UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C.  20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended    June 30, 2010
  


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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes ¨   No ¨

    Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer ¨   Accelerated Filer x   Non-Accelerated Filer ¨   Smaller Reporting Company ¨

    Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  ¨   No x

  As of August 2, 2010, there were 11,323,216 shares of common stock outstanding.



PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements.
 
The consolidated 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,
 
   
2010
   
2009
 
   
(Dollars in thousands)
 
ASSETS:
 
Cash and cash equivalents
  $ 13,109     $ 30,000  
Marketable securities, at amortized cost
    5,529       3,954  
Accounts receivable, net
    31,518       33,020  
Accrued income tax receivable
    735       -  
Inventories
    37,266       40,363  
Prepaid expenses and other current assets
    3,497       3,922  
Total current assets
    91,654       111,259  
                 
Marketable securities, at amortized cost
    59,342       42,823  
Deferred income tax benefits
    2,509       2,261  
Other assets
    15,374       13,070  
Property, plant and equipment, net
    26,011       26,872  
Trademark
    10,868       10,868  
Total assets
  $ 205,758     $ 207,153  
                 
LIABILITIES AND EQUITY:
 
Accounts payable
  $ 6,591     $ 9,202  
Dividend payable
    1,812       1,693  
Accrued liabilities
    7,675       7,846  
Accrued income taxes
    -       1,241  
Deferred income tax liabilities
    351       295  
Total current liabilities
    16,429       20,277  
                 
Long-term pension liability
    19,343       18,533  
                 
Common stock
    11,353       11,333  
Capital in excess of par value
    18,242       16,788  
Reinvested earnings
    147,140       146,241  
Accumulated other comprehensive loss
    (10,578 )     (10,066 )
Total Weyco Group, Inc. equity
    166,157       164,296  
Noncontrolling interest
    3,829       4,047  
Total equity
    169,986       168,343  
Total liabilities and equity
  $ 205,758     $ 207,153  

The accompanying notes to consolidated condensed financial statements (unaudited) are an integral part of these financial statements.

 
1

 

WEYCO GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009 (UNAUDITED)

   
Three Months Ended June 30,
   
Six Months Ended June 30,
 
   
2010
   
2009
   
2010
   
2009
 
   
(In thousands, except per share amounts)
 
                         
Net sales
  $ 48,724     $ 50,053     $ 109,762     $ 108,961  
Cost of sales
    30,066       31,142       67,696       70,359  
Gross earnings
    18,658       18,911       42,066       38,602  
                                 
Selling and administrative expenses
    16,972       16,709       34,939       33,066  
Earnings from operations
    1,686       2,202       7,127       5,536  
                                 
Interest income
    607       566       1,105       1,019  
Interest expense
    (87 )     (2 )     (87 )     (25 )
Other income and (expense), net
    (351 )     893       (218 )     799  
                                 
Earnings before provision for income taxes
    1,855       3,659       7,927       7,329  
                                 
Provision for income taxes
    774       1,165       2,864       2,475  
                                 
Net earnings
    1,081       2,494       5,063       4,854  
                                 
Net (loss) earnings attributable to noncontrolling interest
    (201 )     309       (76 )     164  
                                 
Net earnings attributable to Weyco Group, Inc.
  $ 1,282     $ 2,185     $ 5,139     $ 4,690  
                                 
Weighted average shares outstanding
                               
Basic
    11,326       11,253       11,309       11,266  
Diluted
    11,533       11,542       11,514       11,513  
                                 
Earnings per share
                               
Basic
  $ 0.11     $ 0.19     $ 0.45     $ 0.42  
Diluted
  $ 0.11     $ 0.19     $ 0.45     $ 0.41  
                                 
Cash dividends per share
  $ 0.16     $ 0.15     $ 0.31     $ 0.29  

The accompanying notes to consolidated condensed financial statements (unaudited) are an integral part of these financial statements.

