UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2017March 31, 2019
Or
¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _________ to _____________________________
Commission File Number:0-9068
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.
YesxNo¨
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, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”filer,” “smaller reporting company,” and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act.:
Large Accelerated Filer¨ | Accelerated Filerx | Non-Accelerated Filer¨ | Smaller Reporting Companyx | Emerging Growth Company¨ |
Large Accelerated Filer¨ Accelerated Filerx Non-Accelerated Filer¨ Smaller Reporting Company¨ Emerging Growth Company¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes¨Nox
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol | Name of each exchange on which registered |
Common Stock - $1.00 par value per share | WEYS | The Nasdaq Stock Market |
As of October 31, 2017,April 26, 2019, there were 10,192,9059,998,452 shares of common stock outstanding.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
The following unaudited consolidated condensed financial statements have been prepared by Weyco Group, Inc. (the “Company”) pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading. It is suggested that these consolidated condensed 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)
September 30, | December 31, | |||||||
2017 | 2016 | |||||||
(Dollars in thousands) | ||||||||
ASSETS: | ||||||||
Cash and cash equivalents | $ | 6,704 | $ | 13,710 | ||||
Marketable securities, at amortized cost | 11,354 | 4,601 | ||||||
Accounts receivable, net | 56,271 | 50,726 | ||||||
Income tax receivable | 781 | 789 | ||||||
Inventories | 57,692 | 69,898 | ||||||
Prepaid expenses and other current assets | 3,010 | 6,203 | ||||||
Total current assets | 135,812 | 145,927 | ||||||
Marketable securities, at amortized cost | 18,273 | 21,061 | ||||||
Deferred income tax benefits | 707 | 660 | ||||||
Property, plant and equipment, net | 32,371 | 33,717 | ||||||
Goodwill | 11,112 | 11,112 | ||||||
Trademarks | 32,978 | 32,978 | ||||||
Other assets | 22,984 | 22,785 | ||||||
Total assets | $ | 254,237 | $ | 268,240 | ||||
LIABILITIES AND EQUITY: | ||||||||
Short-term borrowings | $ | 4,772 | $ | 4,268 | ||||
Accounts payable | 5,001 | 11,942 | ||||||
Dividend payable | - | 2,192 | ||||||
Accrued liabilities | 12,207 | 10,572 | ||||||
Total current liabilities | 21,980 | 28,974 | ||||||
Deferred income tax liabilities | 3,096 | 703 | ||||||
Long-term pension liability | 23,724 | 27,801 | ||||||
Other long-term liabilities | 2,269 | 2,482 | ||||||
Common stock | 10,197 | 10,505 | ||||||
Capital in excess of par value | 53,258 | 50,184 | ||||||
Reinvested earnings | 147,951 | 157,468 | ||||||
Accumulated other comprehensive loss | (14,997 | ) | (16,569 | ) | ||||
Total Weyco Group, Inc. equity | 196,409 | 201,588 | ||||||
Noncontrolling interest | 6,759 | 6,692 | ||||||
Total equity | 203,168 | 208,280 | ||||||
Total liabilities and equity | $ | 254,237 | $ | 268,240 |
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 September 30, | Nine Months Ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
(In thousands, except per share amounts) | ||||||||||||||||
Net sales | $ | 76,906 | $ | 79,069 | $ | 203,479 | $ | 214,836 | ||||||||
Cost of sales | 47,438 | 49,747 | 126,693 | 136,096 | ||||||||||||
Gross earnings | 29,468 | 29,322 | 76,786 | 78,740 | ||||||||||||
Selling and administrative expenses | 21,666 | 21,568 | 63,635 | 64,751 | ||||||||||||
Earnings from operations | 7,802 | 7,754 | 13,151 | 13,989 | ||||||||||||
Interest income | 193 | 190 | 572 | 584 | ||||||||||||
Interest expense | - | (61 | ) | (7 | ) | (228 | ) | |||||||||
Other expense, net | (53 | ) | (311 | ) | (243 | ) | (850 | ) | ||||||||
Earnings before provision for income taxes | 7,942 | 7,572 | 13,473 | 13,495 | ||||||||||||
Provision for income taxes | 3,022 | 2,871 | 5,135 | 5,084 | ||||||||||||
Net earnings | 4,920 | 4,701 | 8,338 | 8,411 | ||||||||||||
Net (losses) earnings attributable to noncontrolling interest | (14 | ) | 101 | (70 | ) | 124 | ||||||||||
Net earnings attributable to Weyco Group, Inc. | $ | 4,934 | $ | 4,600 | $ | 8,408 | $ | 8,287 | ||||||||
Weighted average shares outstanding | ||||||||||||||||
Basic | 10,160 | 10,461 | 10,299 | 10,556 | ||||||||||||
Diluted | 10,218 | 10,516 | 10,360 | 10,605 | ||||||||||||
Earnings per share | ||||||||||||||||
Basic | $ | 0.49 | $ | 0.44 | $ | 0.82 | $ | 0.79 | ||||||||
Diluted | $ | 0.48 | $ | 0.44 | $ | 0.81 | $ | 0.78 | ||||||||
Cash dividends declared (per share) | $ | 0.22 | $ | 0.21 | $ | 0.65 | $ | 0.62 | ||||||||
Comprehensive income | $ | 5,452 | $ | 5,218 | $ | 10,251 | $ | 10,400 | ||||||||
Comprehensive income attributable to noncontrolling interest | 25 | 235 | 271 | 376 | ||||||||||||
Comprehensive income attributable to Weyco Group, Inc. | $ | 5,427 | $ | 4,983 | $ | 9,980 | $ | 10,024 |
March 31, | December 31, | |||||||
2019 | 2018 | |||||||
(Dollars in thousands) | ||||||||
ASSETS: | ||||||||
Cash and cash equivalents | $ | 17,340 | $ | 22,973 | ||||
Marketable securities, at amortized cost | 1,834 | 1,525 | ||||||
Accounts receivable, net | 50,672 | 51,533 | ||||||
Inventories | 65,783 | 72,684 | ||||||
Prepaid expenses and other current assets | 3,072 | 5,380 | ||||||
Total current assets | 138,701 | 154,095 | ||||||
Marketable securities, at amortized cost | 19,032 | 18,702 | ||||||
Deferred income tax benefits | 1,283 | 1,277 | ||||||
Property, plant and equipment, net | 28,877 | 28,707 | ||||||
Operating lease right-of-use assets | 24,394 | - | ||||||
Goodwill | 11,112 | 11,112 | ||||||
Trademarks | 32,868 | 32,868 | ||||||
Other assets | 23,449 | 23,283 | ||||||
Total assets | $ | 279,716 | $ | 270,044 | ||||
LIABILITIES AND EQUITY: | ||||||||
Short-term borrowings | $ | 3,720 | $ | 5,840 | ||||
Accounts payable | 4,771 | 12,764 | ||||||
Dividend payable | - | 2,308 | ||||||
Operating lease liabilities | 7,704 | - | ||||||
Accrued liabilities | 10,439 | 14,306 | ||||||
Accrued income tax payable | 1,608 | 912 | ||||||
Total current liabilities | 28,242 | 36,130 | ||||||
Deferred income tax liabilities | 3,756 | 3,724 | ||||||
Long-term pension liability | 23,098 | 23,112 | ||||||
Operating lease liabilities | 18,362 | - | ||||||
Other long-term liabilities | 223 | 1,495 | ||||||
Total liabilities | 73,681 | 64,461 | ||||||
Common stock | 9,995 | 10,057 | ||||||
Capital in excess of par value | 64,634 | 64,263 | ||||||
Reinvested earnings | 152,740 | 152,835 | ||||||
Accumulated other comprehensive loss | (21,334 | ) | (21,572 | ) | ||||
Total equity | 206,035 | 205,583 | ||||||
Total liabilities and equity | $ | 279,716 | $ | 270,044 |
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, | ||||||||
2019 | 2018 | |||||||
(In thousands, except per share amounts) | ||||||||
Net sales | $ | 74,128 | $ | 69,526 | ||||
Cost of sales | 45,364 | 42,901 | ||||||
Gross earnings | 28,764 | 26,625 | ||||||
Selling and administrative expenses | 23,618 | 23,058 | ||||||
Earnings from operations | 5,146 | 3,567 | ||||||
Interest income | 223 | 233 | ||||||
Interest expense | (32 | ) | - | |||||
Other expense, net | (125 | ) | (43 | ) | ||||
Earnings before provision for income taxes | 5,212 | 3,757 | ||||||
Provision for income taxes | 1,244 | 941 | ||||||
Net earnings | 3,968 | 2,816 | ||||||
Net loss attributable to noncontrolling interest | - | (171 | ) | |||||
Net earnings attributable to Weyco Group, Inc. | $ | 3,968 | $ | 2,987 | ||||
Weighted average shares outstanding | ||||||||
Basic | 9,949 | 10,173 | ||||||
Diluted | 10,027 | 10,361 | ||||||
Earnings per share | ||||||||
Basic | $ | 0.40 | $ | 0.29 | ||||
Diluted | $ | 0.40 | $ | 0.29 | ||||
Cash dividends declared (per share) | $ | 0.23 | $ | 0.22 | ||||
Comprehensive income | $ | 4,206 | $ | 2,815 | ||||
Comprehensive loss attributable to noncontrolling interest | - | (205 | ) | |||||
Comprehensive income attributable to Weyco Group, Inc. | $ | 4,206 | $ | 3,020 |
The accompanying notes to consolidated condensed financial statements (unaudited) are an integral part of these financial statements.
