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 September, 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
----- -----
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act).
Yes No X
----- -----
As of October 27, 2005 the following shares were outstanding:
Common Stock, $1.00 par value 8,972,715 Shares
Class B Common Stock, $1.00 par value 2,595,556 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)
September 30, December 31,
2005 2004
------------- ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents .................... $ 12,889,180 $ 10,514,707
Marketable securities, at amortized cost ..... 595,000 180,000
Accounts receivable, net ..................... 37,190,910 30,774,337
Inventories .................................. 36,598,254 47,620,220
Deferred income tax benefits ................. 976,724 1,681,135
Prepaid expenses and other current assets .... 971,231 1,779,189
------------ ------------
Total current assets ...................... 89,221,299 92,549,588
MARKETABLE SECURITIES, at amortized cost ........ 25,258,953 11,123,795
OTHER ASSETS .................................... 13,871,307 13,904,006
PLANT AND EQUIPMENT, net ........................ 27,265,807 27,910,304
TRADEMARK ....................................... 10,867,969 10,867,969
------------ ------------
$166,485,335 $156,355,662
============ ============
LIABILITIES & SHAREHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Short-term borrowings ........................ $ 9,484,132 $ 11,359,536
Accounts payable ............................. 8,976,789 6,661,241
Dividend payable ............................. 810,912 631,351
Accrued liabilities .......................... 6,376,047 8,496,615
Accrued income taxes ......................... 1,505,616 751,622
------------ ------------
Total current liabilities ................. 27,153,496 27,900,365
LONG-TERM PENSION LIABILITY ..................... 3,452,208 3,312,860
DEFERRED INCOME TAX LIABILITIES ................. 5,197,549 5,394,516
SHAREHOLDERS' INVESTMENT:
Common stock ................................. 8,988,324 4,440,565
Class B common stock ......................... 2,595,682 1,302,110
Capital in excess of par value ............... 2,633,712 6,820,136
Reinvested earnings .......................... 116,188,698 106,747,060
Accumulated other comprehensive income ....... 275,666 438,050
------------ ------------
Total shareholders' investment ............ 130,682,082 119,747,921
------------ ------------
$166,485,335 $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 SEPTEMBER 30, 2005 AND 2004 (UNAUDITED)
Three Months ended Nine Months ended
September 30, September 30,
------------------------- ---------------------------
2005 2004 2005 2004
----------- ----------- ------------ ------------
NET SALES $55,218,588 $55,841,100 $157,795,446 $167,370,829
COST OF SALES 35,607,712 35,866,719 101,607,480 107,967,795
----------- ----------- ------------ ------------
Gross earnings 19,610,876 19,974,381 56,187,966 59,403,034
SELLING AND ADMINISTRATIVE EXPENSES 11,959,191 12,919,417 35,524,839 37,502,695
----------- ----------- ------------ ------------
Earnings from operations 7,651,685 7,054,964 20,663,127 21,900,339
INTEREST INCOME 298,428 119,460 710,964 360,466
INTEREST EXPENSE (87,051) (101,923) (237,018) (368,261)
OTHER INCOME (EXPENSE), net 4,260 (2,268) (25,788) (45,401)
----------- ----------- ------------ ------------
Earnings before provision for
income taxes 7,867,322 7,070,233 21,111,285 21,847,143
PROVISION FOR INCOME TAXES 3,045,000 2,700,000 8,060,000 8,350,000
----------- ----------- ------------ ------------
Net earnings $ 4,822,322 $ 4,370,233 $ 13,051,285 $ 13,497,143
=========== =========== ============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING (Note 2)*
Basic 11,575,788 11,451,066 11,555,307 11,351,136
Diluted 11,992,330 11,806,494 11,973,913 11,712,276
EARNINGS PER SHARE (Note 2)*
Basic $ .42 $ .38 $ 1.13 $ 1.19
=========== =========== ============ ============
Diluted $ .40 $ .37 $ 1.09 $ 1.15
=========== =========== ============ ============
CASH DIVIDENDS PER SHARE* $ .07 $ .055 $ .195 $ .16
=========== =========== ============ ============
* 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 STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004 (UNAUDITED)
2005 2004
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings ................................................. $ 13,051,285 $13,497,143