 
2

 

WEYCO GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009 (UNAUDITED)

   
2010
   
2009
 
   
(Dollars in thousands)
 
CASH FLOWS FROM OPERATING ACTIVITIES:
           
Net earnings
  $ 5,063     $ 4,854  
Adjustments to reconcile net earnings to net cash provided by operating activities -
               
Depreciation
    1,386       1,435  
Amortization
    60       47  
Net foreign currency transaction losses (gains)
    213       (758 )
Deferred income taxes
    (475 )     (212 )
Stock-based compensation
    569       429  
Pension expense
    1,624       1,424  
Loss on disposal of fixed assets
    -       14  
Increase in cash surrender value of life insurance
    (120 )     (114 )
Change in operating assets and liabilities -
               
Accounts receivable
    1,995       423  
Inventories
    2,843       10,724  
Prepaids and other current assets
    175       1,136  
Accounts payable
    (2,574 )     (1,514 )
Accrued liabilities and other
    (900 )     1,488  
Accrued income taxes
    (1,972 )     1,406  
Net cash provided by operating activities
    7,887       20,782  
                 
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Acquisition of businesses
    (2,509 )     (9,320 )
Purchase of marketable securities
    (21,802 )     (405 )
Proceeds from maturities of marketable securities
    3,648       4,245  
Life insurance premiums paid
    (155 )     (155 )
Purchase of property, plant and equipment
    (646 )     (590 )
Net cash used for investing activities
    (21,464 )     (6,225 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES:
               
Cash received from noncontrolling interest
    -       1,314  
Cash dividends paid
    (3,401 )     (3,184 )
Shares purchased and retired
    (753 )     (2,440 )
Proceeds from stock options exercised
    607       520  
Net (repayments) borrowings under revolving credit agreement
    -       (1,250 )
Income tax benefits from share-based compensation
    331       134  
Net cash used for financing activities
    (3,216 )     (4,906 )
                 
Effect of exchange rate changes on cash
    (98 )     -  
                 
Net (decrease) increase in cash and cash equivalents
    (16,891 )     9,651  
                 
CASH AND CASH EQUIVALENTS at beginning of period
  $ 30,000     $ 11,486  
                 
CASH AND CASH EQUIVALENTS at end of period
  $ 13,109     $ 21,137  
                 
SUPPLEMENTAL CASH FLOW INFORMATION:
               
Income taxes paid, net of refunds
  $ 5,352     $ 1,183  
Interest paid
  $ 82     $ 28  

The accompanying notes to consolidated condensed financial statements (unaudited) are an integral part of these financial statements.

 
3

 

NOTES:

1.
Financial Statements

In the opinion of management, the accompanying unaudited consolidated condensed financial statements contain all adjustments necessary to present fairly the financial position, results of operations and cash flows for the periods presented. The results of operations for the three and six months ended June 30, 2010 are not necessarily indicative of the results for the full year.

2.
Acquisition

 
On April 28, 2010, the Company acquired certain assets, including the Umi brand name, intellectual property and accounts receivable, from Umi LLC, a children’s footwear company, for an aggregate price of approximately $2.5 million.  The acquisition has been accounted for in these financial statements as a business combination under Accounting Standards Codification (ASC) 805, Business Combinations (ASC 805).  The Company has preliminarily allocated the purchase price to accounts receivable and other assets.  The operating results related to the Umi acquisition have been included in the Company’s consolidated financial statements from the date of acquisition.  The Umi operating results are included in the Company’s North American wholesale operations, and the current quarter results primarily relate to operating expenses as sales of Umi in the current quarter were minimal due to the seasonality of the business.  Shipments of Umi autumn/winter product will begin in the third quarter of 2010.  Additional disclosures required by ASC 805 have not been provided as the acquisition was not material to the Company’s financial statements.

3.
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,
 
   
2010
   
2009
   
2010
   
2009
 
   
(In thousands, except per share amounts)
 
Numerator:
                       
Net earnings attributable to Weyco Group, Inc.
  $ 1,282     $ 2,185     $ 5,139     $ 4,690  
                                 
Denominator:
                               
Basic weighted average shares outstanding
    11,326       11,253       11,309       11,266  
Effect of dilutive securities:
                               
Employee stock-based awards
    207       289       205       247  
Diluted weighted average shares outstanding
    11,533       11,542       11,514       11,513  
                                 
Basic earnings per share
  $ 0.11     $ 0.19     $ 0.45     $ 0.42  
                                 
Diluted earnings per share
  $ 0.11     $ 0.19     $ 0.45     $ 0.41  

Diluted weighted average shares outstanding for the three and six months ended June 30, 2010 excluded outstanding options to purchase 284,050 shares of common stock at a weighted average price of $28.46, as they were antidilutive.   Diluted weighted average shares outstanding for the three and six months ended June 30, 2009 excluded outstanding options to purchase 247,900 shares of common stock at a weighted average price of $29.16, as they were antidilutive.