2 |
WEYCO GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended September 30, | Three Months Ended March 31, | |||||||||||||||
2017 | 2016 | 2019 | 2018 | |||||||||||||
(Dollars in thousands) | (Dollars in thousands) | |||||||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||||||
Net earnings | $ | 8,338 | $ | 8,411 | $ | 3,968 | $ | 2,816 | ||||||||
Adjustments to reconcile net earnings to net cash provided by operating activities - | ||||||||||||||||
Depreciation | 2,971 | 2,708 | 827 | 962 | ||||||||||||
Amortization | 265 | 288 | 83 | 92 | ||||||||||||
Bad debt expense | 350 | 96 | 48 | 105 | ||||||||||||
Deferred income taxes | 2,192 | 1,537 | (12 | ) | 135 | |||||||||||
Net foreign currency transaction gains | (61 | ) | (389 | ) | ||||||||||||
Stock-based compensation | 1,174 | 1,121 | ||||||||||||||
Pension contributions | (4,000 | ) | (2,400 | ) | ||||||||||||
Net foreign currency transaction losses (gains) | 16 | (14 | ) | |||||||||||||
Share-based compensation expense | 366 | 351 | ||||||||||||||
Pension expense | 746 | 2,500 | 229 | 213 | ||||||||||||
Increase in cash surrender value of life insurance | (250 | ) | (250 | ) | (135 | ) | (135 | ) | ||||||||
Changes in operating assets and liabilities - | ||||||||||||||||
Accounts receivable | (5,703 | ) | (3,714 | ) | 816 | (1,415 | ) | |||||||||
Inventories | 12,195 | 26,641 | 6,900 | 9,165 | ||||||||||||
Prepaid expenses and other assets | 3,167 | 800 | 2,182 | 2,590 | ||||||||||||
Accounts payable | (6,838 | ) | (7,699 | ) | (7,990 | ) | (3,586 | ) | ||||||||
Accrued liabilities and other | 1,879 | (1,023 | ) | (3,537 | ) | (3,402 | ) | |||||||||
Accrued income taxes | 22 | (839 | ) | 696 | 490 | |||||||||||
Excess tax benefits from stock-based compensation | (30 | ) | - | |||||||||||||
Net cash provided by operating activities | 16,417 | 27,788 | 4,457 | 8,367 | ||||||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||||||
Purchases of marketable securities | (14,719 | ) | (3,605 | ) | (1,327 | ) | (1,241 | ) | ||||||||
Proceeds from maturities of marketable securities | 10,710 | 4,190 | 680 | 1,350 | ||||||||||||
Life insurance premiums paid | (155 | ) | (155 | ) | ||||||||||||
Purchases of property, plant and equipment | (1,406 | ) | (4,872 | ) | (981 | ) | (125 | ) | ||||||||
Net cash used for investing activities | (5,570 | ) | (4,442 | ) | (1,628 | ) | (16 | ) | ||||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||||||
Cash dividends paid | (8,877 | ) | (8,678 | ) | (4,593 | ) | (4,471 | ) | ||||||||
Cash dividends paid to noncontrolling interest of subsidiary | (204 | ) | (170 | ) | - | (88 | ) | |||||||||
Shares purchased and retired | (11,621 | ) | (9,368 | ) | (1,828 | ) | - | |||||||||
Proceeds from stock options exercised | 2,013 | 585 | ||||||||||||||
Taxes paid related to the net share settlement of equity awards | (51 | ) | - | |||||||||||||
Payment of contingent consideration | - | (5,217 | ) | |||||||||||||
Net proceeds from stock options exercised | 7 | 2,884 | ||||||||||||||
Proceeds from bank borrowings | 20,651 | 91,729 | 31,813 | - | ||||||||||||
Repayments of bank borrowings | (20,147 | ) | (95,568 | ) | (33,933 | ) | - | |||||||||
Excess tax benefits from stock-based compensation | - | 3 | ||||||||||||||
Net cash used for financing activities | (18,236 | ) | (26,684 | ) | (8,534 | ) | (1,675 | ) | ||||||||
Effect of exchange rate changes on cash and cash equivalents | 383 | 252 | 72 | (47 | ) | |||||||||||
Net decrease in cash and cash equivalents | $ | (7,006 | ) | $ | (3,086 | ) | ||||||||||
Net (decrease) increase in cash and cash equivalents | $ | (5,633 | ) | $ | 6,629 | |||||||||||
CASH AND CASH EQUIVALENTS at beginning of period | 13,710 | 17,926 | 22,973 | 23,453 | ||||||||||||
CASH AND CASH EQUIVALENTS at end of period | $ | 6,704 | $ | 14,840 | $ | 17,340 | $ | 30,082 | ||||||||
SUPPLEMENTAL CASH FLOW INFORMATION: | ||||||||||||||||
Income taxes paid, net of refunds | $ | 2,829 | $ | 4,083 | $ | 423 | $ | 146 | ||||||||
Interest paid | $ | 7 | $ | 228 | $ | 31 | $ | - |
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. All such adjustments are of a normal recurring nature. The results of operations for the three and nine monthsthree-month period ended September 30, 2017,March 31, 2019, may not necessarily be indicative of the results for the full year.
2. |
In March 2017,On January 1, 2019, the Financial Accounting Standards Board (“FASB”) issuedCompany adopted Accounting Standards Update 2016-02,Leases, as amended (hereinafter referred to as “ASC 842”), which supersedes the lease accounting guidance under Topic 840. ASC 842 generally requires lessees to recognize lease liabilities and corresponding right-of-use (“ASU”ROU”) No. 2017-07“Improvingassets on the Presentationbalance sheet and to provide enhanced disclosures surrounding the amount, timing and uncertainty of Net Periodic Pension Cost and Net Periodic Post Retirement Benefit Cost”(“ASU 2017-07”). This new standard requires that employers disaggregate the service cost componentcash flows arising from the other components of net periodic pension cost in the income statement. The service cost component should be included in the same line item as other compensation costs rendered by employees, while the other cost components should be presented outside of earnings from operations.leasing arrangements. The Company adopted ASU 2017-07 effective January 1, 2017 and retrospectively applied itthe new guidance using the modified retrospective transition approach by applying the new standard to all periods presented.leases existing at the date of initial application. The comparative information has not been restated and continues to be reported in accordance with historical accounting under Topic 840. The Company elected to utilize certain practical expedients that were provided for transition relief. Accordingly, the service cost componentCompany is not reassessing expired or existing contracts, lease classifications or related initial direct costs as part of net periodic pension cost was included within selling and administrative expenses whileits assessment process. Additionally, the other cost components were classified in other expense, net, inCompany elected not to apply the Consolidated Condensed Statementsrecognition requirements of Earnings and Comprehensive Income (Unaudited). See Note 8.ASC 842 to short-term leases.
In March 2016, the FASB issued ASU No. 2016-09, "Compensation - Stock Compensation: Improvements to Employee Share-Based Payment Accounting” (“ASU 2016-09”). This new standard simplifies several aspects of the accounting for share-based payment transactions, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as specifies the classification of certain cash flows associated with share-based payment transactions within the statements of cash flows. The Company adopted ASU 2016-09 effective January 1, 2017. The adoption of this standard resultedASC 842 on January 1, 2019, had a material impact on the Company’s consolidated condensed balance sheet due to the recognition of ROU assets and lease liabilities. The Company recognized operating lease ROU assets and corresponding lease liabilities totaling $26.0 million and $27.8 million, respectively, on January 1, 2019. The operating lease ROU assets recorded on the adoption date were net of approximately $1.8 million in reclassifications of other accrued liabilities and long-term liabilities. The adoption did not impact the following:Company’s fiscal 2019 beginning retained earnings, nor did it have a material impact on the Company’s consolidated earnings or cash flows.
Update to Significant Accounting |
The Company elected notadopted ASC 842 in the first quarter of 2019. As a result, the Company updated its significant accounting policies for leases below. Refer to change its policyNote 2 for the impact of the adoption of ASC 842 on accountingthe Company’s consolidated condensed financial statements and Note 9 for forfeitures,additional information related to the Company’s lease arrangements.
The Company leases retail shoe stores, primarily located in the U.S. and will continueAustralia, as well as several office and distribution facilities worldwide. The Company determines whether an arrangement is or contains a lease at contract inception. All of the Company’s leases are classified as operating leases, which are included in the operating lease ROU assets and operating lease liabilities in the consolidated condensed balance sheets (unaudited). The Company has no finance leases.
ROU assets and lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at the commencement date for leases exceeding 12 months. Minimum lease payments include only the fixed lease component of the agreement, as well as any variable rate payments that depend on an index, initially measured using the index at the lease commencement date. Lease terms may include options to estimate forfeitures expected to occur to determine the amount of stock-based compensation expense recognized in each period. Finally,renew when it is reasonably certain that the Company will continueexercise that option.
As the Company’s leases generally do not provide an implicit rate, the Company used its incremental borrowing rate in determining the present value of lease payments. The incremental borrowing rate was a hypothetical rate based on an understanding of what the Company could borrow from a third-party lender, on a collateralized basis, over a similar term, and in an amount that approximates the value of the Company’s future lease payments. The Company used a portfolio approach and applied a single discount rate to allowall of its employees to withhold up toleases.
