cash dividends paid  -   (1,748)
Shares purchased and retired  (4,099)  (133)
Proceeds from stock options exercised  2,499   136 
Payment of contingent consideration  (1,270)  - 
Proceeds from bank borrowings  2,000   2,000 
Repayments of bank borrowings  (9,000)  - 
Income tax benefits from stock-based compensation  411   22 
Net cash (used for) provided by financing activities  (9,459)  277 
         
Effect of exchange rate changes on cash and cash equivalents  11   62 
         
Net (decrease) increase in cash and cash equivalents $(3,506) $214 
         
CASH AND CASH EQUIVALENTS at beginning of period  17,288   10,329 
         
CASH AND CASH EQUIVALENTS at end of period $13,782  $10,543 
         
SUPPLEMENTAL CASH FLOW INFORMATION:        
Income taxes paid, net of refunds $560  $419 
Interest paid $123  $103 

  Six Months Ended June 30, 
  2013  2012 
  (Dollars in thousands) 
CASH FLOWS FROM OPERATING ACTIVITIES:      
Net earnings $5,390  $6,607 
Adjustments to reconcile net earnings to net cash provided by operating activities -        
Depreciation  1,985   1,603 
Amortization  171   184 
Bad debt expense  87   152 
Deferred income taxes  (727)  (841)
Net gain on remeasurement of contingent consideration  -   (1,219)
Net foreign currency transaction losses  580   90 
Stock-based compensation  633   598 
Pension contribution  (110)  - 
Pension expense  1,796   1,869 
Increase in cash surrender value of life insurance  (115)  (115)
Changes in operating assets and liabilities -        
Accounts receivable  6,278   5,244 
Inventories  12,960   2,082 
Prepaids and other assets  99   376 
Accounts payable  (6,628)  (8,547)
Accrued liabilities and other  (5,004)  (1,096)
Accrued income taxes  (1,493)  (392)
    Net cash provided by operating activities  15,902   6,595 
         
CASH FLOWS FROM INVESTING ACTIVITIES:        
Purchase of marketable securities  (12)  - 
Proceeds from maturities of marketable securities  6,308   2,905 
Life insurance premiums paid  (155)  (155)
Investment in real estate  (3,206)  - 
Purchase of property, plant and equipment  (1,125)  (2,128)
Net cash provided by investing activities  1,810   622 
         
CASH FLOWS FROM FINANCING ACTIVITIES:        
Cash dividends paid  -   (3,496)
Shares purchased and retired  (4,623)  (3,812)
Proceeds from stock options exercised  2,828   1,566 
Payment of contingent consideration  (1,270)  - 
Proceeds from bank borrowings  2,000   9,000 
Repayments of bank borrowings  (27,000)  (12,000)
Income tax benefits from stock-based compensation  455   469 
Net cash used for financing activities  (27,610)  (8,273)
         
Effect of exchange rate changes on cash and cash equivalents  (342)  (7)
         
Net decrease in cash and cash equivalents $(10,240) $(1,063)
         
CASH AND CASH EQUIVALENTS at beginning of period  17,288   10,329 
         
CASH AND CASH EQUIVALENTS at end of period $7,048  $9,266 
         
SUPPLEMENTAL CASH FLOW INFORMATION:        
Income taxes paid, net of refunds $4,527  $4,010 
Interest paid $206  $191 

 

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, 2013 are not necessarily indicative of the results for the full year.

 

2.Reclassifications

Certain reclassifications have been made in the prior year’s financial statements to conform to the current year’s presentation. Such reclassifications had no effect on previously reported net income or equity.

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, 
  2013  2012 
  (In thousands, except per share amounts) 
Numerator:        
Net earnings attributable to Weyco Group, Inc. $3,200  $3,869 
         
Denominator:        
Basic weighted average shares outstanding  10,760   10,888 
Effect of dilutive securities:        
Employee stock-based awards  75   140 
Diluted weighted average shares outstanding  10,835   11,028 
         
Basic earnings per share $0.30  $0.36 
         
Diluted earnings per share $0.30  $0.35 

  Three Months Ended June 30,  Six Months Ended June 30, 
  2013  2012  2013  2012 
  (In thousands, except per share amounts) 
Numerator:            
Net earnings attributable to Weyco Group, Inc. $2,205  $2,219  $5,405  $6,088 
                 
Denominator:                
Basic weighted average shares outstanding  10,763   10,865   10,762   10,877 
Effect of dilutive securities:                
Employee stock-based awards  50   117   62   128 
Diluted weighted average shares outstanding  10,813   10,982   10,824   11,005 
                 
Basic earnings per share $0.20  $0.20  $0.50  $0.56 
                 
Diluted earnings per share $0.20  $0.20  $0.50  $0.55 

 

Diluted weighted average shares outstanding for the three and six months ended March 31,June 30, 2013 exclude anti-dilutive unvested restricted stock and outstanding stock options totaling 853,780773,150 shares of common stock at a weighted average price of $24.81.$24.99. 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.

