FORM 10-Q
SECURITIES & EXCHANGE COMMISSION
Washington, D. C. 20549
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2005
Or
( ) 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 (I.R.S. Employer
incorporation or organization) 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.
Yes [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes [X] No [ ]
As of July 25, 2005 the following shares were outstanding:
Common Stock, $1.00 par value 8,982,099 Shares
Class B Common Stock, $1.00 par value 2,596,348 Shares
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
The condensed financial statements included herein have been prepared by
the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with accounting principles generally accepted in the United
States of 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)
June 30, December 31,
2005 2004
------------ ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ......................... $ 21,446,074 $ 10,514,707
Marketable securities, at amortized cost .......... 595,000 180,000
Accounts receivable, net .......................... 26,281,466 30,774,337
Inventories ....................................... 34,851,128 47,620,220
Deferred income tax benefits ...................... 759,508 1,681,135
Prepaid expenses and other current assets ......... 1,151,557 1,779,189
------------ ------------
Total current assets .......................... 85,084,733 92,549,588
MARKETABLE SECURITIES, at amortized cost ............... 22,228,805 11,123,795
OTHER ASSETS ........................................... 13,882,206 13,904,006
PLANT AND EQUIPMENT, net ............................... 27,519,913 27,910,304
TRADEMARK .............................................. 10,867,969 10,867,969
------------ ------------
$159,583,626 $156,355,662
============ ============
LIABILITIES & SHAREHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Short-term borrowings ............................. $ 9,649,658 $ 11,359,536
Accounts payable .................................. 8,298,635 6,661,241
Dividend payable .................................. 809,473 631,351
Accrued liabilities ............................... 5,362,035 8,496,615
Accrued income taxes .............................. 458,911 751,622
------------ ------------
Total current liabilities ..................... 24,578,712 27,900,365
LONG-TERM PENSION LIABILITY ............................ 3,411,956 3,312,860
DEFERRED INCOME TAX LIABILITIES ........................ 5,260,788 5,394,516
SHAREHOLDERS' INVESTMENT:
Common stock ...................................... 8,956,965 4,440,565
Class B common stock .............................. 2,599,228 1,302,110
Capital in excess of par value .................... 2,249,366 6,820,136
Reinvested earnings ............................... 112,305,035 106,747,060
Accumulated other comprehensive income ............ 221,576 438,050
------------ ------------
Total shareholders' investment ............... 126,332,170 119,747,921
------------ ------------
$159,583,626 $156,355,662
============ ============
The accompanying notes to consolidated condensed financial statements are an
integral part of these financial statements.
-1-
WEYCO GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
FOR THE PERIODS ENDED JUNE 30, 2005 AND 2004 (UNAUDITED)
Three Months ended June 30 Six Months ended June 30
------------------------------ ------------------------------
2005 2004 2005 2004
------------- ------------- ------------- -------------
NET SALES $ 44,746,051 $ 49,786,360 $ 102,576,858 $ 111,529,729
COST OF SALES 28,790,627 31,616,365 65,999,768 72,101,075
------------- ------------- ------------- -------------
Gross earnings 15,955,424 18,169,995 36,577,090 39,428,654
SELLING AND ADMINISTRATIVE EXPENSES 11,353,366 11,806,927 23,565,649 24,583,278
------------- ------------- ------------- -------------
Earnings from operations 4,602,058 6,363,068 13,011,441 14,845,376
INTEREST INCOME 267,231 120,143 412,536 241,006
INTEREST EXPENSE (76,700) (98,853) (149,967) (266,338)
OTHER INCOME (EXPENSE), net (8,189) (10,143) (30,048) (43,133)
------------- ------------- ------------- -------------
Earnings before provision for
income taxes 4,784,400 6,374,215 13,243,962 14,776,911
PROVISION FOR INCOME TAXES 1,755,000 2,400,000 5,015,000 5,650,000
------------- ------------- ------------- -------------
Net earnings $ 3,029,400 $ 3,974,215 $ 8,228,962 $ 9,126,911
============= ============= ============= =============
WEIGHTED AVERAGE SHARES OUTSTANDING (Note 2)*
Basic 11,569,353 11,333,686 11,543,730 11,306,750
Diluted 11,958,369 11,708,347 11,969,210 11,676,645
EARNINGS PER SHARE (Note 2)*
Basic $ .26 $ .35 $ .71 $ .81
============= ============= ============= =============
Diluted $ .25 $ .34 $ .69 $ .78
============= ============= ============= =============
CASH DIVIDENDS PER SHARE* $ .07 $ .055 $ .125 $ .105
============= ============= ============= =============
* All share and per share amounts have been adjusted to reflect the two-for-one
stock split distributed to shareholders on April 1, 2005 (See Note 7).