Operating lease costs are recognized on a straight-line basis over the minimum statutory withholding requirements,lease term and are included in selling and administrative expenses. Variable lease payments that do not depend on a rate or index, payments associated with non-lease components, and short-term rentals (leases with terms less than 12 months) are expensed as allowed under the new standard.incurred.
ASU No. 2014-09, "Revenue from Contracts with Customers," outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry specific guidance. Additional ASUs have also been issued as part of the overall new revenue guidance. The new revenue recognition model provides a five-step analysis in determining when and how revenue is recognized. The new model will require revenue recognition to depict the transfer of promised goods or services to customers in an amount that reflects the consideration a company expects to receive in exchange for those goods or services. The guidance also requires expanded disclosures relating to the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. Additionally, qualitative and quantitative disclosures are required about customer contracts, significant judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract. The standard allows the Company to transition to the new model using either a full or modified retrospective approach. This guidance will be effective for the Company’s interim and annual periods beginning January 1, 2018.
The Company plans to complete an assessment of its revenue streams during the fourth quarter of 2017. Based on its assessment to date, the Company does not expect that the adoption of this new standard will have a material impact on its consolidated financial statements. The Company is continuing its assessment, which may identify other impacts. The Company currently plans to adopt the new standard in the first quarter of 2018. The Company is currently planning to adopt this standard using the modified retrospective approach.
In February 2016, the FASB issued ASU No. 2016-02 “Leases.” This new standard requires lessees to recognize the rights and obligations created by finance and operating leases with terms exceeding 12 months as assets and liabilities on their balance sheets. The amendments in this update are effective for fiscal years beginning after December 15, 2018 and interim periods therein. The Company is currently assessing the impact of the adoption of this standard on its consolidated financial statements.
Certain prior year amounts in the Consolidated Condensed Statements of Earnings and Comprehensive Income (Unaudited) were reclassified to conform to current year presentation. For the three and nine months ended September 30, 2016, the Company reclassified $424,000 and $1,272,000, respectively, of expense from selling and administrative expenses to other expense, net. These amounts represent the non-service cost components of net periodic pension cost for the periods then ended, and were reclassified in connection with the adoption of ASU 2017-07. These reclassifications had no effect on previously reported net earnings or equity.
4. | Earnings Per Share |
The following table sets forth the computation of basic and diluted earnings per share:
Three Months Ended September 30, | Nine Months Ended September 30, | Three Months Ended March 31, | ||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | 2019 | 2018 | |||||||||||||||||||
(In thousands, except per share amounts) | (In thousands, except per share amounts) | |||||||||||||||||||||||
Numerator: | ||||||||||||||||||||||||
Net earnings attributable to Weyco Group, Inc. | $ | 4,934 | $ | 4,600 | $ | 8,408 | $ | 8,287 | $ | 3,968 | $ | 2,987 | ||||||||||||
Denominator: | ||||||||||||||||||||||||
Basic weighted average shares outstanding | 10,160 | 10,461 | 10,299 | 10,556 | 9,949 | 10,173 | ||||||||||||||||||
Effect of dilutive securities: | ||||||||||||||||||||||||
Employee stock-based awards | 58 | 55 | 61 | 49 | ||||||||||||||||||||
Employee share-based awards | 78 | 188 | ||||||||||||||||||||||
Diluted weighted average shares outstanding | 10,218 | 10,516 | 10,360 | 10,605 | 10,027 | 10,361 | ||||||||||||||||||
Basic earnings per share | $ | 0.49 | $ | 0.44 | $ | 0.82 | $ | 0.79 | $ | 0.40 | $ | 0.29 | ||||||||||||
Diluted earnings per share | $ | 0.48 | $ | 0.44 | $ | 0.81 | $ | 0.78 | $ | 0.40 | $ | 0.29 |
Diluted weighted average shares outstanding for the three months ended September 30, 2017,March 31, 2019, exclude anti-dilutive stock-based awardsstock options totaling 1,116,325348,000 shares of common stock at a weighted average price of $26.49.$29.51. Diluted weighted average shares outstanding for the ninethree months ended September 30, 2017,March 31, 2018, exclude anti-dilutive stock-based awardsstock options totaling 844,036207,000 shares of common stock at a weighted average price of $26.93. Diluted weighted average shares outstanding for the three months ended September 30, 2016, exclude anti-dilutive stock-based awards totaling 1,232,000 shares of common stock at a weighted average price of $26.14. Diluted weighted average shares outstanding for the nine months ended September 30, 2016, exclude anti-dilutive stock-based awards totaling 924,161 shares of common stock at a weighted average price of $26.78.$27.94.
5. | Investments |
As noted in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016,2018, all of the Company’s marketable securities are classified as held-to-maturity securities and reported at amortized cost pursuant to Accounting Standards Codification (“ASC”) 320,Investments – Debt and Equity Securities, as the Company has the intent and ability to hold all investments to maturity.
Below is a summary of the amortized cost and estimated market values of the Company’s marketable securities as of September 30, 2017,March 31, 2019 and December 31, 2016.2018.
September 30, 2017 | December 31, 2016 | March 31, 2019 | December 31, 2018 | |||||||||||||||||||||||||||||
Amortized | Market | Amortized | Market | Amortized | Market | Amortized | Market | |||||||||||||||||||||||||
Cost | Value | Cost | Value | Cost | Value | Cost | Value | |||||||||||||||||||||||||
(Dollars in thousands) | (Dollars in thousands) | |||||||||||||||||||||||||||||||
Municipal bonds: | ||||||||||||||||||||||||||||||||
Current | $ | 11,354 | $ | 11,380 | $ | 4,601 | $ | 4,610 | $ | 1,834 | $ | 1,839 | $ | 1,525 | $ | 1,532 | ||||||||||||||||
Due from one through five years | 9,819 | 10,157 | 12,133 | 12,486 | 10,194 | 10,373 | 9,752 | 9,861 | ||||||||||||||||||||||||
Due from six through ten years | 5,789 | 6,050 | 7,705 | 7,804 | 6,027 | 6,356 | 6,239 | 6,433 | ||||||||||||||||||||||||
Due from eleven through twenty years | 2,665 | 2,763 | 1,223 | 1,222 | 2,811 | 2,906 | 2,711 | 2,713 | ||||||||||||||||||||||||
Total | $ | 29,627 | $ | 30,350 | $ | 25,662 | $ | 26,122 | $ | 20,866 | $ | 21,474 | $ | 20,227 | $ | 20,539 |
The unrealized gains and losses on marketable securities at September 30, 2017,March 31, 2019, and at December 31, 2016,2018, were as follows:
September 30, 2017 | December 31, 2016 | |||||||||||||||
Unrealized | Unrealized | Unrealized | Unrealized | |||||||||||||
Gains | Losses | Gains | Losses | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
Municipal bonds | $ | 759 | $ | (36 | ) | $ | 546 | $ | (86 | ) |
March 31, 2019 | December 31, 2018 | |||||||||||||||
Unrealized | Unrealized | Unrealized | Unrealized | |||||||||||||
Gains | Losses | Gains | Losses | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
Municipal bonds | $ | 610 | $ | (2 | ) | $ | 388 | $ | (76 | ) |
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 September 30, 2017March 31, 2019 and determined that no other-than-temporary market value impairment exists.
5 |
6. | Intangible Assets |
TheDuring the three months ended March 31, 2019, there were no changes in the carrying value of the Company’s indefinite-lived and amortizable intangible assets as recorded in the Consolidated Condensed Balance Sheets (Unaudited) consisted of the following:
September 30, 2017 | December 31, 2016 | |||||||||||||||||||||||
Gross | Gross | |||||||||||||||||||||||
Carrying | Accumulated | Carrying | Accumulated | |||||||||||||||||||||
Amount | Impairment | Net | Amount | Impairment | Net | |||||||||||||||||||
(Dollars in thousands) | (Dollars in thousands) | |||||||||||||||||||||||
Indefinite-lived intangible assets | ||||||||||||||||||||||||
Goodwill | $ | 11,112 | $ | - | $ | 11,112 | $ | 11,112 | $ | - | $ | 11,112 | ||||||||||||
Trademarks | 34,748 | (1,770 | ) | 32,978 | 34,748 | (1,770 | ) | 32,978 | ||||||||||||||||
Total indefinite-lived intangible assets | $ | 45,860 | $ | (1,770 | ) | $ | 44,090 | $ | 45,860 | $ | (1,770 | ) | $ | 44,090 |
(goodwill and trademarks). The Company’s amortizable intangible assets, as recorded in the Consolidated Condensed Balance Sheets (Unaudited) consisted of the following:
September 30, 2017 | December 31, 2016 | |||||||||||||||||||||||||||
Weighted | Gross | Gross | ||||||||||||||||||||||||||
Average | Carrying | Accumulated | Carrying | Accumulated | ||||||||||||||||||||||||
Life (Years) | Amount | Amortization | Net | Amount | Amortization | Net | ||||||||||||||||||||||
(Dollars in thousands) | (Dollars in thousands) | |||||||||||||||||||||||||||
Amortizable intangible assets Customer relationships | 15 | $ | 3,500 | $ | (1,536 | ) | $ | 1,964 | $ | 3,500 | $ | (1,361 | ) | $ | 2,139 | |||||||||||||
Total amortizable intangible assets | $ | 3,500 | $ | (1,536 | ) | $ | 1,964 | $ | 3,500 | $ | (1,361 | ) | $ | 2,139 |
The amortizable intangible assets arewhich were included within other assets in the Consolidated Condensed Balance Sheets. (Unaudited).Sheets (unaudited), consisted of the following:
March 31, 2019 | December 31, 2018 | ||||||||||||||||||||||||||
Weighted | Gross | Gross | |||||||||||||||||||||||||
Average | Carrying | Accumulated | Carrying | Accumulated | |||||||||||||||||||||||
Life (Years) | Amount | Amortization | Net | Amount | Amortization | Net | |||||||||||||||||||||
(Dollars in thousands) | (Dollars in thousands) | ||||||||||||||||||||||||||
Amortizable intangible assets | |||||||||||||||||||||||||||
Customer relationships | 15 | $ | 3,500 | (1,886 | ) | $ | 1,614 | $ | 3,500 | (1,828 | ) | $ | 1,672 | ||||||||||||||
Total amortizable intangible assets | $ | 3,500 | (1,886 | ) | $ | 1,614 | $ | 3,500 | (1,828 | ) | $ | 1,672 |
Amortization expense related to the intangible assets was approximately $58,000 for$60,000 in both the thirdfirst quarters of 20172019 and 2016. For the nine months ended September 30, amortization expense related to the intangible assets was approximately $175,000 and $182,000 in 2017 and 2016, respectively.2018.