 

3.4.Investments

 

As noted in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012, all of the Company’s municipal bond investments are classified as held-to-maturity securities and reported at amortized cost pursuant to Accounting Standards Codification (“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

Below is a summary of the amortized cost and estimated market values of all marketablethe Company’s investment securities as of March 31,as of June 30, 2013 and December 31, 2012 as reported in the Consolidated Condensed Balance Sheets (Unaudited) was $41.4 million and $44.2 million, respectively. The estimated fair market value of those marketable securities at March 31, 2013 and December 31, 2012 was $43.5 million and $46.5 million, respectively.2012.

  June 30, 2013  December 31, 2012 
  Amortized  Market  Amortized  Market 
  Cost  Value  Cost  Value 
  (Dollars in thousands) 
Municipal bonds:                
    Current $6,981  $7,049  $8,004  $8,117 
    Due from one through five years  22,569   23,586   25,384   26,620 
    Due from six through ten years  8,346   8,963   10,832   11,756 
        Total $37,896  $39,598  $44,220  $46,493 

 

Theunrealized gains and losses on investment securities at March 31,as of June 30, 2013 and December 31, 2012 were as follows:

 

  March 31, 2013  December 31, 2012 
  Unrealized  Unrealized  Unrealized  Unrealized 
  Gains  Losses  Gains  Losses 
  (Dollars in thousands) 
Municipal bonds $2,268  $200  $2,473  $200 
  June 30, 2013  December 31, 2012 
  Unrealized  Unrealized  Unrealized  Unrealized 
  Gains  Losses  Gains  Losses 
  (Dollars in thousands) 
Municipal bonds $1,902  $200  $2,473  $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, 2013 and determined that no other-than-temporary market value impairment exists.

On May 1, 2013, the Company purchased a 50% interest in a building in Montreal, Canada for approximately $3.2 million. This building serves as the Company’s Canadian office and distribution center. This real estate investment was accounted for as an equity-method investment under ASC 323,Investments - Equity Method and Joint Ventures (“ASC 323”) and is included within other assets in the Consolidated Condensed Balance Sheets (Unaudited).

4.5.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, 2013:

 

    March 31, 2013    June 30, 2013 
 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  $(83) $117  5 $200  $(93) $107 
Customer relationships  15   3,500   (486)  3,014  15  3,500   (545)  2,955 
Total amortizable intangible assets     $3,700  $(569) $3,131    $3,700  $(638) $3,062 

 

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, 2012:

 

    December 31, 2012 
  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  $(73) $127 
Customer relationships 15  3,500   (428)  3,072 
Total amortizable intangible assets   $3,700  $(501) $3,199 

 

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

 

5.6.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 tabletables 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, 2013 and 2012 was:was as follows:

 

Three Months Ended            
March 31, Wholesale  Retail  Other  Total 
  (Dollars in thousands) 
2013            
Product sales $54,649  $5,748  $12,599  $72,996 
Licensing revenues  594   -   -   594 
Net sales $55,243  $5,748  $12,599  $73,590 
Earnings from operations $3,732  $442  $514  $4,688 
                 
2012                
Product sales $55,902  $5,660  $13,027  $74,589 
Licensing revenues  725   -   -   725 
Net sales $56,627  $5,660  $13,027  $75,314 
Earnings from operations $4,470  $(5) $1,368  $5,833 

5
Three Months Ended            
June 30, Wholesale  Retail  Other  Total 
  (Dollars in thousands) 
2013            
Product sales $46,858  $5,383  $12,174  $64,415 
Licensing revenues  626   -   -   626 
Net sales $47,484  $5,383  $12,174  $65,041 
Earnings from operations $2,179  $584  $917  $3,680 
                 
2012                
Product sales $43,076  $5,589  $11,129  $59,794 
Licensing revenues  539   -   -   539 
Net sales $43,615  $5,589  $11,129  $60,333 
Earnings from operations $2,092  $37  $1,273  $3,402 
                 
                 
Six Months Ended                
June 30,  Wholesale     Retail   Other   Total 
   (Dollars in thousands) 
2013                
Product sales $101,507  $11,131  $24,773  $137,411 
Licensing revenues  1,220   -   -   1,220 
Net sales $102,727  $11,131  $24,773  $138,631 
Earnings from operations $5,911  $1,026  $1,431  $8,368 
                 