The accompanying notes to consolidated condensed financial statements are an
integral part of these financial statements.
-2-
WEYCO GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2005 AND 2004 (UNAUDITED)
2005 2004
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings ..................................................... $ 8,228,962 $ 9,126,911
Adjustments to reconcile net earnings to net cash provided by
operating activities-
Depreciation ................................................ 1,129,259 1,318,821
Amortization ................................................ 22,918 65,801
Deferred income taxes ....................................... 787,899 437,605
Deferred compensation ....................................... -- 27,600
Pension expense ............................................. 442,302 356,480
Gain on sale of assets ...................................... (1,642) (88,392)
Increase in cash surrender value of life insurance .......... (222,000) (204,000)
Changes in operating assets and liabilities -
Accounts receivable ......................................... 4,492,871 (721,468)
Inventories ................................................. 12,769,092 (6,510,812)
Prepaids and other current assets ........................... 627,632 (146,918)
Accounts payable ............................................ 1,637,395 1,688,535
Accrued liabilities and other ............................... (3,413,868) (1,318,715)
Accrued income taxes ........................................ (292,711) (42,306)
------------ ------------
Net cash provided by operating activities .............. 26,208,109 3,989,142
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities ................................ (13,614,582) (2,324,390)
Proceeds from maturities of marketable securities ................ 2,071,654 2,876,603
Purchase of plant and equipment .................................. (778,408) (538,288)
Proceeds from sales of plant and equipment ....................... 4,587 95,111
------------ ------------
Net cash (used for) provided by investing activities ... (12,316,749) 109,036
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash dividends paid .............................................. (1,264,542) (1,136,363)
Shares purchased and retired ..................................... (1,288,822) --
Proceeds from stock options exercised ............................ 1,303,249 1,689,461
Repayments under revolving credit agreement ...................... (1,709,878) (4,983,258)
------------ ------------
Net cash used for financing activities ................. (2,959,993) (4,430,160)
------------ ------------
Net increase (decrease) in cash and cash equivalents ............. 10,931,367 (331,982)
------------ ------------
CASH AND CASH EQUIVALENTS at beginning of period ...................... $ 10,514,707 $ 9,091,567
------------ ------------
CASH AND CASH EQUIVALENTS at end of period ............................ $ 21,446,074 $ 8,759,585
============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Income taxes paid, net of refunds ................................ $ 4,543,368 $ 5,134,500
============ ============
Interest paid .................................................... $ 118,441 $ 235,850
============ ============
The accompanying notes to consolidated condensed financial statements are an
integral part of these financial statements.
-3-
NOTES:
1. FINANCIAL STATEMENTS
In the opinion of management, all adjustments (which include only normal
recurring accruals) necessary to present fairly the financial information
have been made. The results of operations for the three months or six
months ended June 30, 2005, are not necessarily indicative of results for
the full year. All share and per share amounts in this document have been
adjusted to reflect the two-for-one stock split distributed to
shareholders on April 1, 2005 (See Note 7).