7. | 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 the Company’s segments based on earnings from operations. Therefore, interest income or expense, other income or expense, and income taxes are not allocated to the segments. The “other” category in the tablestable 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 nine months ended September 30, 2017March 31, 2019 and 2016,2018, was as follows:
Three Months Ended | ||||||||||||||||
September 30, | Wholesale | Retail | Other | Total | ||||||||||||
(Dollars in thousands) | ||||||||||||||||
2017 | ||||||||||||||||
Product sales | $ | 60,200 | $ | 4,291 | $ | 11,887 | $ | 76,378 | ||||||||
Licensing revenues | 528 | - | - | 528 | ||||||||||||
Net sales | $ | 60,728 | $ | 4,291 | $ | 11,887 | $ | 76,906 | ||||||||
Earnings from operations | $ | 7,416 | $ | 17 | $ | 369 | $ | 7,802 | ||||||||
2016 | ||||||||||||||||
Product sales | $ | 61,645 | $ | 4,702 | $ | 12,197 | $ | 78,544 | ||||||||
Licensing revenues | 525 | - | - | 525 | ||||||||||||
Net sales | $ | 62,170 | $ | 4,702 | $ | 12,197 | $ | 79,069 | ||||||||
Earnings from operations | $ | 6,710 | $ | 313 | $ | 731 | $ | 7,754 |
Nine Months Ended | ||||||||||||||||||||||||||||||||
September 30, | Wholesale | Retail | Other | Total | ||||||||||||||||||||||||||||
Three Months Ended | ||||||||||||||||||||||||||||||||
March 31, | Wholesale | Retail | Other | Total | ||||||||||||||||||||||||||||
(Dollars in thousands) | (Dollars in thousands) | |||||||||||||||||||||||||||||||
2017 | ||||||||||||||||||||||||||||||||
2019 | ||||||||||||||||||||||||||||||||
Product sales | $ | 154,049 | $ | 13,979 | $ | 33,631 | $ | 201,659 | $ | 58,774 | $ | 5,571 | $ | 9,076 | $ | 73,421 | ||||||||||||||||
Licensing revenues | 1,820 | - | - | 1,820 | 707 | - | - | 707 | ||||||||||||||||||||||||
Net sales | $ | 155,869 | $ | 13,979 | $ | 33,631 | $ | 203,479 | $ | 59,481 | $ | 5,571 | $ | 9,076 | $ | 74,128 | ||||||||||||||||
Earnings from operations | $ | 11,880 | $ | 244 | $ | 1,027 | $ | 13,151 | ||||||||||||||||||||||||
Earnings (loss) from operations | $ | 5,206 | $ | 483 | $ | (543 | ) | $ | 5,146 | |||||||||||||||||||||||
2016 | ||||||||||||||||||||||||||||||||
2018 | ||||||||||||||||||||||||||||||||
Product sales | $ | 164,145 | $ | 14,508 | $ | 34,452 | $ | 213,105 | $ | 52,995 | $ | 4,927 | $ | 10,811 | $ | 68,733 | ||||||||||||||||
Licensing revenues | 1,731 | - | - | 1,731 | 793 | - | - | 793 | ||||||||||||||||||||||||
Net sales | $ | 165,876 | $ | 14,508 | $ | 34,452 | $ | 214,836 | $ | 53,788 | $ | 4,927 | $ | 10,811 | $ | 69,526 | ||||||||||||||||
Earnings from operations | $ | 11,910 | $ | 787 | $ | 1,292 | $ | 13,989 | ||||||||||||||||||||||||
Earnings (loss) from operations | $ | 3,390 | $ | 206 | $ | (29 | ) | $ | 3,567 |
8. | Employee Retirement Plans |
The components of the Company’s net periodic pension cost were as follows:
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
Service cost | $ | 141 | $ | 409 | $ | 423 | $ | 1,228 | ||||||||
Interest cost | 552 | 612 | 1,655 | 1,837 | ||||||||||||
Expected return on plan assets | (576 | ) | (607 | ) | (1,727 | ) | (1,822 | ) | ||||||||
Net amortization and deferral | 132 | 419 | 395 | 1,257 | ||||||||||||
Net periodic pension cost | $ | 249 | $ | 833 | $ | 746 | $ | 2,500 |
Three Months Ended March 31, | ||||||||
2019 | 2018 | |||||||
(Dollars in thousands) | ||||||||
Service cost | $ | 103 | $ | 151 | ||||
Interest cost | 606 | 549 | ||||||
Expected return on plan assets | (626 | ) | (646 | ) | ||||
Net amortization and deferral | 146 | 159 | ||||||
Net periodic pension cost | $ | 229 | $ | 213 |
The components of net periodic pension cost other than the service cost component arewere included in "other expense, net" in the Consolidated Condensed Statements of Earnings and Comprehensive Income (Unaudited).
6 |
The Company made a $4.0 million pension contribution in the second quarter of 2017. No additional cash contributions are expected for the remainder of 2017.
9. | Leases |
The Company leases retail shoe stores, as well as several office and distribution facilities worldwide. The leases have original lease periods expiring between 2019 and 2033. Many leases include one or more options to renew. The Company does not assume renewals in its determination of the lease term unless the renewals are deemed to be reasonable assured at lease commencement. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.
The components of the Company’s operating lease costs were as follows (dollars in thousands):
Three Months Ended | ||||
March 31, 2019 | ||||
Operating lease costs | $ | 2,194 | ||
Variable lease costs(1) | 9 | |||
Total lease costs | $ | 2,203 |
(1) | Variable lease costs primarily include percentage rentals based upon sales in excess of specified amounts. |
The following is a schedule of maturities of operating lease liabilities as of March 31, 2019 (dollars in thousands):
Operating Leases | ||||
2019, excluding the quarter ended March 31, 2019 | $ | 6,605 | ||
2020 | 7,685 | |||
2021 | 5,703 | |||
2022 | 3,372 | |||
2023 | 2,361 | |||
Thereafter | 3,002 | |||
Total lease payments | 28,728 | |||
Less imputed interest | (2,662 | ) | ||
Present value of lease liabilities | 26,066 |
The operating lease liabilities are classified in the consolidated condensed balance sheet (unaudited) as follows (dollars in thousands):
March 31, 2019 | ||||
Operating lease liabilities - current | $ | 7,704 | ||
Operating lease liabilities - non-current | 18,362 | |||
Total | $ | 26,066 |
The Company determined the present value of its lease liabilities using a weighted-average discount rate of 4.25%. As of March 31, 2019, the Company’s leases have a weighted-average remaining lease term of 6.25 years.
The future minimum rental commitments under operating leases in effect as of December 31, 2018 having non-cancelable lease terms in excess of one year, as determined in accordance with Topic 840 (prior to the adoption of ASC 842), were as follows (dollars in thousands):
Operating Leases | ||||
2019 | $ | 9,468 | ||
2020 | 7,529 | |||
2021 | 5,584 | |||
2022 | 3,278 | |||
2023 | 2,321 | |||
Thereafter | 4,161 | |||
Total | $ | 32,341 |
7 |
Supplemental cash flow information related to the Company’s operating leases are as follows (dollars in thousands):
Three Months Ended March 31, 2019 | ||||
Cash paid for amounts included in the measurement of lease liabilities | $ | 2,252 | ||
Right-of-use assets obtained in exchange for new lease liabilities (noncash) | $ | 26,029 |
10. | Stock-Based Compensation Plans |
During the three and nine months ended September 30, 2017,March 31, 2019, the Company recognized approximately $395,000 and $1,174,000 respectively,$366,000 of compensation expense associated with stock option and restricted stock awards granted in years 20132015 through 2017.2019. During the three and nine months ended September 30, 2016,March 31, 2018, the Company recognized approximately $393,000 and $1,121,000, respectively,$351,000 of compensation expense associated with stock option and restricted stock awards granted in years 20122014 through 2016.2017.