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 

 

6.7.Employee Retirement Plans

 

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

 

  Three Months Ended March 31, 
  2013  2012 
  (Dollars in thousands) 
Benefits earned during the period $385  $399 
Interest cost on projected benefit obligation  578   602 
Expected return on plan assets  (519)  (482)
Net amortization and deferral  381   470 
 Net pension expense $825  $989 

  Three Months Ended June 30,  Six Months Ended June 30, 
  2013  2012  2013  2012 
  (Dollars in thousands) 
Benefits earned during the period $447  $369  $832  $768 
Interest cost on projected benefit obligation  608   573   1,186   1,175 
Expected return on plan assets  (525)  (492)  (1,044)  (974)
Net amortization and deferral  441   430   822   900 
    Net pension expense $971  $880  $1,796  $1,869 

The Company expects to make pension contributions totaling approximately $1.6 million during 2013.

 

7.8.Stock-Based Compensation Plans

 

During the three and six months ended March 31,June 30, 2013, the Company recognized approximately $316,000$317,000 and $633,000, respectively, of compensation expense associated with stock option and restricted stock awards granted in the years 2009 through 2012. 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.

 

The following table summarizes the stock option activity under the Company’s plans for the threesix month period ended March 31,June 30, 2013:

 

        Weighted    
     Weighted  Average    
     Average  Remaining  Aggregate 
     Exercise  Contractual  Intrinsic 
  Shares  Price  Term (Years)  Value* 
Outstanding at December 31, 2012  1,265,792  $22.76         
Exercised  (148,626) $16.81         
Forfeited or expired  (700) $24.27         
Outstanding at March 31, 2013  1,116,466  $23.55   3.3  $1,760,000 
Exercisable at March 31, 2013  557,837  $23.24   1.9  $1,398,000 

        Weighted    
     Weighted  Average    
     Average  Remaining  Aggregate 
     Exercise  Contractual  Intrinsic 
  Shares  Price  Term (Years)  Value* 
Outstanding at December 31, 2012  1,265,792  $22.76         
Exercised  (168,176) $16.82         
Forfeited or expired  (4,700) $24.07         
Outstanding at June 30, 2013  1,092,916  $23.67   3.1  $2,287,000 
Exercisable at June 30, 2013  537,787  $23.47   1.8  $1,543,000 


* The aggregate intrinsic value of outstanding and exercisable stock options is defined as the difference between the market value at Marchof the Company's stock on June 28, 2013, the last trading day of the quarter, of $24.51$25.20 and the exercise price.price multiplied by the number of in-the-money outstanding and exercisable stock options.

 

The following table summarizes the Company’s stock option activity for the three and six months ended March 31,June 30, 2013 and 2012:

 

  Three Months Ended March 31, 
  2013  2012 
  (Dollars in thousands) 
Total intrinsic value of stock options exercised $1,055  $57 
Cash received from stock option exercises $2,499  $136 
Income tax benefit from the exercise of stock options $411  $22 

  Three Months Ended June 30,  Six Months Ended June 30, 
  2013  2012  2013  2012 
  (Dollars in thousands) 
Total intrinsic value of stock options exercised $111  $1,147  $1,166  $1,204 
Cash received from stock option exercises $329  $1,430  $2,828  $1,566 
Income tax benefit from the exercise of stock options $44  $447  $455  $469 

The following table summarizes the Company’s restricted stock award activity for threesix month period ended March 31,June 30, 2013:

 

        Weighted    
     Weighted  Average    
  Shares of  Average  Remaining  Aggregate 
  Restricted  Grant Date  Contractual  Intrinsic 
  Stock  Fair Value  Term (Years)  Value* 
Non-vested at December 31, 2012  42,575  $23.87         
Issued  -   -         
Vested  -   -         
Forfeited  -   -         
Non-vested at March 31, 2013  42,575  $23.87   2.8 $1,044,000 

        Weighted    
     Weighted  Average    
  Shares of  Average  Remaining  Aggregate 
  Restricted  Grant Date  Contractual  Intrinsic 
  Stock  Fair Value  Term (Years)  Value* 
Non-vested at December 31, 2012  42,575  $23.87         
Issued  -   -         
Vested  -   -         
Forfeited  -   -         
Non-vested at June 30, 2013  42,575  $23.87   2.6 $1,073,000 

 

* The aggregate intrinsic value of non-vested restricted stock was calculated using the market value of the Company's stock on on MarchJune 28, 2013, the last trading day of the quarter, of $24.5125.20 multiplied by the number of non-vested restricted shares outstanding.