 
4

 

4.
Segment Information

The Company has two reportable segments: North American wholesale operations (“wholesale”) and North American retail operations (“retail”).  The chief operating decision maker, the Company’s Chief Executive Officer, evaluates the performance of its segments based on earnings from operations and accordingly, interest income, interest expense and other income and expense are not allocated to the segments.  The “other” category in the table below includes the Company’s wholesale and retail operations in Australia, South Africa, Asia Pacific and Europe, which do not meet the criteria for separate reportable segment classification.  Summarized segment data for the three and six months ended June 30, 2010 and 2009 was:

Three Months Ended
                       
June 30,
 
Wholesale
   
Retail
   
Other
   
Total
 
         
(Dollars in thousands)
       
2010
                       
Product sales
  $ 34,808     $ 5,301     $ 8,145     $ 48,254  
Licensing revenues
    470       -       -       470  
Net sales
  $ 35,278     $ 5,301     $ 8,145     $ 48,724  
Earnings from operations
  $ 1,750     $ (160 )   $ 96     $ 1,686  
                                 
2009
                               
Product sales
  $ 35,373     $ 5,431     $ 8,697     $ 49,501  
Licensing revenues
    552       -       -       552  
Net sales
  $ 35,925     $ 5,431     $ 8,697     $ 50,053  
Earnings from operations
  $ 1,935     $ (138 )   $ 405     $ 2,202  
                                 
Six Months Ended
                               
June 30,
 
Wholesale
   
Retail
   
Other
   
Total
 
           
(Dollars in thousands)
         
2010
                               
Product sales
  $ 78,896     $ 10,575     $ 19,241     $ 108,712  
Licensing revenues
    1,050       -       -       1,050  
Net sales
  $ 79,946     $ 10,575     $ 19,241     $ 109,762  
Earnings from operations
  $ 6,142     $ (349 )   $ 1,334     $ 7,127  
                                 
2009
                               
Product sales
  $ 81,006     $ 10,671     $ 15,983     $ 107,660  
Licensing revenues
    1,301       -       -       1,301  
Net sales
  $ 82,307     $ 10,671     $ 15,983     $ 108,961  
Earnings from operations
  $ 5,229     $ (411 )   $ 718     $ 5,536  

5.
Investments

As noted in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009, all of the Company’s investments are classified as held-to-maturity securities and are reported at amortized cost pursuant to ASC 320, Investments – Debt and Equity Securities, as the Company has the intent and ability to hold all security investments to maturity.

 
5

 

The amortized cost of all marketable securities as of June 30, 2010 as reported in the Consolidated Condensed Balance Sheets was $64.9 million.  The estimated fair market value of those marketable securities as of June 30, 2010 was $66.3 million.  The unrealized gains and losses on marketable securities as of June 30, 2010, were $1.8 million and $415,000, respectively.  The estimated market values provided are level 2 valuations as defined by ASC 820, Fair Value Measurements and Disclosures.  The Company has reviewed its portfolio of marketable securities as of June 30, 2010 and has determined that no other-than-temporary market value impairments exist.

6.
Employee Retirement Plans

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

   
Three Months Ended June 30,
   
Six Months Ended June 30,
 
   
2010
   
2009
   
2010
   
2009
 
   
(Dollars in thousands)
   
(Dollars in thousands)
 
Benefits earned during the period
  $ 300     $ 238     $ 585     $ 476  
Interest cost on projected benefit obligation
    612       536       1,224       1,072  
Expected return on plan assets
    (463 )     (383 )     (910 )     (766 )
Net amortization and deferral
    362       321       725       642  
Net pension expense
  $ 811     $ 712     $ 1,624     $ 1,424  

On July 1, 2010, the Company made a $1.5 million contribution to its defined benefit pension plan.

7.
Share-Based Compensation Plans

During the three and six months ended June 30, 2010, the Company recognized approximately $285,000 and $569,000, respectively, of compensation expense associated with stock option and restricted stock awards granted in the years 2006 through 2009.  During the three and six months ended June 30, 2009, the Company recognized approximately $210,000 and $429,000, respectively, of compensation expense associated with stock option and restricted stock awards granted in the years 2006 through 2008.