The following table summarizes the Company’s stock option activity for the nine-monththree-month period ended September 30, 2017:March 31, 2019:
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, 2016 | 1,486,257 | $ | 26.13 | |||||||||||||||||||||||||||||
Outstanding at December 31, 2018 | 1,173,620 | $ | 27.96 | |||||||||||||||||||||||||||||
Granted | 211,200 | $ | 27.94 | 2,500 | $ | 28.77 | ||||||||||||||||||||||||||
Exercised | (81,464 | ) | $ | 24.71 | (3,250 | ) | $ | 27.97 | ||||||||||||||||||||||||
Forfeited or expired | (14,175 | ) | $ | 26.46 | (1,430 | ) | $ | 30.43 | ||||||||||||||||||||||||
Outstanding at September 30, 2017 | 1,601,818 | $ | 26.44 | 3.9 | $ | 3,149,000 | ||||||||||||||||||||||||||
Exercisable at September 30, 2017 | 898,106 | $ | 26.19 | 2.4 | $ | 1,992,000 | ||||||||||||||||||||||||||
Outstanding at March 31, 2019 | 1,171,440 | $ | 27.96 | 3.9 | $ | 4,316,000 | ||||||||||||||||||||||||||
Exercisable at March 31, 2019 | 688,757 | $ | 26.91 | 2.1 | $ | 2,789,000 |
* The aggregate intrinsic value of outstanding and exercisable stock options is defined as the difference between the market value of the Company's stock on September 29, 2017, the last trading day of the quarter, of $28.38 and the exercise price multiplied by the number of in-the-money outstanding and exercisable stock options.
* | The aggregate intrinsic value of outstanding and exercisable stock options is defined as the difference between the market value of the Company's stock on March 29, 2019, the last trading day of the quarter, of $30.96 and the exercise price multiplied by the number of in-the-money outstanding and exercisable stock options. |
The following table summarizes the Company’s stock option exercise activity for the three and nine months ended September 30, 2017March 31, 2019 and 2016:2018:
Three Months Ended September 30, | Nine Months Ended September 30, | Three Months Ended March 31, | ||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | 2019 | 2018 | |||||||||||||||||||
(Dollars in thousands) | (Dollars in thousands) | |||||||||||||||||||||||
Total intrinsic value of stock options exercised | $ | 208 | $ | 14 | $ | 272 | $ | 87 | $ | 11 | $ | 501 | ||||||||||||
Cash received from stock option exercises | $ | 1,575 | $ | 132 | $ | 2,013 | $ | 585 | $ | 7 | $ | 2,884 | ||||||||||||
Income tax benefit from the exercise of stock options | $ | 81 | $ | 5 | $ | 106 | $ | 34 | $ | 3 | $ | 130 |
The following table summarizes the Company’s restricted stock award activity for the nine-monththree-month period ended September 30, 2017:March 31, 2019:
Weighted | ||||||||||||||||
Weighted | Average | |||||||||||||||
Shares of | Average | Remaining | Aggregate | |||||||||||||
Restricted | Grant Date | Contractual | Intrinsic | |||||||||||||
Stock | Fair Value | Term (Years) | Value* | |||||||||||||
Non-vested at December 31, 2016 | 58,500 | $ | 26.09 | |||||||||||||
Issued | 30,800 | 27.94 | ||||||||||||||
Vested | (18,600 | ) | 26.05 | |||||||||||||
Forfeited | - | - | ||||||||||||||
Non-vested at September 30, 2017 | 70,700 | $ | 26.90 | 2.9 | $ | 2,006,000 |
* The aggregate intrinsic value of non-vested restricted stock was calculated using the market value of the Company's stock on September 29, 2017, the last trading day of the quarter, of $28.38 multiplied by the number of non-vested restricted shares outstanding.
Weighted | ||||||||||||||||
Weighted | Average | |||||||||||||||
Shares of | Average | Remaining | Aggregate | |||||||||||||
Restricted | Grant Date | Contractual | Intrinsic | |||||||||||||
Stock | Fair Value | Term (Years) | Value* | |||||||||||||
Non-vested at December 31, 2018 | 61,480 | $ | 30.74 | |||||||||||||
Issued | 600 | $ | 28.77 | |||||||||||||
Vested | - | - | ||||||||||||||
Forfeited | - | - | ||||||||||||||
Non-vested at March 31, 2019 | 62,080 | $ | 30.72 | 2.4 | $ | 1,922,000 |
The aggregate intrinsic value of non-vested restricted stock was calculated using the market value of the Company's stock on March 29, 2019, the last trading day of the quarter, of $30.96 multiplied by the number of non-vested restricted shares outstanding. |
11. | Short-Term Borrowings |
At September 30, 2017,March 31, 2019, the Company had a $60 million unsecured revolving line of credit with a bank expiring November 3, 2017.5, 2019. The line of credit bears interest at the daily London Interbank Offered Rate (“LIBOR”) plus 0.75%. At September 30, 2017,March 31, 2019, outstanding borrowings were approximately $4.8$3.7 million at an interest rate of 2.0%3.25%. The highest balance on the line of credit during the quarter was approximately $4.8$7.7 million. Subsequent to September 30, 2017, the line of credit agreement was renewed on the same terms for another one-year period, expiring November 4, 2018.
Financial Instruments |
At September 30, 2017,March 31, 2019, the Company had foreign exchange contracts outstanding to sell $8.0$3.0 million Canadian dollars at a price of approximately $6.0$2.3 million U.S. dollars. The Company’s majority-owned subsidiary, Florsheim Australia, had foreign exchange contracts outstanding to buy $3.7 million U.S. dollars at a price of approximately $4.7 million Australian dollars. Florsheim Australia also had foreign exchange contracts outstanding to buy 200,000 Euros at a price of approximately $299,000 Australian dollars. Based on quarter-end exchange rates, there were no significant unrealized gains or losses on the outstanding contracts.
The Company determines the fair value of foreign exchange contracts based on the difference between the foreign currency contract rates and the widely available foreign currency rates as of the measurement date. The fair value measurements are based on observable market transactions, and thus represent a level 2 valuation as defined by ASC 820.
Comprehensive Income |
Comprehensive income for the three and nine months ended September 30, 2017March 31, 2019 and 2016,2018, was as follows:
Three Months Ended September 30, | Nine Months Ended September 30, | Three Months Ended March 31, | ||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | 2019 | 2018 | |||||||||||||||||||
(Dollars in thousands) | (Dollars in thousands) | |||||||||||||||||||||||
Net earnings | $ | 4,920 | $ | 4,701 | $ | 8,338 | $ | 8,411 | $ | 3,968 | $ | 2,816 | ||||||||||||
Foreign currency translation adjustments | 452 | 261 | 1,672 | 1,222 | 130 | (119 | ) | |||||||||||||||||
Pension liability, net of tax of $52, $163, $154 and $490, respectively | 80 | 256 | 241 | 767 | ||||||||||||||||||||
Pension liability, net of tax of $38 and $41, respectively | 108 | 118 | ||||||||||||||||||||||
Total comprehensive income | $ | 5,452 | $ | 5,218 | $ | 10,251 | $ | 10,400 | $ | 4,206 | $ | 2,815 |
The components of accumulated other comprehensive loss as recorded in the Consolidated Condensed Balance Sheets (Unaudited) were as follows:
September 30, | December 31, | March 31, | December 31, | |||||||||||||
2017 | 2016 | 2019 | 2018 | |||||||||||||
(Dollars in thousands) | (Dollars in thousands) | |||||||||||||||
Foreign currency translation adjustments | $ | (4,158 | ) | $ | (5,489 | ) | $ | (6,771 | ) | $ | (6,901 | ) | ||||
Pension liability, net of tax | (10,839 | ) | (11,080 | ) | (14,563 | ) | (14,671 | ) | ||||||||
Total accumulated other comprehensive loss | $ | (14,997 | ) | $ | (16,569 | ) | $ | (21,334 | ) | $ | (21,572 | ) |
The following presents a tabular disclosure about changes in accumulated other comprehensive loss during the ninethree months ended September 30, 2017:March 31, 2019:
Foreign Currency Translation Adjustments | Defined Benefit Pension Items | Total | Foreign Currency Translation Adjustments | Defined Benefit Pension Items | Total | |||||||||||||||||||
Beginning balance, December 31, 2016 | $ | (5,489 | ) | $ | (11,080 | ) | $ | (16,569 | ) | |||||||||||||||
Beginning balance, December 31, 2018 | $ | (6,901 | ) | $ | (14,671 | ) | $ | (21,572 | ) | |||||||||||||||
Other comprehensive income before reclassifications | 1,331 | - | 1,331 | 130 | - | 130 | ||||||||||||||||||
Amounts reclassified from accumulated other comprehensive loss | - | 241 | 241 | - | 108 | 108 | ||||||||||||||||||
Net current period other comprehensive income | 1,331 | 241 | 1,572 | 130 | 108 | 238 | ||||||||||||||||||
Ending balance, September 30, 2017 | $ | (4,158 | ) | $ | (10,839 | ) | $ | (14,997 | ) | |||||||||||||||
Ending balance, March 31, 2019 | $ | (6,771 | ) | $ | (14,563 | ) | $ | (21,334 | ) |
The following presents a tabular disclosure about reclassification adjustments out of accumulated other comprehensive loss during the ninethree months ended September 30, 2017:March 31, 2019:
Amounts reclassified from accumulated other comprehensive loss for the three months ended March 31, 2019 | Affected line item in the statement where net income is presented | |||||||||||
Amounts reclassified from accumulated other comprehensive loss for the nine months ended September 30, 2017 | Affected line item in the statement where net income is presented | |||||||||||
Amortization of defined benefit pension items | ||||||||||||
Prior service cost | $ | (47) | (1) | Other expense, net | $ | (16 | )(1) | Other expense, net | ||||
Actuarial losses | 442 | (1) | Other expense, net | 162 | (1) | Other expense, net | ||||||
Total before tax | 395 | 146 | ||||||||||
Tax benefit | (154) | (38 | ) | |||||||||
Net of tax | $ | 241 | $ | 108 |
(1) | These amounts were included in |
A reconciliation of the Company’s equity for the nine months ended September 30, 2017, 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, 2016 | $ | 10,505 | $ | 50,184 | $ | 157,468 | $ | (16,569 | ) | $ | 6,692 | |||||||||
Net earnings | - | - | 8,408 | - | (70 | ) | ||||||||||||||
Foreign currency translation adjustments | - | - | - | 1,331 | 341 | |||||||||||||||
Pension liability adjustment, net of tax | - | - | - | 241 | - | |||||||||||||||
Cash dividends declared | - | - | (6,725 | ) | - | - | ||||||||||||||
Cash dividends paid to noncontrolling interest | - | - | - | - | (204 | ) | ||||||||||||||
Stock options exercised | 82 | 1,931 | - | - | - | |||||||||||||||
Issuance of restricted stock | 31 | (31 | ) | - | - | - | ||||||||||||||
Stock-based compensation expense | - | 1,174 | - | - | - | |||||||||||||||
Shares purchased and retired | (421 | ) | - | (11,200 | ) | - | - | |||||||||||||
Balance, September 30, 2017 | $ | 10,197 | $ | 53,258 | $ | 147,951 | $ | (14,997 | ) | $ | 6,759 |
On October 31, 2017, the Company’s Board of Directors authorized the repurchase of an additional 1.0 million shares of common stock under its repurchase program, bringing the total available to purchase to approximately 1.1 million shares.