Adjustments to reconcile net earnings to net cash
provided by operating activities -
Depreciation .............................................. 1,693,347 2,003,050
Amortization .............................................. 35,566 66,962
Deferred income taxes ..................................... 507,444 216,251
Deferred compensation ..................................... -- 37,800
Pension expense ........................................... 663,453 534,720
Gain (loss) on sale of assets ............................. (1,642) 116,174
Increase in cash surrender value of life insurance ........ (333,000) (306,000)
Changes in operating assets and liabilities -
Accounts receivable ....................................... (6,416,573) (8,245,135)
Inventories ............................................... 11,021,966 (8,506,749)
Prepaids and other current assets ......................... 807,958 (141,116)
Accounts payable .......................................... 2,315,548 (1,015,937)
Accrued liabilities and other ............................. (2,406,293) (1,287,958)
Accrued income taxes ...................................... 753,994 1,708,600
------------ -----------
Net cash provided by (used for) operating activities ... 21,693,053 (1,322,195)
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities ............................ (17,615,427) (4,260,081)
Proceeds from maturities of marketable securities ............ 3,029,703 3,957,915
Purchase of plant and equipment .............................. (1,086,860) (928,955)
Proceeds from sales of plant and equipment ................... 4,587 230,706
------------ -----------
Net cash used for investing activities ................. (15,667,997) (1,000,415)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash dividends paid .......................................... (2,074,017) (1,750,137)
Shares purchased and retired ................................. (1,423,656) --
Proceeds from stock options exercised ........................ 1,722,494 1,834,601
Repayments under revolving credit agreement .................. (1,875,404) (987,858)
------------ -----------
Net cash used for financing activities ................. (3,650,583) (903,394)
------------ -----------
Net increase (decrease) in cash and cash equivalents ......... 2,374,473 (3,226,004)
------------ -----------
CASH AND CASH EQUIVALENTS at beginning of period ................ $ 10,514,707 $ 9,091,567
------------ -----------
CASH AND CASH EQUIVALENTS at end of period ...................... $ 12,889,180 $ 5,865,563
============ ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Income taxes paid, net of refunds .......................... $ 6,848,616 $ 6,413,534
============ ===========
Interest paid .............................................. $ 232,071 $ 335,763
============ ===========
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 nine
months ended September 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 September 30, Nine Months Ended September 30,
-------------------------------- -------------------------------
2005 2004 2005 2004
----------- ----------- ----------- -----------
Numerator:
Net Earnings ............... $ 4,822,322 $ 4,370,233 $13,051,285 $13,497,143
=========== =========== =========== ===========
Denominator:
Basic weighted average
shares .................. 11,575,788 11,451,066 11,555,307 11,351,136
Effect of dilutive
securities:
Employee stock options .. 416,542 355,428 418,606 361,140
----------- ----------- ----------- -----------
Diluted weighted average
shares ..................... 11,992,330 11,806,494 11,973,913 11,712,276
=========== =========== =========== ===========
Basic earnings per share ...... $ .42 $ .38 $ 1.13 $ 1.19
=========== =========== =========== ===========
Diluted earnings per share .... $ .40 $ .37 $ 1.09 $ 1.15
=========== =========== =========== ===========
Diluted weighted average shares outstanding for the quarter and nine months
ended September 30, 2005 include all outstanding options, as none are
antidilutive. Diluted weighted average shares outstanding for the three and nine
months ended September 30, 2004 exclude outstanding options to purchase 310,500
shares of common stock at a weighted average price of $16.85 and 10,824 shares
at a weighted-average price of $18.47, respectively, because they were
antidilutive.