2. EARNINGS PER SHARE
The following table sets forth the computation of earnings per share and
diluted earnings per share:
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
2005 2004 2005 2004
----------- ----------- ----------- ------------
Numerator:
Net Earnings......................... $ 3,029,400 $ 3,974,215 $ 8,228,962 $ 9,126,911
=========== =========== =========== ============
Denominator:
Basic weighted average shares........ 11,569,353 11,333,686 11,543,730 11,306,750
Effect of dilutive securities:
Employee stock options............. 389,016 374,661 425,480 369,895
----------- ----------- ----------- ------------
Diluted weighted average shares...... 11,958,369 11,708,347 11,969,210 11,676,645
=========== =========== =========== ============
Basic earnings per share................ $ .26 $ .35 $ .71 $ .81
=========== =========== =========== ============
Diluted earnings per share outstanding.. $ .25 $ .34 $ .69 $ .78
=========== =========== =========== ============
Diluted weighted average shares outstanding for the second quarter of 2005
exclude outstanding options to purchase 11,784 shares of common stock at
an average exercise price of $19.76 because they were antidilutive.
Diluted weighted average shares outstanding for the six months ended June
30, 2005 include all outstanding options, as none are antidilutive.
Diluted weighted average shares outstanding for the three and six months
ended June 30, 2004 exclude outstanding options to purchase 10,824 shares
of common stock at a price of $18.47 because they were antidilutive.
3. EMPLOYEE RETIREMENT PLANS
The components of the Company's net periodic pension cost are:
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
2005 2004 2005 2004
---------- ---------- --------- ---------
Benefits earned during the period........................ $ 196,000 $ 196,000 $ 392,000 $ 392,000
Interest cost on projected benefit obligation............ 396,000 396,000 792,000 792,000
Expected return on plan assets........................... (478,000) (498,000) (956,000) (996,000)
Net amortization and deferral............................ 107,000 112,000 214,000 168,000
---------- ---------- --------- ---------
Net pension expense................................... $ 221,000 $ 206,000 $ 442,000 $ 356,000
The Company has not made and does not expect to make any contributions to
its defined benefit pension plan in 2005.
-4-
4. SEGMENT INFORMATION
The Company continues to operate in two operating segments; wholesale
distribution and retail sales of men's footwear, which also constitute its
reportable segments. None of the Company's operating segments were
aggregated in determining the Company's reportable segments. The Company's
Chief Executive Officer evaluates the performance of its segments based on
earnings from operations and accordingly, interest income, interest
expense and other income or expense are not allocated to the segments.
Summarized segment data for the periods ended June 30, 2005 and 2004 is:
Wholesale
Distribution Retail Total
------------ ------------ -------------
THREE MONTHS ENDED JUNE 30
2005
Product sales................................ $ 37,228,000 $ 6,543,000 $ 43,771,000
Licensing revenues........................... 975,000 -- 975,000
------------ ------------ -------------
Net sales.................................. 38,203,000 6,543,000 44,746,000
Earnings from operations..................... 3,458,000 1,144,000 4,602,000
2004
Product sales................................ $ 42,315,000 $ 6,521,000 $ 48,836,000
Licensing revenues........................... 950,000 -- 950,000
------------ ------------ -------------
Net sales.................................. 43,265,000 6,521,000 49,786,000
Earnings from operations..................... 5,335,000 1,028,000 6,363,000
SIX MONTHS ENDED JUNE 30
2005
Product sales................................ $ 87,112,000 $ 13,281,000 $ 100,393,000
Licensing revenues........................... 2,184,000 -- 2,184,000
------------ ------------ -------------
Net sales.................................. 89,296,000 13,281,000 102,577,000
Earnings from operations..................... 10,680,000 2,331,000 13,011,000
2004
Product sales................................ $ 96,856,000 12,972,000 $ 109,828,000
Licensing revenues........................... 1,702,000 -- 1,702,000
------------ ------------ -------------
Net sales.................................. 98,558,000 12,972,000 11,530,000
Earnings from operations..................... 12,920,000 1,925,000 14,845,000
5. STOCK-BASED COMPENSATION PLANS
The Company has stock option plans under which options to purchase Common
Stock are granted to directors, officers and key employees at prices not
less than the fair market value of the Common Stock on the date of the
grant. The Company accounts for such stock option grants under the
provisions of APB Opinion #25, "Accounting for Stock Issued to Employees."