 

8.9.Short-Term Borrowings

 

At March 31,June 30, 2013, the Company had a $60 million unsecured revolving line of credit. At the end of the first quarter, the Company had $38credit, with $20 million of bank borrowings outstanding at an interest rate of approximately 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, 2013. The line of credit agreement expired on April 30, 2013 and was renewed for another term that expires on April 30, 2014, at essentially the same terms as the prior agreement.

 

9.10.Contingent Consideration

 

Contingent consideration is comprised of two contingent payments that the Company is obligated to pay the former shareholders of Bogs,The Combs Company (“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. The first payment was paid to the former owners on March 28, 2013. 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, 
  2013  2012 
  (Dollars in thousands) 
Current portion $-  $1,270 
Long-term portion  5,003   4,991 
Total contingent consideration $5,003  $6,261 

  June 30,  December 31, 
  2013  2012 
  (Dollars in thousands) 
Current portion $-  $1,270 
Long-term portion  5,015   4,991 
Total contingent consideration $5,015  $6,261 

 

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, 2012 and March 31,June 30, 2013 were the payment to the former owners of $1,270,000 and interest expense of $12,000.$24,000.

 

The current portion of contingent consideration was recorded within accrued liabilities in the Consolidated Condensed Balance Sheets (Unaudited). The long-term portion was 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.

 

10.11.Comprehensive Income

 

Comprehensive income for the three and six months ended March 31,June 30, 2013 and 2012 was as follows:

 

  Three Months Ended March 31, 
  2013  2012 
  (Dollars in thousands) 
Net earnings $3,125  $4,055 
Foreign currency translation adjustments  (476)  549 
Pension liability, net of tax of $148 and $183, respectively  233   286 
Total comprehensive income $2,882  $4,890 

  Three Months Ended June 30,  Six Months Ended June 30, 
  2013  2012  2013  2012 
  (Dollars in thousands) 
Net earnings $2,265  $2,552  $5,390  $6,607 
Foreign currency translation adjustments  (1,551)  (743)  (2,027)  (194)
Pension liability, net of tax of $172, $178, $320, and $361, respectively  268   279   501   565 
Total comprehensive income $982  $2,088  $3,864  $6,978 

  

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

 

  March 31,  December 31, 
  2013  2012 
  (Dollars in thousands) 
Foreign currency translation adjustments $277  $681 
Pension liability, net of tax  (12,962)  (13,195)
Total accumulated other comprehensive loss $(12,685) $(12,514)

  June 30,  December 31, 
  2013  2012 
  (Dollars in thousands) 
Foreign currency translation adjustments $(681) $681 
Pension liability, net of tax  (12,694)  (13,195)
Total accumulated other comprehensive loss $(13,375) $(12,514)

8

 

11.12.Equity

 

A reconciliation of the Company’s equity for the threesix months ended March 31,June 30, 2013 is as follows:

 

           Accumulated    
     Capital in     Other    
  Common  Excess of  Reinvested  Comprehensive  Noncontrolling 
  Stock  Par Value  Earnings  Loss  Interest 
  (Dollars in thousands) 
                
Balance, December 31, 2012 $10,831  $26,184  $149,664  $(12,514) $7,224 
                     
Net earnings (loss)  -   -   3,200   -   (75)
Foreign currency translation adjustments  -   -   -   (404)  (72)
Pension liability adjustment, net of tax  -   -   -   233   - 
Stock options exercised  149   2,350   -   -   - 
Stock-based compensation expense  -   316   -   -   - 
Income tax benefit from stock options exercised  -   411   -   -   - 
Shares purchased and retired  (173)  -   (3,926)  -   - 
                     
Balance, March 31, 2013 $10,807 $29,261 $148,938 $(12,685) $7,077 

12.Subsequent Events

On May 1, 2013, the Company purchased a 50% interest in a building in Montreal, Canada for $3.4 million. The Company previously leased this facility, which is used as its Canadian office and distribution center.

           Accumulated    
     Capital in     Other    
  Common  Excess of  Reinvested  Comprehensive  Noncontrolling 
  Stock  Par Value  Earnings  Loss  Interest 
  (Dollars in thousands) 
                
Balance, December 31, 2012 $10,831  $26,184  $149,664  $(12,514) $7,224 
                     
  Net earnings  -   -   5,405   -   (15)
  Foreign currency translation                    
    adjustments  -   -   -   (1,362)  (665)
  Pension liability adjustment,                    
    net of tax  -   -   -   501   - 
  Cash dividends declared  -   -   (1,945)  -   - 
  Stock options exercised  168   2,660   -   -   - 
  Stock-based compensation                    
    expense  -   633   -   -   - 
  Income tax benefit from                    
    stock options exercised  -   455   -   -   - 
  Shares purchased and retired  (195)  -   (4,428)  -   - 
                     
Balance, June 30, 2013 $10,804 $29,932 $148,696 $(13,375) $6,544 


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, 2012.