14. | Equity |
The following table reconciles the Company’s equity for the three months ended March 31, 2019:
Accumulated | ||||||||||||||||
Capital in | Other | |||||||||||||||
Common | Excess of | Reinvested | Comprehensive | |||||||||||||
Stock | Par Value | Earnings | Loss | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
Balance, December 31, 2018 | $ | 10,057 | $ | 64,263 | $ | 152,835 | $ | (21,572 | ) | |||||||
Net earnings | - | - | 3,968 | - | ||||||||||||
Foreign currency translation adjustments | - | - | - | 130 | ||||||||||||
Pension liability adjustment, net of tax | - | - | - | 108 | ||||||||||||
Cash dividends declared | - | - | (2,299 | ) | - | |||||||||||
Stock options exercised | 1 | 6 | - | - | �� | |||||||||||
Issuance of restricted stock | 1 | (1 | ) | - | - | |||||||||||
Share-based compensation expense | - | 366 | - | - | ||||||||||||
Shares purchased and retired | (64 | ) | - | (1,764 | ) | - | ||||||||||
Balance, March 31, 2019 | $ | 9,995 | $ | 64,634 | $ | 152,740 | $ | (21,334 | ) |
The following table reconciles the Company’s equity for the three months ended March 31, 2018:
Accumulated | ||||||||||||||||||||
Capital in | Other | |||||||||||||||||||
Common | Excess of | Reinvested | Comprehensive | Noncontrolling | ||||||||||||||||
Stock | Par Value | Earnings | Loss | Interest | ||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||
Balance, December 31, 2017 | $ | 10,162 | $ | 55,884 | $ | 150,350 | $ | (17,859 | ) | $ | 7,122 | |||||||||
Net earnings | - | - | 2,987 | - | (171 | ) | ||||||||||||||
Foreign currency translation adjustments | - | - | - | (85 | ) | (34 | ) | |||||||||||||
Pension liability adjustment, net of tax | - | - | - | 118 | - | |||||||||||||||
Cash dividends declared | - | - | (2,257 | ) | - | - | ||||||||||||||
Cash dividends paid to noncontrolling interest | - | - | - | - | (88 | ) | ||||||||||||||
Stock options exercised | 108 | 2,776 | - | - | - | |||||||||||||||
Restricted stock forfeited | (2 | ) | 2 | - | - | - | ||||||||||||||
Share-based compensation expense | - | 351 | - | - | - | |||||||||||||||
Balance, March 31, 2018 | $ | 10,268 | $ | 59,013 | $ | 151,080 | $ | (17,826 | ) | $ | 6,829 |
10 |
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. Such statements can be identified by the use of words such as “anticipates,” “believes,” “estimates,” “expects,” “forecasts,” “intends,” “is likely,” “plans,” “predicts,” “projects,” “should,” “will,” or variations of such words, and similar expressions. Forward-looking statements, by their nature, address matters that are, to varying degrees, uncertain. Therefore, 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-endedyear ended December 31, 2016.2018.
GENERAL
The Company designs and markets quality and innovative footwear principally for men, but also for women and children, under a portfolio of well-recognized brand names, including: “Florsheim,” “NunnFlorsheim, Nunn Bush,” “Stacy Stacy Adams,” “BOGS,” “Rafters,” BOGS, and “Umi.”Rafters. 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, as well as e-commerce retailers, primarily in the United States and Canada. The Company also has 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 109 brick and mortar retail stores and internete-commerce businesses in the United States as of September 30, 2017.March 31, 2019. 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
Third QuarterSales and Earnings Highlights
Consolidated net sales for the thirdfirst quarter of 20172019 were $76.9$74.1 million, down 3% asup 7% compared to last year’s thirdfirst quarter net sales of $79.1$69.5 million. EarningsConsolidation earnings from operations were $7.8$5.1 million this quarter, an increase of 44% compared to $3.6 million in both 2017 and 2016.the same period of 2018. Consolidated net earnings attributable to Weyco Group, Inc. increased 7% to $4.9were $4.0 million in 2017,the first quarter of 2019, up from $4.633% compared to $3.0 million in last year.year’s first quarter. Diluted earnings per share were $0.48 this quarter and $0.44$0.40 per share for the three months ended March 31, 2019, up from $0.29 per share in the thirdfirst quarter of 2016.2018.
The majority of the decreaseincrease in consolidated net sales came from the Company’s wholesale segment. Wholesale net sales declined $1.4increased $5.7 million, due mainly to lower sales of the Stacy Adams, Nunn Bush, and BOGS brands, partially offset by higher sales of the Florsheim, brand.Stacy Adams and BOGS brands. Net sales of the Company’s retail segment and its other operations were also down.up $644,000 for the quarter, due primarily to higher sales on the Company’s websites. Other net sales decreased $1.7 million for the quarter, primarily due to a 13% decline in net sales at Florsheim Australia, caused mainly by the translation of the weaker Australian currency into U.S. dollars.
ConsolidatedThe increase in consolidated earnings from operations were relatively flat for the quarter. Earnings from operations in the Company’s wholesale segment were up,was primarily due to higher gross margins and loweroperating earnings in the wholesale selling and administrative expenses, but this increase wassegment. Wholesale earnings from operations rose $1.8 million for the quarter due mainly to higher sales. Retail earnings from operations increased $277,000 for the quarter, mainly due to higher e-commerce sales. These increases were partially offset by lower operating earnings at Florsheim Australia resulting mainly from operations in the Company’s retail segment and its other operations.
Other expense was down due to lower pension expense in 2017.
Year-to-Date Highlights
Consolidated net sales for the first nine months of 2017 were $203.5 million, down 5% from last year’s year-to-date net sales of $214.8 million. Earnings from operations were $13.2 million in 2017, a decrease of 6% as compared to $14.0 million in 2016. Consolidated net earnings attributable to Weyco Group, Inc. were $8.4 million this year, up 1% as compared to $8.3 million last year. Diluted earnings per share to date in 2017 were $0.81, versus $0.78 per share in the same period of 2016.
The majority of the decrease in consolidated net sales came from the Company’s wholesale segment. Wholesale net sales were down $10.0 million, due primarily to lower sales of the Stacy Adams, Nunn Bush, and BOGS brands, partially offset by higher sales of the Florsheim brand. Net sales in the Company’s retail segment and its other operations were also down.
Consolidated earnings from operations decreased $838,000 for the nine months ended September 30, 2017, compared to the same period one year ago. The decrease occurred mainly in the Company’s retail segment, due to lower sales and higher retail selling and administrative expenses. Earnings from operations in the Company’s wholesale segment were flat, as lower sales were offset by higher gross margins and lower wholesale selling and administrative expenses this year. Earnings from operations in the Company’s other businesses were also down.
Other expense was down due to lower pension expense in 2017.sales.