No stock-based employee compensation expense has been reflected in net
income, as all options granted under those plans had an exercise price
equal to or greater than the market value of the underlying Common Stock
on the date of grant.
-5-
The following table illustrates the effect on quarterly net earnings per
share as if the Company had applied the fair value recognition provisions
of FASB Statement No. 123, "Accounting for Stock-Based Compensation," as
amended by SFAS No. 148, to stock-based employee compensation.
Three Months ended June 30, Six Months ended June 30,
2005 2004 2005 2004
---------- ---------- ----------- ----------
Net earnings, as reported $3,029,400 $3,974,215 $ 8,228,962 $9,126,911
Deduct: Total stock-based employee
compensation expense determined
under the fair value based method for
all awards, net of related tax effects......... 180,470 64,126 184,037 64,126
---------- ---------- ----------- ----------
Pro forma net income............................... $2,848,930 $3,910,089 $ 8,044,925 $9,062,785
---------- ---------- ----------- ----------
Earnings per share
Basic - as reported.............................. $ .26 $ .35 $ .71 $ .81
Basic - pro forma................................ $ .25 $ .34 $ .70 $ .80
Diluted - as reported............................ $ .25 $ .34 $ .69 $ .78
Diluted - pro forma.............................. $ .24 $ .33 $ .67 $ .77
6. COMPREHENSIVE INCOME
Comprehensive income for the periods ended June 30, 2005 and 2004 is as
follows (in thousands):
Three Months Ended June 30, Six Months ended June 30,
2005 2004 2005 2004
-------- -------- -------- --------
Net earnings $ 3,029 $ 3,974 $ 8,229 $ 9,127
Foreign currency translation adjustments (155) (61) (216) (143)
-------- -------- -------- --------
Total comprehensive income $ 2,874 $ 3,913 $ 8,013 $ 8,984
The components of Accumulated Other Comprehensive Income as recorded on
the accompanying balance sheets are as follows (in thousands):
June 30, December 31,
2005 2004
-------- ------------
Foreign currency translation adjustments $ 222 $ 438
7. STOCK SPLIT
On January 31, 2005, the Company's Board of Directors approved a
two-for-one split of the Company's Common Stock and Class B Common Stock
without a change in par value of either class. The stock split was
distributed on April 1, 2005 to shareholders of record on February 16,
2005. The stock split resulted in the issuance of approximately 4.5
million additional shares of Common Stock and approximately 1.3 million
additional shares of Class B Common Stock. All share and per share amounts
disclosed in this document have been adjusted to reflect the split.
-6-
8. NEW ACCOUNTING PRONOUNCEMENT
In December 2004, the FASB issued SFAS No. 123(R), "Accounting for Stock-
Based Compensation". The revised statement establishes standards for the
accounting for transactions in which an entity exchanges its equity
instruments for goods or services. This statement focuses primarily on
accounting for transactions in which an entity obtains employee services
in share-based payment transactions. SFAS No. 123(R) requires a public
entity to measure the cost of employee services received in exchange for
an award of equity instruments based on the grant-date fair value of the
award. That cost is to be recognized over the period during which the
employee is required to provide service in exchange for the award. On
April 14, 2005, the Securities and Exchange Commission postponed the
adoption of SFAS No. 123(R), which would have been effective for the
Company as of July 1, 2005. As a result, SFAS No. 123(R) will be effective
January 1, 2006. The Company is currently evaluating the impact this
pronouncement will have on its financial statements.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
OVERVIEW
The Company is a distributor of men's casual, dress and fashion shoes under the
Florsheim, Nunn Bush, Nunn Bush NXXT, Brass Boot, Stacy Adams and SAO by Stacy
Adams brand names. Inventory is purchased from third party overseas
manufacturers. The majority of foreign-sourced purchases are denominated in U.S.
dollars. The Company's products are sold to shoe specialty stores, department
stores and clothing retailers primarily in North America, with some distribution
in Europe. The Company also has a retail division, which consists of 29
Company-owned retail stores in the United States and three in Europe. Sales in
retail outlets are made directly to consumers by Company employees. The Company
also has licensing agreements with third parties who sell its branded shoes
overseas, as well as licensing agreements with apparel and accessory
manufacturers in the United States. As such, the Company's results are primarily
impacted by the economic conditions and the retail environment in the United
States.