 

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, 2013, 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 Mexico and certain markets overseas. Licensing revenues are included in the Company’s wholesale segment. The Company’s retail segment consisted of 21Company-owned19Company-owned retail stores in the United States and an Internet business as of March 31,June 30, 2013. 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

 

SalesSecond Quarter Highlights

Consolidated net sales for the second quarter of 2013 were $65.0 million, up 8% over last year’s second quarter net sales of $60.3 million. Earnings from operations increased 8% to $3.7 million this quarter, from $3.4 million in 2012. Consolidated net earnings attributable to Weyco Group, Inc. and diluted earnings per share were flat at $2.2 million and $0.20 per share, respectively, for the second quarter of 2013 compared to the same period in 2012. Earnings for last year’s second quarter included approximately $700,000 ($410,000 after tax, or $0.04 per diluted share) of income resulting from a reduction in the contingent consideration liability. See Note 10.

The majority of the increase in consolidated net sales came from the Company’s wholesale segment. Wholesale net sales increased $3.9 million this quarter compared to the same period last year. This increase was primarily due to higher sales of the Nunn Bush and Florsheim brands.

Excluding the $700,000 prior year adjustment, consolidated earnings from operations would have been up approximately $1 million, or 57%, for the quarter. This increase was driven by strong performance in the Company’s wholesale and retail segments, offset by lower earnings from operations from the Company’s other businesses.

Year to Date Highlights

 

Consolidated net sales for the first quarterhalf of 2013 were $73.6$138.6 million, downup 2% compared toover last year’s first quarteryear to date net sales of $75.3$135.6 million. North American wholesaleEarnings from operations decreased 9% to $8.4 million in the first six months of 2013, from $9.2 million in 2012. Consolidated net earnings attributable to Weyco Group, Inc. for the six months ended June 30, 2013 were $5.4 million, compared to $6.1 million last year. Diluted earnings per share to date through June 30, 2013 were $0.50 per share, down from $0.55 per share for the same period in 2012. Last year’s year to date earnings included approximately $1.2 million ($710,000 after tax, or $0.06 per diluted share) of income resulting from the contingent consideration adjustments described above.

The majority of the increase in consolidated net sales were down 2% for the quarter. Retailsix months ended June 30, 2013 came from Company’s wholesale segment. Wholesale net sales increased 2% this quarter$2.5 million in the first six months of 2013, compared to the same period last year. NetThis increase was primarily due to higher sales volumes across several of the Company’s other businesses decreased 3%.major wholesale brands, and increased Bogs sales volumes in Canada due to the takeover of Bogs Canadian distribution in June 2012.

 

ConsolidatedExcluding the $1.2 million prior year adjustment, consolidated earnings from operations were $4.7 million this quarter compared with $5.8 million for the first quarter of 2012. Gross earnings as a percent of net sales were 37.6% for the first quarter of 2013 and 37.2% for the first quarter of 2012. Selling and administrative expenses were 31% of net sales for the first quarter of 2013 as compared with 29% in 2012. In 2012, selling and administrative expenses were reduced by a $518,000 adjustment to reduce the estimated liability for future payments to be made as a result of the 2011 Bogs acquisition. No significant adjustment to the estimated liability was made in 2013.

The Company’s net earnings attributable to Weyco Group, Inc.would have been up approximately $400,000 in the first quartersix months of 2013, were $3.2 million compared with $3.9 millionto the same period in 2012. This increase was driven by strong performance in the same quarter last year. DilutedCompany’s wholesale and retail segments, offset by lower earnings per share forfrom operations from the three months ended March 31, 2013 were $0.30 per share compared with $0.35 per share in last year’s first quarter.Company’s other businesses.

 

Financial Position Highlights

 

At March 31,June 30, 2013 cash and marketable securities totaled $55$45 million and total outstanding debt was $38totaled $20 million. At December 31, 2012, cash and marketable securities totaled $62 million and total outstanding debt wastotaled $45 million. The Company’s main sources of cash for the first six months of 2013 were from operations, the maturities of marketable securities and proceeds from stock options exercised. The Company’s main uses of cash during the year to date period were for common stock repurchases, payments on the revolving line of credit, and a payment to the former shareholders of Bogs. The Company also paid approximately $3.2 million for a 50% interest in a building in Montreal, Canada on May 1, 2013.