3. EMPLOYEE RETIREMENT PLANS
The components of the Company's net periodic pension cost are:
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- -------------------------------
2005 2004 2005 2004
--------- --------- ----------- -----------
Benefits earned during the
period .................... $ 195,000 $ 196,000 $ 587,000 $ 588,000
Interest cost on projected
benefit obligation ........ 396,000 396,000 1,188,000 1,188,000
Expected return on plan
assets .................... (478,000) (498,000) (1,434,000) (1,494,000)
Net amortization and
deferral .................. 107,000 85,000 322,000 253,000
--------- --------- ----------- -----------
Net pension expense ....... $ 220,000 $ 179,000 $ 663,000 $ 535,000
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 September 30, 2005 and 2004 is:
Wholesale
Distribution Retail Total
------------ ----------- ------------
THREE MONTHS ENDED SEPTEMBER 30
2005
Product sales ................. $ 48,264,000 $ 6,036,000 $ 54,300,000
Licensing revenues ............ 919,000 -- 919,000
------------ ----------- ------------
Net sales .................. 49,183,000 6,036,000 55,219,000
Earnings from operations ...... 6,823,000 829,000 7,652,000
2004
Product sales ................. $ 49,333,000 $ 5,628,000 $ 54,961,000
Licensing revenues ............ 880,000 -- 880,000
------------ ----------- ------------
Net sales .................. 50,213,000 5,628,000 55,841,000
Earnings from operations ...... 6,521,000 534,000 7,055,000
NINE MONTHS ENDED SEPTEMBER 30
2005
Product sales ................. $135,376,000 $19,316,000 $154,692,000
Licensing revenues ............ 3,103,000 -- 3,103,000
------------ ----------- ------------
Net sales .................. 138,479,000 19,316,000 157,795,000
Earnings from operations ...... 17,503,000 3,160,000 20,663,000
2004
Product sales ................. $146,188,000 $18,600,000 $164,788,000
Licensing revenues ............ 2,583,000 -- 2,583,000
------------ ----------- ------------
Net sales .................. 148,771,000 18,600,000 167,371,000
Earnings from operations ...... 19,441,000 2,459,000 21,900,000
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 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 Nine Months ended
September 30, September 30,
----------------------- -------------------------
2005 2004 2005 2004
---------- ---------- ----------- -----------
Net earnings, as reported ................... $4,822,322 $4,370,233 $13,051,285 $13,497,143
Deduct: Total stock-based employee
compensation expense determined under the
fair value based method for all awards,
net of related tax effects ............... 269,853 155,983 453,890 220,109
---------- ---------- ----------- -----------
Pro forma net income ........................ $4,552,469 $4,214,250 $12,597,395 $13,277,034
---------- ---------- ----------- -----------
Earnings per share
Basic - as reported ...................... $ .42 $ .38 $ 1.13 $ 1.19
Basic - pro forma ........................ $ .39 $ .37 $ 1.09 $ 1.17
Diluted - as reported .................... $ .40 $ .37 $ 1.09 $ 1.15
Diluted - pro forma ...................... $ .38 $ .36 $ 1.05 $ 1.13
6. COMPREHENSIVE INCOME
Comprehensive income for the periods ended September 30, 2005 and 2004 is
as follows (in thousands):
Three Months ended Nine Months ended
September 30, September 30,
------------------ -----------------
2005 2004 2005 2004
------ ------ ------- -------
Net earnings $4,822 $4,370 $13,051 $13,497
Foreign currency translation
adjustments 54 55 (162) (88)
------ ------ ------- -------
Total comprehensive income $4,876 $4,425 $12,889 $13,409
The components of Accumulated Other Comprehensive Income as recorded on the
accompanying balance sheets are as follows (in thousands):
September 30, December 31,
2005 2004
------------- ------------
Foreign currency translation adjustments $276 $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 30
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 third quarter of 2005 were $4.8 million, or $.40
per diluted share compared with $4.4 million, or $.37 per diluted share in the
same period of 2004. For the nine months ended September 30, 2005, net earnings
were $13.1 million, or $1.09 per diluted share compared with $13.5 million, or
$1.15 per diluted share in 2004. A detailed analysis of operating results
follows.
-7-
RESULTS OF OPERATIONS
Consolidated net sales for the third quarter of 2005 were $55.2 million, down 1%
from the prior year's $55.8 million. Third quarter sales in the Company's
wholesale division, which includes both wholesale sales and licensing revenues,
were $49.2 million in 2005 compared with $50.2 million in 2004. Wholesale sales
were $48.3 million in 2005 as compared with $49.3 million in 2004. Licensing
revenues were $0.9 million in both 2005 and 2004.