Overall, net earnings in the second quarter of 2005 were $3.0 million, or $.25
per diluted share compared with $4.0 million, or $.34 per diluted share in the
same period of 2004. For the six months ended June 30, 2005, net earnings were
$8.2 million, or $.69 per diluted share compared with $9.1 million, or $.78 per
diluted share in 2004. A detailed analysis of operating results follows.
-7-
RESULTS OF OPERATIONS
Consolidated net sales for the second quarter of 2005 were $44.7 million, down
10% from the prior year's $49.8 million. Second quarter sales in the Company's
wholesale division, which includes both wholesale sales and licensing revenues,
were $38.2 million in 2005 compared with $43.3 million in 2004. Wholesale sales
were $37.2 million in 2005 as compared with $42.3 million in 2004. Licensing
revenues were $1.0 million in both 2005 and 2004. Retail net sales in the second
quarter of 2005 were level with the prior year period at $6.5 million. Same
store sales in the quarter increased 2.7%. The Company opened one new store in
the second quarter of 2005 and closed one store in the first quarter of 2005.
Wholesale sales by brand for the three- and six-month periods ended June 30,
2005 and 2004 were as follows:
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
2005 2004 % CHANGE 2005 2004 % CHANGE
----------- ----------- -------- ----------- ----------- --------
Stacy Adams $10,330,471 $11,724,936 -11.9% $27,477,650 $29,234,716 -6.0%
Nunn Bush 15,853,749 16,690,950 -5.0% 33,634,836 38,363,042 -12.3%
Florsheim 10,640,121 13,375,736 -20.5% 23,976,683 27,597,522 -13.1%
Foreign 403,734 523,219 -22.8% 2,022,541 1,660,208 21.8%
----------- ----------- ----- ----------- ----------- -----
Total $37,228,075 $42,314,841 -12.0% $87,111,710 $96,855,488 -10.1%
In the current quarter, overall wholesale sales were impacted by cyclical
fashion trends toward more contemporary and casual footwear which negatively
affected the Company's more basic Nunn Bush and Florsheim dress and dress casual
business. The Company also experienced more competition from private label store
brands which currently are absorbing a greater share of available retail
dollars. Additionally, in the first quarter of 2005, the Company decided to
discontinue the FLS product line in the United States. FLS is a lower priced sub
brand in the Florsheim division. Sales of FLS decreased $1.8 million, or 63.9%
for the quarter. Sales of all other Florsheim products were down 9.1% in the
quarter.
For the six months ended June 30, consolidated net sales were $102.6 million in
2005, down 8% from last year's $111.5 million. Sales in the Company's wholesale
division, which includes both wholesale sales and licensing revenue, were $89.3
million in 2005 and $98.6 million in 2004. Wholesale net sales were $87.1
million for the six months ended June 30, 2005 as compared with $96.9 million
for the same period in 2004. Licensing revenues were $2.2 million for the six
months ended June 30, 2005 and $1.7 million for the same period in 2004. Retail
net sales for the six months ended June 30, 2005 were $13.3 million as compared
with $13.0 million for the same period in 2004. Same store sales increased 5.1%.
-8-
Wholesale sales for the six months ended June 30, 2005 were down across all
brands in comparison to 2004 due to cyclical trends and more competition from
private label store brands as discussed above. In addition, sales of Florsheim
were down due to the discontinuance of the FLS product line in the United
States. Sales of FLS were down $2.9 million or 58.2% from the prior year. Sales
of all other Florsheim products decreased 3.3% in 2005 compared with 2004. The
Company now estimates that the effect on total Florsheim sales resulting from
the discontinuance of FLS in the United States will be $6-$7 million for 2005.
