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) <TABLE> <CAPTION> June 30, December 31, 2005 2004 ------------ ------------ <S> <C> <C> 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 ============ ============ </TABLE> 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) <TABLE> <CAPTION> Three Months ended June 30 Six Months ended June 30 ------------------------------ ------------------------------ 2005 2004 2005 2004 ------------- ------------- ------------- ------------- <S> <C> <C> <C> <C> 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 ============= ============= ============= ============= </TABLE> * 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) <TABLE> <CAPTION> 2005 2004 ------------ ------------ <S> <C> <C> 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 ============ ============ </TABLE> 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: <TABLE> <CAPTION> Three Months Ended June 30, Six Months Ended June 30, --------------------------- ------------------------- 2005 2004 2005 2004 ----------- ----------- ----------- ------------ <S> <C> <C> <C> <C> 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 =========== =========== =========== ============ </TABLE> 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: <TABLE> <CAPTION> Three Months Ended June 30, Six Months Ended June 30, --------------------------- ------------------------- 2005 2004 2005 2004 ---------- ---------- --------- --------- <S> <C> <C> <C> <C> 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 </TABLE> 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: <TABLE> <CAPTION> Wholesale Distribution Retail Total ------------ ------------ ------------- <S> <C> <C> <C> 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 </TABLE> 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. <TABLE> <CAPTION> Three Months ended June 30, Six Months ended June 30, 2005 2004 2005 2004 ---------- ---------- ----------- ---------- <S> <C> <C> <C> <C> 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 </TABLE> 6. COMPREHENSIVE INCOME Comprehensive income for the periods ended June 30, 2005 and 2004 is as follows (in thousands): <TABLE> <CAPTION> Three Months Ended June 30, Six Months ended June 30, 2005 2004 2005 2004 -------- -------- -------- -------- <S> <C> <C> <C> <C> 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 </TABLE> The components of Accumulated Other Comprehensive Income as recorded on the accompanying balance sheets are as follows (in thousands): <TABLE> <CAPTION> June 30, December 31, 2005 2004 -------- ------------ <S> <C> <C> Foreign currency translation adjustments $ 222 $ 438 </TABLE> 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: <TABLE> <CAPTION> THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, 2005 2004 % CHANGE 2005 2004 % CHANGE ----------- ----------- -------- ----------- ----------- -------- <S> <C> <C> <C> <C> <C> <C> 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% </TABLE> 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-
<TABLE> <CAPTION> 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 - ---------------------- --------- --------- --------------------- ------------------ <S> <C> <C> <C> <C> 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 </TABLE> 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 <TABLE> <CAPTION> INCORPORATED EXHIBIT HEREIN BY FILED NUMBER DESCRIPTION REFERENCE TO HEREWITH - ------ --------------------------------------------- ------------ -------- <S> <C> <C> <C> 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 </TABLE>