Retail net sales in the third quarter of 2005 were $6.0 million, compared with
$5.6 million in 2004. Same store sales in the quarter increased 5.5%. The
Company opened two new stores in 2005 and closed one store in the first quarter
of 2005. The Company's store in Metairie, Louisiana closed August 27, 2005 as a
result of Hurricane Katrina, and the Company has not yet determined when the
store will reopen. The impact of this is not material to the Company's
financial statements.
Wholesale sales by brand for the three- and nine-month periods ended September
30, 2005 and 2004 were as follows:
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
------------------------------------ --------------------------------------
2005 2004 % CHANGE 2005 2004 % CHANGE
----------- ----------- -------- ------------ ------------ --------
North American Sales
Stacy Adams $13,988,421 $15,494,168 -9.7% $ 41,466,071 $44,728,884 -7.3%
Nunn Bush 18,807,589 18,524,755 1.5% 52,442,425 56,887,797 -7.8%
Florsheim 14,262,812 14,242,084 0.2% 38,239,495 41,839,606 -8.6%
Foreign Sales 1,205,188 1,071,606 12.5% 3,227,729 2,731,814 18.2%
----------- ----------- ------------ ------------
Total $48,264,010 $49,332,613 -2.2% $135,375,720 $146,188,101 -7.4%
Sales of the Stacy Adams brand were down in the current quarter due to lower
sales of the SAO by Stacy Adams sub brand, resulting from fashion trends in the
casual "streetwear" market shifting toward athletic footwear. Nunn Bush net
sales stabilized this quarter. Earlier this year, there was some loss of volume
at Nunn Bush due to product transitions out of old product at some major
accounts. The Company is now out of that transition period and the new programs
have been well received. Florsheim sales continue to be affected by the
Company's decision in the first quarter to discontinue the FLS product line in
the United States. FLS is a lower priced sub brand in the Florsheim division.
Net sales of FLS decreased $1.8 million, or 79.7% for the quarter. Net sales of
all other Florsheim products were up 14.6% in the quarter as a result of the
opening of a number of small to mid-sized accounts and an increase in business
with one major account.
For the nine months ended September 30, consolidated net sales were $157.8
million in 2005, down 5.7% from last year's $167.4 million. Sales in the
Company's wholesale division, which includes both wholesale sales and licensing
revenue, were $138.5 million in 2005 and $148.8 million in 2004. Wholesale net
sales were $135.4 million for the nine months ended September 30, 2005 as
compared with $146.2 million for the same period in 2004. Licensing revenues
were $3.1 million for the nine months ended September 30, 2005 and $2.6 million
for the same period in 2004. Retail net sales for the nine months ended
September 30, 2005 were $19.3 million as compared with $18.6 million for the
same period in 2004. Same store sales increased 5.5%.
-8-
For the nine months ended September 30, 2005, wholesale sales were down across
all brands in comparison to 2004. As discussed above, sales of Stacy Adams were
down due to soft sales in the SAO casual brand. Sales of Nunn Bush were lower as
a result of the product transitions discussed earlier. Sales of Florsheim were
down due to the discontinuance of the FLS product line in the United States. Net
sales of FLS were down $4.7 million or 64.8% from the prior year. Net sales of
all other Florsheim products increased 2.9% in 2005 compared with 2004. The
Company estimates that the effect on total Florsheim sales resulting from the
discontinuance of FLS in the United States will be $7 million for 2005 and
approximately $3 million in 2006.
Overall gross earnings as a percent of net sales for the three months ended
September 30, 2005 was 35.5% compared with 35.8% in the prior year period. Gross
earnings as a percent of net sales in the wholesale division was 31.8% in 2005
compared with 32.6% in 2004. Gross earnings as a percent of net sales in the
retail division was 65.5%, up 130 basis points from 64.2% in the third quarter
of 2004. Overall gross earnings as a percent of net sales for the nine months
ended September 30 increased slightly from 35.5% in 2004 to 35.6% in 2005. For
the nine months ended September 30, wholesale gross earnings as a percent of net
sales was 31.6% in 2005 compared with 32.0% in 2004. Retail gross earnings as a
percent of net sales for the same period increased 140 basis points from 63.3%
in 2004 to 64.7% in 2005. The decrease in wholesale gross margins was across all
brands and was due to changes in product mix.