Overall gross earnings as a percent of net sales for the three months ended June
30, 2005 was 35.7% compared with 36.5% in the prior year period. Gross earnings
as a percent of net sales in the wholesale division was 30.6% in 2005 compared
with 32.4% in 2004. Gross earnings as a percent of net sales in the retail
division was 65.0%, up 130 basis points from 63.7% in the second quarter of
2004. Overall gross earnings as a percent of net sales for the six months ended
June 30 increased slightly from 35.4% in 2004 to 35.7% in 2005. For the six
months ended June 30 wholesale gross earnings as a percent of net sales was
31.4% in 2005 compared with 31.7% in 2004. Retail gross earnings as a percent of
net sales for the same period increased from 62.9% in 2004 to 64.4% in 2005. The
wholesale margin decrease was due to sales of remaining Florsheim FLS product at
significantly lower margins and a greater amount of closeout sales of Stacy
Adams products.
The Company's cost of sales does not include distribution costs (e.g.,
receiving, inspection or warehousing costs). The Company's distribution costs
for the three- and six-month periods ended June 30, 2005 and 2004, were
$1,045,000 and $2,159,000 in 2005, respectively, and $1,046,000 and $2,280,000
in 2004, respectively, and were included in selling and administrative expenses.
Therefore, the Company's gross earnings may not be comparable to other
companies, as some companies may include distribution costs in cost of sales.
The Company's selling and administrative expenses include, and are primarily
related to, distribution costs, salaries and commissions, advertising costs,
employee benefit costs, rent and depreciation. In the current quarter, selling
and administrative expenses as a percent of net sales were 25.4% versus 23.7% in
2004. Wholesale selling and administrative expenses as a percent of net
wholesale sales were 22.1% in 2005 and 20.5% in 2004, and retail selling and
administrative expenses as a percent of net sales were 47.6% in 2005 and 48.0%
in 2004.
For the six months ended June 30, selling and administrative expenses as a
percent of net sales were 23.0% in 2005 versus 22.0% in 2004. Wholesale selling
and administrative expenses as a percent of net wholesale sales to date in 2005
were 19.9% as compared with 18.9% in 2004. Retail selling and administrative
expenses as a percent of net sales decreased to 46.8% in 2005 from 48.1% in
2004. The increase in wholesale expenses as a percent of sales for both the
second quarter and first six months of 2005 is due to the fact that not all of
these costs fluctuate with changes in sales volume.
The effective tax rate for the second quarter and six months ended June 30, 2005
was 36.7% and 37.9%, respectively, which was comparable to 37.7% and 38.2% for
the same periods in the prior year.
-9-
LIQUIDITY & CAPITAL RESOURCES
The Company's primary source of liquidity is its cash and short-term marketable
securities, which aggregated approximately $22.0 million at June 30, 2005 as
compared with $10.7 million at December 31, 2004. In the second quarter of 2005,
cash and cash equivalents increased approximately $10.9 million primarily due to
increased cash from operations partially offset by an increase in cash used for
investing activities in comparison to the prior year.
Net cash provided by operating activities for the six months ended June 30, 2005
was $22.2 million higher than the same period in 2004. The increase was
primarily due to decreases in accounts receivable and inventory balances in
2005, as compared with 2004. The decrease in accounts receivable is consistent
with the lower sales for the quarter, while the decline in inventory reflects
the Company's increased emphasis to improve its overall buying process and
accordingly, to reduce the potential for excess inventory and improve inventory
turns.
Cash flows from investing activities were down $12.4 million, mainly due to the
purchases of marketable securities to date this year, as compared with 2004. The
Company continues to invest in municipal securities.
Cash flows used for financing activities decreased $1.5 million, due to lower
repayments of borrowings partially offset by the repurchase of the Company's
common stock in 2005 compared with the prior year period. As of June 30, 2005,
the Company had a total of $50 million available under its existing borrowing
facility, of which total borrowings were $9.6 million. This facility includes
certain financial covenants, including minimum net worth levels, minimum levels
of Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) and a
maximum ratio of funded debt to EBITDA. As of June 30, 2005 the Company was in
compliance with all covenants. The facility expires on April 30, 2006.
The Company believes that available cash and marketable securities, cash
provided by operations, and available borrowing facilities will provide adequate
support for the cash needs of the business in 2005.