SEGMENT ANALYSIS

 

Net sales and earnings from operations for the Company’s segments in the three and six months ended March 31,June 30, 2013 and 2012 were as follows:

  Three Months Ended March 31,  % 
  2013  2012  Change 
  (Dollars in thousands)    
Net Sales            
North American Wholesale $55,243  $56,627   -2%
North American Retail  5,748   5,660   2%
Other  12,599   13,027   -3%
Total $73,590  $75,314   -2%
             
Earnings from Operations            
North American Wholesale $3,732  $4,470   -17%
North American Retail  442   (5)  * 
Other  514   1,368   -62%
Total $4,688  $5,833   -20%

  Three Months Ended June 30,  %  Six Months Ended June 30,  % 
  2013  2012  Change  2013  2012  Change 
  (Dollars in thousands)    
Net Sales                        
North American Wholesale $47,484  $43,615   9% $102,727  $100,242   2%
North American Retail  5,383   5,589   -4%  11,131   11,249   -1%
Other  12,174   11,129   9%  24,773   24,156   3%
Total $65,041  $60,333   8% $138,631  $135,647   2%
                         
Earnings from Operations                        
North American Wholesale $2,179  $2,092   4% $5,911  $6,562   -10%
North American Retail  584   37                *   1,026   32                * 
Other  917   1,273   -28%  1,431   2,641   -46%
Total $3,680  $3,402   8% $8,368  $9,235   -9%

 

* - Not meaningful.

  

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, 2013 and 2012 were as follows:

 

North American Wholesale Segment Net Sales         
          
  Three Months Ended March 31,  % 
  2013  2012  Change 
  (Dollars in thousands)    
North American Net Sales            
Stacy Adams $18,716  $18,429   2%
Nunn Bush  16,135   18,135   -11%
Florsheim  12,487   12,066   3%
BOGS/Rafters  6,303   5,834   8%
Umi  1,008   1,438   -30%
Total North American Wholesale $54,649  $55,902   -2%
Licensing  594   725   -18%
Total North American Wholesale Segment $55,243  $56,627   -2%

North American Wholesale Segment Net Sales                        

 

  Three Months Ended June 30,  %  Six Months Ended June 30,  % 
  2013  2012  Change  2013  2012  Change 
  (Dollars in thousands)     (Dollars in thousands)    
North American Net Sales                        
Stacy Adams $13,484  $13,172   2% $32,200  $31,601   2%
Nunn Bush  17,132   15,410   11%  33,267   33,545   -1%
Florsheim  12,406   10,550   18%  24,893   22,616   10%
BOGS/Rafters  3,245   3,538   -8%  9,548   9,372   2%
Umi  591   406   46%  1,599   1,844   -13%
Total North American Wholesale $46,858  $43,076   9% $101,507  $98,978   3%
Licensing  626   539   16%  1,220   1,264   -3%
Total North American Wholesale                        
Segment $47,484  $43,615   9% $102,727  $100,242   2%


The increase in Nunn Bush second quarter net sales was primarily due to higher sales volumes at department stores and national shoe chains. The increases in Stacy AdamsFlorsheim second quarter and Florsheim first quarteryear to date net sales were also driven by higher sales volumes withat department stores and national shoe chains. Nunn Bush net sales decreased due to soft sales to department stores in the first quarter 2013. The Company took over the distribution of Bogs in Canada from a third partythird-party licensee effective June 1, 2012. As a result, Bogs net sales increased due to having new sales in Canada for six months in the first quarter2013, compared to one month of 2013.such sales in 2012. This increase was partiallylargely offset by decreased sales of Bogs in the United States in the first quarter 2013. Management believes that Bogs net sales in the United States decreased because retailers continued to sell inventory carried over from the prior mild winter rather than buying new stock.

 

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 Mexico and certain overseas markets.

Earnings from Operations

 

Earnings from operations in the North American wholesale segment were $3.7$2.2 million in the firstsecond quarter of 2013, compared to $4.5$2.1 million in 2012. The majority ofFor the decrease insix months ended June 30, 2013, earnings from operations resultedfor the wholesale segment were $5.9 million, down from $6.6 million in the same period last year. Last year’s earnings from operations for the three and six months ended June 30, 2012 included approximately $700,000 and $1.2 million, respectively, of income resulting from the impact of the first quarter 2012contingent consideration adjustments described above. No significant adjustment to reduce the estimated liability for future payments related to the 2011 Bogs acquisition. The adjustment reduced first quarter 2012 selling and administrative expenses by $518,000. The first payment was made to the former owners of Bogscontingent consideration in the first quarter of 2013; no significant adjustment to the estimated liability was made in the first quartersix months of 2013.