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-month periods ended September 30, 2005 and 2004, were $1,498,000
and $1,649,000, respectively. For the nine-month periods ended September 30,
2005 and 2004, the Company's distribution costs were $4,561,000 and $4,977,000,
respectively. These costs 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 21.7% versus 23.1% in
2004. Wholesale selling and administrative expenses as a percent of net
wholesale sales decreased to 18.3% in 2005 from 20.0% in 2004, and retail
selling and administrative expenses as a percent of net sales decreased to 51.7%
in 2005 from 54.7% in 2004. The decrease in wholesale expenses as a percent of
sales for the third quarter of 2005 was due principally to lower salaries and
other general administrative expenses in 2005 due to the Company's continued
efforts to control costs.
For the nine months ended September 30, selling and administrative expenses as a
percent of net sales were 22.5% in 2005 versus 22.4% in 2004. Wholesale selling
and administrative expenses as a percent of net wholesale sales to date in 2005
were 19.3% in both 2005 and 2004. Retail selling and administrative expenses as
a percent of net sales decreased to 48.3% in 2005 from 50.1% in 2004. The
decrease in retail expenses as a percent of sales for both the three- and
nine-month periods ended September 30, 2005 reflects the impact of higher sales
on fixed costs.
-9-
Interest income for the quarter ended September 30, 2005 increased $179,000
compared with the same period in 2004 as a result of higher cash and marketable
securities balances.
The effective tax rate for the three- and nine-month periods ended September 30,
2005 was 38.7% and 38.2%, respectively, which was comparable to 38.2% for both
periods in the prior year.
LIQUIDITY & CAPITAL RESOURCES
The Company's primary source of liquidity is its cash and short-term marketable
securities, which aggregated approximately $13.5 million at September 30, 2005
as compared with $10.7 million at December 31, 2004. To date in 2005, cash and
cash equivalents increased approximately $2.4 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 nine months ended September
30, 2005 was $23.0 million higher than the same period in 2004. The increase was
primarily due to a decrease in inventory in 2005, as compared with 2004. This
decrease 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. Annualized inventory turns for the third quarter were
4.0 in 2005 versus 2.8 in 2004.
Net cash used for investing activities increased $14.7 million, mainly due to
the purchases of marketable securities. The Company continues to invest in
municipal securities.
Net cash used for financing activities increased $2.7 million, due to the
repurchase of the Company's common stock and higher repayments of borrowings in
2005 compared with the prior year period.
As of September 30, 2005, the Company had a total of $50 million available under
its existing borrowing facility, of which total borrowings were $9.5 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
September 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.
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FORWARD-LOOKING STATEMENTS
This report contains certain forward-looking statements with respect to the
Company's outlook for the future. These statements represent the Company's
reasonable judgment with respect to future events and are subject to risks and
uncertainties that could cause actual results to differ materially. These
factors could include significant adverse changes in the economic conditions
affecting overseas suppliers or the men's footwear markets served by the
Company, as well as changes in interest rates, discount rates, or currency
exchange rates.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes from those reported in the Company'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
September 30, 2005.
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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
------ --------- --------- -------------------- ---------------
07/01/05 - 07/31/05 -- $ -- -- 1,572,199
08/01/05 - 08/31/05 4,633 $19.05 4,633 1,567,566
09/01/05 - 09/30/05 2,454 $18.98 2,454 1,565,112
----- -----
TOTAL 7,087 $19.03 7,087 1,565,112
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.
November 2, 2005 /s/ John F. Wittkowske
Date ----------------------------------------
John F. Wittkowske
Senior Vice President and
Chief Financial Officer
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WEYCO GROUP, INC.
(THE "REGISTRANT")
(COMMISSION FILE NO. 0-9068)
EXHIBIT INDEX
TO
CURRENT REPORT ON FORM 10-Q
DATE OF SEPTEMBER 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