FORWARD-LOOKING STATEMENTS
This report contains certain forward-looking statements with respect to the
Company's outlook for the future. These statements represent the Company's
reasonable judgment with respect to future events and are subject to risks and
uncertainties that could cause actual results to differ materially. These
factors could include significant adverse changes in the economic conditions
affecting overseas suppliers or the men's footwear markets served by the
Company, as well as changes in interest rates, discount rates, or currency
exchange rates.
-10-
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, 2004.
Item 4. Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief
Financial Officer, has evaluated the effectiveness of our disclosure controls
and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under
the Securities Exchange Act of 1934, as amended (Exchange Act)) as of the end of
the period covered by this report. Based on such evaluation, our Chief Executive
Officer and Chief Financial Officer have concluded that, as of the end of such
period, our disclosure controls and procedures are effective in recording,
processing, summarizing and reporting, on a timely basis, information required
to be disclosed by us in the reports that we file or submit under the Exchange
Act.
There have not been any changes in our internal control over financial reporting
(as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) during
the fiscal quarter to which this report relates that have materially affected,
or are reasonably likely to materially affect, our internal control over
financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
In April 1998, the Company first authorized a stock repurchase program to
purchase 1,500,000 shares of its common stock in open market transactions
at prevailing prices. In April 2000 and again in May 2001, the Company's
Board of Directors extended the stock repurchase program to cover the
repurchase of 1,500,000 additional shares. Therefore, 4,500,000 shares
have been authorized for repurchase since the program began. The Company
also buys back shares of its Common Stock from time to time in private
transactions at prevailing prices. The table below presents information
pursuant to Item 703(a) of Regulation S-K regarding the repurchase of the
Company's Common Stock by the Company in the three-month period ended June
30, 2005.
-11-
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
- ---------------------- --------- --------- --------------------- ------------------
04/01/05 - 04/30/05 4,498 $18.06 4,498 1,621,702
05/01/05 - 05/31/05 40,616 $18.60 40,616 1,581,086
06/01/05 - 06/30/05 8,887 $18.83 8,887 1,572,199
----- ------
TOTAL 54,001 $18.59 54,001 1,572,199
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Shareholders was held April 26, 2005 to elect two
members to the Company's Board of Directors and to act on a proposal to
approve the Weyco Group, Inc. 2005 Equity Incentive Plan (the "2005
Plan").
Thomas W. Florsheim, Jr. and Robert Feitler were nominated for election to
the Board of Directors for terms of three years. A total of 27,924,099
votes were cast for the nominees, with 27,694,411 votes cast "for" and
229,688 votes "withheld" for Mr. Florsheim, and 27,813,579 votes cast
"for" and 110,320 votes "withheld" for Mr. Feitler. John W. Florsheim,
Cory Nettles, and Frederick P. Stratton continue as Directors of the
Company for a term expiring in 2006. Thomas W. Florsheim and Leonard J.
Goldstein continue as Directors of the Company for a term expiring in
2007.
A total of 26,408,165 votes were cast "for" approval of the 2005 Plan,
744,595 votes were cast "against" and 48,210 votes "abstained." There were
723,129 broker non-votes.
Item 6. Exhibits
See the Exhibit Index included herewith for a listing of exhibits.
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.
/s/ John F. Wittkowske
August 3, 2005 -----------------------------
Date John F. Wittkowske
Senior Vice President and
Chief Financial Officer
-12-
WEYCO GROUP, INC.
(THE "REGISTRANT")
(COMMISSION FILE NO. 0-9068)
EXHIBIT INDEX
TO
CURRENT REPORT ON FORM 10-Q
DATE OF June 30, 2005
INCORPORATED
EXHIBIT HEREIN BY FILED
NUMBER DESCRIPTION REFERENCE TO HEREWITH
- ------ --------------------------------------------- ------------ --------
31.1 Certification of Chief Executive Officer X
31.2 Certification of Chief Financial Officer X
32.1 Section 906 Certification of Chief Executive Officer X
32.2 Section 906 Certification of Chief Financial Officer X