 

Gross

Wholesale gross earnings increased by $1.4 million and $1.3 million for the three and six months ended June 30, 2013, respectively, due to higher sales volumes and higher gross earnings as a percent of net sales. Wholesale gross earnings were $17.1 million, or 31.0%29.9% of net sales in the firstsecond quarter of 2013 compared with $17.3 million, or 30.5%29.3% in last year’s firstsecond quarter. For the six months ended June 30, wholesale gross earnings were 30.5% of net sales in 2013 compared with 30.0% in 2012.

 

The Company’s cost of sales does not include distribution costs (e.g., receiving, inspection or warehousing costs). Distribution costs for the three-monththree month periods ended March 31,June 30, 2013 and 2012 were $2.9$2.6 million and $2.5$2.4 million, respectively. For the six month periods ended June 30, 2013 and 2012, distribution costs were $5.5 million and $4.9 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 24.5% in the first26% this quarter of 2013 and 23%compared with 25% in the same periodquarter last year. For the six months ended June 30, wholesale selling and administrative expenses were 25% of net sales in 2013 and 24% of net sales in 2012. Last year’s selling and administrative expenses for the three and six months ended June 30, 2012 were reduced by the contingent consideration adjustments described above. Excluding these adjustments, selling and administrative expenses as a percent of net sales for the quarter and year to date periods would have been flat between years.

12

 

North American Retail Segment

 

Net Sales

 

Net sales in the Company’s North American retail segment were up 2%decreased approximately $200,000 or 4% in the firstsecond quarter of 2013, compared to the same period last year and decreased approximately $100,000 or 1% for the six months ended June 30, 2013 compared to the same period last year. There were sixseven fewer domestic retail stores at March 31,June 30, 2013 than at March 31, 2012.June 30, 2012, as the Company has been closing unprofitable stores. Same store sales were up 10%6% for the quarter withand up 8% for the majorityfirst half of the increase2013, primarily due to increased sales volumes in the Company’s Internet business. The improvement in same store performance more than offset the sales volume losses from the closed locations.

 

Earnings from Operations

 

The North American retail segment hadRetail earnings from operations of $442,000 inincreased by $550,000 and $1 million for the first quarter ofthree and six months ended June 30, 2013, respectively, compared to a loss of ($5,000)the same periods in the first quarter of 2012. This improvement wasThese increases were due to higher same store sales as well as the closing of underperforming stores since March 31,June 30, 2012. Gross earnings were 65%as a percent of net sales increased to 65% this quarter, from 64% in bothlast year’s second quarter. For the the first quartersix months ended June 30, retail gross earnings as a percent of net sales were 65% in 2013, andcompared to 64% in 2012.

 

Selling and administrative expenses were 57% of net sales in the first quarter of 2013 compared with 65% of net sales in 2012.

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 55% in the second quarter of 2013 and 64% in last year’s second quarter. To date in 2013, selling and administrative expenses were 56% of net sales compared to 64% of net sales in the first half of 2012. The decreasedecreases in selling and administrative expenses relative to net sales was mainlyfor the quarter and six months ended June 30 were primarily due to the closing of unprofitable stores since last year.

 

Other

 

The Company’s other net sales decreasedincreased 9% for the quarter and 3% for the quarter.first half of the year compared to the same periods last year. The majority of the Company’s other net sales arewere generated by Florsheim Australia. For the quarter and six months ended March 31,June 30, 2013, Florsheim Australia’s net sales decreased 2% comparedwere up 7% and 3%, respectively. The quarter and year to the same period last year. This was the result of an increasedate increases were achieved through higher sales in Florsheim Australia’s retail business, slightly offset by lower sales in Florsheim Australia’s wholesale business. Florsheim Australia’s retail net sales of 9%were up 13% and 10%, which was more than offset by a 13% decrease inrespectively, for the three and six months ended June 30, 2013, compared to 2012. Florsheim Australia’s wholesale net sales. The increase in retail sales was due to opening a few new locations in Australiawere down 1% and Asia in8%, respectively, for the three and six months ended June 30, 2013, compared to 2012,2012. Florsheim Europe’s net sales increased for the quarter and an increase in same store salesfirst six months of 8%. The decrease in wholesale sales was mainly2013 due to lowerhigher wholesale sales in Australia and Asia.sales.

 

Collectively, the operating earnings from operations of the Company’s other businesses for the quarter and six months ended June 30, 2013 decreased $854,000 in the first quarter of 2013approximately $350,000 and $1.2 million, respectively, compared to 2012. The decrease in operating earnings wasThese decreases were mainly due to lower wholesale sales volumes and higher retail selling and administrative expenses. Retail selling and administrative expenses increased due to the additionalnew retail locations in Australia and Asia. There were also higher selling and administrative expenses in Florsheim Australia’s wholesale business to accommodate the Bogs expansion in Australia.