Financial Position Highlights
At September 30, 2017,March 31, 2019, cash and marketable securities totaled $36.3$38.2 million and there was $3.7 million of debt outstanding debt totaled $4.8 million. At December 31, 2016, cash and marketable securities totaled $39.4 million and outstanding debt totaled $4.3 million.on the Company’s revolving line of credit. During the first ninethree months of 2017,2019, the Company generated $16.4$4.5 million of cash from operations. The Company paid dividends of $9.1$4.6 million, spent $11.6paid down $2.1 million on purchasesthe line of credit, repurchased $1.8 million of Company stock, and purchased a net of $4.0 million in marketable securities. The Company also had $1.4 million$981,000 of capital expenditures.expenditures during the quarter.
On January 1, 2019, the Company adopted the new accounting standard on leases (ASC 842). The adoption of ASC 842 resulted in the recognition of ROU assets and lease liabilities totaling $26.0 million and $27.8 million, respectively, as of the adoption date. The prior year comparative information has not been restated and continues to be reported in accordance with historical accounting under Topic 840.
11 |
SEGMENT ANALYSIS
Net sales and earnings from operations for the Company’s segments infor the three and nine months ended September 30, 2017March 31, 2019 and 2016,2018, were as follows:
Three Months Ended September 30, | % | Nine Months Ended September 30, | % | |||||||||||||||||||||
2017 | 2016 | Change | 2017 | 2016 | Change | |||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||
Net Sales | ||||||||||||||||||||||||
North American Wholesale | $ | 60,728 | $ | 62,170 | -2% | $ | 155,869 | $ | 165,876 | -6% | ||||||||||||||
North American Retail | 4,291 | 4,702 | -9% | 13,979 | 14,508 | -4% | ||||||||||||||||||
Other | 11,887 | 12,197 | -3% | 33,631 | 34,452 | -2% | ||||||||||||||||||
Total | $ | 76,906 | $ | 79,069 | -3% | $ | 203,479 | $ | 214,836 | -5% | ||||||||||||||
Earnings from Operations | ||||||||||||||||||||||||
North American Wholesale | $ | 7,416 | $ | 6,710 | 11% | $ | 11,880 | $ | 11,910 | 0% | ||||||||||||||
North American Retail | 17 | 313 | -95% | 244 | 787 | -69% | ||||||||||||||||||
Other | 369 | 731 | -50% | 1,027 | 1,292 | -21% | ||||||||||||||||||
Total | $ | 7,802 | $ | 7,754 | 1% | $ | 13,151 | $ | 13,989 | -6% |
Three Months Ended March 31, | % | |||||||||||
2019 | 2018 | Change | ||||||||||
(Dollars in thousands) | ||||||||||||
Net Sales | ||||||||||||
North American Wholesale | $ | 59,481 | $ | 53,788 | 11 | % | ||||||
North American Retail | 5,571 | 4,927 | 13 | % | ||||||||
Other | 9,076 | 10,811 | -16 | % | ||||||||
Total | $ | 74,128 | $ | 69,526 | 7 | % | ||||||
Earnings (loss) from Operations | ||||||||||||
North American Wholesale | $ | 5,206 | $ | 3,390 | 54 | % | ||||||
North American Retail | 483 | 206 | 134 | % | ||||||||
Other | (543 | ) | (29 | ) | n/a | |||||||
Total | $ | 5,146 | $ | 3,567 | 44 | % |
North American Wholesale Segment
Net Sales
Net sales in the Company’s North American wholesale segment for the three and nine months ended September 30, 2017March 31, 2019 and 2016,2018, were as follows:
North American Wholesale Segment Net Sales
Three Months Ended September 30, | % | Nine Months Ended September 30, | % | Three Months Ended March 31, | % | |||||||||||||||||||||||||||||||
2017 | 2016 | Change | 2017 | 2016 | Change | 2019 | 2018 | Change | ||||||||||||||||||||||||||||
(Dollars in thousands) | (Dollars in thousands) | |||||||||||||||||||||||||||||||||||
North American Net Sales | ||||||||||||||||||||||||||||||||||||
North American Wholesale Segment Net Sales | ||||||||||||||||||||||||||||||||||||
Stacy Adams | $ | 14,486 | $ | 14,861 | -3% | $ | 49,632 | $ | 52,092 | -5% | $ | 20,968 | $ | 19,489 | 8 | % | ||||||||||||||||||||
Nunn Bush | 12,200 | 13,362 | -9% | 37,027 | 42,909 | -14% | 11,594 | 12,354 | -6 | % | ||||||||||||||||||||||||||
Florsheim | 15,518 | 14,262 | 9% | 39,611 | 38,513 | 3% | 18,816 | 15,054 | 25 | % | ||||||||||||||||||||||||||
BOGS/Rafters | 17,644 | 18,462 | -4% | 26,527 | 28,950 | -8% | 7,391 | 6,015 | 23 | % | ||||||||||||||||||||||||||
Umi | 352 | 698 | -50% | 1,252 | 1,681 | -26% | ||||||||||||||||||||||||||||||
Other | 5 | 83 | -94 | % | ||||||||||||||||||||||||||||||||
Total North American Wholesale | $ | 60,200 | $ | 61,645 | -2% | $ | 154,049 | $ | 164,145 | -6% | $ | 58,774 | $ | 52,995 | 11 | % | ||||||||||||||||||||
Licensing | 528 | 525 | 1% | 1,820 | 1,731 | 5% | 707 | 793 | -11 | % | ||||||||||||||||||||||||||
Total North American Wholesale Segment | $ | 60,728 | $ | 62,170 | -2% | $ | 155,869 | $ | 165,876 | -6% | $ | 59,481 | $ | 53,788 | 11 | % |
Stacy Adams and Nunn BushFlorsheim net sales were up for the quarter and year-to-date periodsacross the majority of distribution channels. Sales of the Nunn Bush brand were down for the quarter, mainly with department stores. The increasesincrease in FlorsheimBOGS/Rafters net sales werewas primarily due to higher sales of BOGS to department storesoutdoor and national shoe chains. BOGS sales were down as a result of lower sales with outdooronline retailers.
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
Wholesale grossGross earnings for the North American wholesale segment were 33.9%34.3% of net sales in the thirdfirst quarter of 2017,2019, compared to 32.2%33.1% of net sales in last year’s third quarter. For the first nine monthsquarter of 2018. Earnings from operations in the North American wholesale segment increased 54% to $5.2 million in the first quarter of 2019, from $3.4 million in the same period last year, wholesaledue mainly to higher sales.
The Company’s cost of sales does not include distribution costs (e.g., receiving, inspection, warehousing, shipping and handling costs). Wholesale distribution costs were $3.1 million in the first quarters of both 2019 and 2018. These costs were included in selling and administrative expenses. The Company’s gross earnings rosemay not be comparable to 32.1%other companies, as some companies may include distribution costs in cost of net sales in 2017, from 31.2% of net sales in 2016. Gross margins improved as a result of a reduction in sales of closeout inventory, which is sold at lower margins.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. Wholesale selling and administrative expenses were $13.2$15.2 million, or 22%26% of net sales, in the thirdfirst quarter of 2017, and $13.32019, compared to $14.4 million, or 21%27% of net sales, in the thirdfirst quarter of 2016. For the nine months ended September 30, wholesale selling2018, and administrative expenses were $38.2 million, or 25%increased as a result of net sales, in 2017, as compared to $39.8 million, or 24% of net sales, in 2016.
Earnings from operations in the North American wholesale segment were $7.4 million in the third quarter of 2017, up 11% as compared to $6.7 million in the third quarter of 2016. For the nine months ended September 30, 2017higher employees wages and 2016, wholesale earnings from operations remained flat at $11.9 million in both periods. Despite the decrease in sales, wholesale earnings from operations were up for the quarter, and flat for the first nine months of the year, due to higher gross margins and lower wholesale selling and administrative expenses.
The Company’s cost of sales does not include distribution costs (e.g., receiving, inspection or warehousing costs). Distribution costs were $2.6 million for the third quarter of 2017 versus $2.8 million for the same period of 2016. For the nine-month periods ended September 30, 2017 and 2016, distribution costs were $7.9 million and $8.8 million, respectively. This year, distribution costs were down due to lower employee and warehousing costs. The Company’s consolidated wholesale shipping and handling expenses were $353,000 and $408,000 for the three months ended September 30, 2017 and 2016, respectively. For the nine months ended September 30, 2017, consolidated wholesale shipping and handling expenses were $959,000 and $1.1 million in 2016. 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 and shipping and handling expenses in cost of sales.benefits.
North American Retail Segment
Net Sales
Net sales in the Company’s North American retail segment declined $411,000 and $529,000, forwere $5.6 million in the three and nine months ended September 30, 2017, respectively,first quarter of 2019, up 13% compared to the same periods$4.9 in last year.year’s first quarter. Same store sales, which include U.S. e-commerce sales, were up 13% for the quarter, due to higher sales through the Company’s websites. There were the same number of both the U.S. internet business anddomestic brick and mortar same stores were down 10% and 6% for the quarter and year-to-date periods, respectively. Same store sales were down due to decreased salesoperating at both brickMarch 31, 2019 and mortar locations and on the Company’s websites. The majority of the Company’s brick and mortar locations are in Florida and Texas, and sales for the quarter and year were impacted by the recent hurricanes.at March 31, 2018.