 

Other income and expense and taxes

 

Interest income for the first quarter ofand six months ended June 30, 2013 was down approximately $71,000$100,000 and $170,000, respectively, compared to the first quarter of 2012,same periods last year, primarily due to a lower average investment balance this year compared to last year. Interest expense was $127,000 inrelatively flat for the first quarter ofand year to date periods. Other expense for the quarter and six months ended June 30, 2013 increased approximately $420,000 and $560,000, respectively, compared to $129,000 in 2012.the same periods last year, primarily due to foreign exchange losses resulting from the revaluation of intercompany loans between the Company’s North American wholesale segment and Florsheim Australia.

 

The Company’s effective tax rate for the quarter ended March 31,June 30, 2013 was 36.0%34% as compared with 35.1%to 30% for the same period in 2012. The effective tax rate for the six months ended June 30 was 35% in 2013 and 33% in 2012. The higher effective tax rates for the quarter and year to date periods were primarily due to lower percentages of 2012.tax free municipal bond income relative to pretax earnings in the United States.

13

 

LIQUIDITY AND CAPITAL RESOURCES

 

The Company’s primary sourcesources of liquidity isare its cash, short-term marketable securities and its revolving line of credit. During the first threesix months of 2013, the Company generated $3.7$15.9 million of cash from operating activities had $2.8compared with $6.6 million in proceeds from maturities of its marketable securities,the same period one year ago. The increase between years was primarily due to changes in operating assets and had $2.5 millionliabilities, and most significantly in proceeds from stock option exercises.the inventory balance.

 

The Company paid no cash dividends in 2013 and $1.7$3.5 million during the threesix months ended March 31,June 30, 2012. The Company’sdividends which typically would have been paid in the first and second quarterhalf of 2013 dividends were accelerated into 2012 and were paid on December 31, 2012. The Company plans to resumeresumed its regular quarterly dividend payment schedule in July 2013.

 

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 2013, the Company repurchased 172,885195,050 shares at a total cost of $4.1$4.6 million. As of March 31,June 30, 2013, the Company had 650,640628,475 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.

 

Capital expenditures were $564,000totaled $4.3 million in the first threesix months of 2013. On May 1, 2013, including the Company purchasedpurchase of a 50% interest in a building located in Montreal, Canada for $3.4approximately $3.2 million. The Company previously leased this facility, which is usedThis building serves as itsthe Company’s Canadian office and distribution center. Management estimates that annual capital expenditures for 2013 are expected towill be between $5 million and $6 million.

 

At March 31,June 30, 2013, the Company had a $60 million unsecured revolving line of credit. The Company repaid $7a net of $25 million net on its line of credit during the first quartersix months of 2013. At the end of the firstsecond quarter, the Company had $38$20 million of bank borrowings outstanding under the facility at an interest rate of approximately 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, 2013. The line of credit agreement expired on April 30, 2013 and was renewed for another term that expires April 30, 2014, at essentially the same terms as the prior agreement.

In conjunction with the Bogs acquisition, the

The Company paidmade a contingent consideration payment of approximately $1,270,000 in March 2013 and athe first quarter of 2013. A second contingent consideration payment is due to the former shareholders of Bogs in March 2016. See Note 9.10.

 

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, 2012.

 

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, 2012.

 

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, 2013.

 

        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) 
             
1/1/2013 - 1/31/2013  37,515  $22.91   37,515   786,010 
                 
2/1/2013 - 2/28/2013  7,762  $22.99   7,762   778,248 
                 
3/1/2013 - 3/31/2013  127,608  $23.98   127,608   650,640 
                 
Total  172,885  $23.70   172,885     

        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) 
                 
4/1/2013 - 4/30/2013  13,165  $23.56   13,165   637,475 
                 
5/1/2013 - 5/31/2013  9,000  $23.88   9,000   628,475 
                 
6/1/2013 - 6/30/2013  -  $-   -   628,475 
                 
Total  22,165  $23.69   22,165     


(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 9, 2013

 WEYCO GROUP, INC.
  
Dated: August 7, 2013/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, 2013

 

Exhibit Description Incorporation Herein By Reference To Filed
Herewith
                            
10.110.1(1) Ninth Amendment to Second Amended and Restated Credit Agreement, dated April 30, 2013 Exhibit 10.1 to Form 10-Q filed May 9, 2013  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, 2013 formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Condensed Balance Sheets; (ii) Consoidated Condensed Statements of 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.

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