Earnings from Operations
GrossRetail gross earnings as a percentwere 65.2% of net sales were 63.6% in the thirdfirst quarter of 2017,2019, compared to 65.5% in the third quarter of 2016. For the nine months ended September 30, retail gross earnings as a percent64.6% of net sales were 64.4% in 2017 and 65.1% in 2016.
Retail earnings from operations declined $296,000 for the quarter, compared to the thirdfirst quarter of 2016, due mainly to lower sales. For the year-to-date period, retail earnings from operations were down $543,000 in 2017, compared to the first nine months of 2016, due to lower sales and higher retail selling and administrative expenses.2018. Selling and administrative expenses for the retail segment include, and are primarily related to, rent and occupancy costs, employee costs, advertising expense and freight. Retail selling and administrative expenses as a percentwere 57% of net sales were 63% and 59% forin the three-month periods ended September 30, 2017 and 2016, respectively. For the nine months ended September 30, selling and administrative expenses as a percentfirst quarter of 2019 versus 60% of net sales were 63% in 2017 and 60%last year’s first quarter. Driven by higher online sales, retail earnings from operations rose to $483,000 in 2016.the first quarter of 2019, from $206,000 in the first quarter of 2018.
Other
The Company’s other net sales were $11.9 million in the third quarterbusinesses include its wholesale and retail operations of 2017, down 3% as compared to $12.2 million in 2016. For the nine months ended September 30, 2017, other net sales were $33.6 million, down 2% from $34.5 million in the same period last year. The decreases in both periods were due to lower sales at both Florsheim Australia and Florsheim Europe. Net sales of the Company’s other businesses were $9.1 million in the first quarter of 2019, down 16% compared to $10.8 million in last year’s first quarter. The decrease was primarily due to a 13% decline in net sales at Florsheim Australia, caused mainly by the translation of the weaker Australian currency into U.S. dollars. Florsheim Australia’s net sales which accounts for the majority of other net sales,in local currency were down 2% for both the quarter and first nine months of 2017, as compared to the same periods of 2016. In local currency, Florsheim Australia’s net sales were down 6%4% for the quarter, and 5% for the year-to-date period, compared to the same periods last year, with lower sales down in both its retail and wholesale businesses.
Collectively, the earnings from operationsbusinesses, as a result of the Company’s other businesses were $369,000challenging retail environment. Collectively, Florsheim Australia and Florsheim Europe had operating losses totaling $543,000 in the thirdfirst quarter of 2017 and $731,0002019, compared to operating losses of $29,000 in the same period last year. For the nine months ended September 30, earnings from operationsfirst quarter of the Company’s other businesses were $1.0 million in 2017 and $1.3 million in 2016.2018. The decreases for the quarter and year-to-date periods were primarilydecline between years was mainly due to lower operating earnings insales at Florsheim Australia’s retail businesses, mainly due to the decrease in retail sales.Australia.
Other income and expense and taxes
Interest income was $193,000$223,000 and $190,000 in the third quarters of 2017 and 2016, respectively. For the nine months ended September 30, interest income was $572,000 in 2017 and $584,000 in 2016. Interest expense for the three and nine months ended September 30, 2017, decreased $61,000 and $221,000, respectively, compared to the same periods in 2016, due to lower average debt balances this year compared to last year.
The Company adopted ASU 2017-07$233,000 in the first quarterquarters of 20172019 and retrospectively applied it to all periods presented. This required the Company to reclassify the non-service cost components of pension2018, respectively. Interest expense from selling and administrative expenses to other expense, net, in the Consolidated Condensed Statements of Earnings and Comprehensive Income (Unaudited). The decrease in other expenserose $32,000 for the quarter, and first nine months of 2017 was mainlyprimarily due to decreasesan increase in debt outstanding on the Company’s line of $316,000 and $949,000, respectively, incredit. The Company’s effective tax rate for the non-service cost componentsquarter ended March 31, 2019 was 23.9% compared to 25.0% for the same period of pension expense. Pension expense decreased in 2017 as a result of freezing benefits under the pension plan, effective December 31, 2016.2018.
LIQUIDITY AND CAPITAL RESOURCES
The Company’s primary sources of liquidity are its cash, short-term marketable securities and its revolving line of credit. During the first nine months of 2017, theThe Company generated $16.4$4.5 million of cash from operating activities during the first three months of 2019, compared to $27.8$8.4 million in the same period of 2016.one year ago. The decrease between years was primarily due to changes in operating assets and liabilities, principally inventory.inventory and accounts payable.
The Company paid cash dividends of $9.1$4.6 million in both the first quarters of 2019 and $8.8 million during the nine months ended September 30, 2017 and 2016, respectively.2018.
The Company continues to repurchaserepurchases its common stock under its share repurchase program when the Company believes market conditions are favorable. During the first ninethree months of 2017,2019, the Company repurchased 420,71163,481 shares atfor a total cost of $11.6$1.8 million. As of September 30, 2017,March 31, 2019, the Company had approximately 144,000601,529 shares available under its previously announced stock repurchase program. On October 31, 2017, the Company’s Board of Directors authorized theThe Company did not repurchase of an additional 1.0 million sharesany of its common stock under its repurchase program, bringingshares during the total available to purchase to approximately 1.1 million shares. See Part II, Item 2, “Unregistered Sales of Equity Securities and Use of Proceeds” below for more information.three months ended March 31, 2018.
Capital expenditures totaled $1.4 millionwere $981,000 in the first ninethree months of 2017.2019. Management estimates that annual capital expenditures for 20162019 will be between $1.5$3.5 million and $2.0$4.5 million.
At September 30, 2017,March 31, 2019, the Company had a $60 million unsecured revolving line of credit with a bank expiring November 3, 2017.5, 2019. The line of credit bears interest at LIBOR plus 0.75%. The Company borrowed a net of $0.5 million on the line of credit during the first nine months of 2017. At September 30, 2017,March 31, 2019, outstanding borrowings were $4.8approximately $3.7 million at an interest rate of 2.0%3.25%. The highest balance on the line of credit during the quarter was $4.8$7.7 million. Subsequent to September 30, 2017, the line of credit agreement was renewed on the same terms for another one-year period, expiring November 4, 2018.
At September 30, 2017,As of March 31, 2019, approximately $1.6$2.0 million of cash and cash equivalents was held by the Company’s foreign subsidiaries.
The Company will continue to evaluate the best uses for its available liquidity, including, among other uses, capital expenditures, 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.
13 |
COMMITMENTS
There were no material changes to the Company’s contractual obligations during the nine months ended September 30, 2017, from those disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.Not applicable.
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, 2016.Not applicable.
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.
ThereDuring the first quarter of 2019, the Company adopted ASU 2016-02,Leases.As a result of the adoption, the Company implemented controls to ensure management properly assessed the impact of the new standard on its consolidated financial statements. Other than this change, there have been no other 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.
NoneNone.
Item 1A. Risk Factors.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 endedyear-ended December 31, 2016.2018.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
In 1998, the Company’s stock repurchase program was established. On several occasions since the program’s inception, the Board of Directors has increased the number of shares authorized for repurchase under the program. In total, 7.5 million shares have been authorized for repurchase. The table below presents information pursuant to Item 703(a) of Regulation S-K regarding the purchaserepurchases of the Company’s common stock by the Company in the three-month period ended September 30, 2017.March 31, 2019.
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) | ||||||||||||
7/1/2017 - 7/31/2017 | 45,937 | $ | 27.89 | 45,937 | 270,823 | |||||||||||
8/1/2017 - 8/31/2017 | 89,816 | $ | 27.57 | 89,816 | 181,007 | |||||||||||
9/1/2017 - 9/30/2017 | 36,543 | $ | 27.94 | 36,543 | 144,464 | |||||||||||
Total | 172,296 | $ | 27.73 | 172,296 |
Maximum Number | ||||||||||||||||
Total | Average | Total Number of | of Shares | |||||||||||||
Number | Price | Shares Purchased as | that May Yet Be | |||||||||||||
of Shares | Paid | Part of the Publicly | Purchased Under | |||||||||||||
Period | Purchased | Per Share | Announced Program | the Program | ||||||||||||
01/01/2019 - 01/31/2019 | 45,481 | $ | 28.52 | 45,481 | 619,529 | |||||||||||
02/01/2019 - 02/28/2019 | 12,100 | $ | 28.54 | 12,100 | 607,429 | |||||||||||
03/01/2019 - 03/31/2019 | 5,900 | $ | 31.42 | 5,900 | 601,529 | |||||||||||
Total | 63,481 | 28.80 | 63,481 |
Item 5. Other Information
On November 2, 2017, the Company renewed its line of credit agreement with PNC Bank, N.A. for another term that expires on November 4, 2018, on the same terms as the prior agreement. The forgoing description does not purport to be complete and is qualified in its entirety by reference to the Line of Credit Renewal Letter with PNC Bank, N.A., a copy of which is filed as Exhibit 10.1 to this Form 10-Q.
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.
WEYCO GROUP, INC.
(THE “REGISTRANT”)
(COMMISSION FILE NO. 0-9068)
EXHIBIT INDEX
TO
CURRENT REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDEDSeptember 30, 2017
Exhibit | Description | Incorporation Herein By Reference To | Filed Herewith | |||
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 | X |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
WEYCO GROUP, INC. | |
Dated: May 9, 2019 | |
/s/ John F. Wittkowske | |
John F. Wittkowske | |
Senior Vice President and Chief Financial Officer |
16 |