The following table summarizes the stock option activity under the Company’s plans for the six-month period ended June 30, 2010:

         
Weighted
   
Wtd. Average
       
         
Average
   
Remaining
   
Aggregate
 
         
Exercise
   
Contractual
   
Intrinsic
 
   
Shares
   
Price
   
Term (Years)
   
Value*
 
Outstanding at December 31, 2009
    1,195,276     $ 18.68              
Exercised
    (52,884 )   $ 11.47              
Forfeited
    350     $ 25.50              
Outstanding at June 30, 2010
    1,142,742     $ 19.01       3.00     $ 5,974,600  
Exercisable at June 30, 2010
    792,917     $ 15.96       2.67     $ 5,974,600  

* The aggregate intrinsic value of outstanding and exercisable stock options is defined as the
difference between the market value at June 30, 2010 of $22.78 and the exercise price.

 
6

 

The following table summarizes stock option activity for the three and six months ended June 30, 2010 and 2009:

   
Three Months Ended June 30,
   
Six Months Ended June 30,
 
   
2010
   
2009
   
2010
   
2009
 
   
(Dollars in thousands)
 
(Dollars in thousands)
Total intrinsic value of stock options exercised
  $ 453     $ 920     $ 849     $ 930  
Cash received from stock option exercises
  $ 455     $ 508     $ 607     $ 520  
Income tax benefit from the exercise of stock options
  $ 177     $ 359     $ 331     $ 363  

The following table summarizes the Company’s restricted stock award activity for the six- month period ended June 30, 2010:

   
Shares of
   
Average
   
Remaining
   
Aggregate
 
   
Restricted
   
Grant Date
   
Contractual
   
Intrinsic
 
   
Stock
   
Fair Value
   
Term (Years)
   
Value*
 
Non-vested - December 31, 2009
    46,670     $ 25.56                  
Issued
    -       -                  
Vested
    -       -                  
Forfeited
    -       -                  
Non-vested June 30, 2010
    46,670     $ 25.56       2.08     $ 783,000  

* The aggregate intrinsic value of non-vested restricted stock is the number of shares
outstanding valued at the June 30, 2010 market value of $22.78.

8.
Short-Term Borrowings
 
As of June 30, 2010, the Company had a total of $50 million available under its borrowing facility, under which there were no outstanding borrowings.  The facility includes one financial covenant that specifies a minimum level of net worth.  The Company was in compliance with the covenant at June 30, 2010.  The facility expired on April 30, 2010, and was renewed for another term that expires April 30, 2011.

9.
Comprehensive Income

Comprehensive income for the three and six months ended June 30, 2010 and 2009 was as follows:

   
Three Months Ended June 30,
   
Six Months Ended June 30,
 
   
2010
   
2009
   
2010
   
2009
 
   
(Dollars in thousands)
   
(Dollars in thousands)
 
Net earnings
  $ 1,081     $ 2,494     $ 5,063     $ 4,854  
Foreign currency translation adjustments
    (713 )     902       (954 )     727  
Pension liability, net of tax
    221       196       442       392  
Total comprehensive income
  $ 589     $ 3,592     $ 4,551     $ 5,973  

 
7

 

The components of accumulated other comprehensive loss as recorded on the accompanying balance sheets were as follows:

   
June 30,
   
December 31,
 
   
2010
   
2009
 
   
(Dollars in thousands)
 
Foreign currency translation adjustments
  $ 167     $ 1,121  
Pension liability, net of tax
    (10,745 )     (11,187 )
Total accumulated other comprehensive loss
  $ (10,578 )   $ (10,066 )

10.
Equity

A reconciliation of the Company’s equity for the six months ended June 30, 2010 follows:

                     
Accumulated
       
         
Capital in
         
Other
       
   
Common
   
Excess of
   
Reinvested
   
Comprehensive
   
Noncontrolling
 
   
Stock
   
Par Value
   
Earnings
   
Income/(Loss)
   
Interest
 
   
(Dollars in thousands)
 
                               
Balance, December 31, 2009
  $ 11,333     $ 16,788     $ 146,241     $ (10,066 )   $ 4,047  
                                         
Net earnings
                    5,139               (76 )
Foreign currency translation adjustments
                            (954 )     (142 )
Pension liability adjustment, net of tax
                            442          
Cash dividends declared
                    (3,520 )                
Stock options exercised
    53       554                          
Stock-based compensation expense
            569                          
Income tax benefit from stock-based compensation
            331                          
Shares purchased and retired
    (33 )             (720 )                
                                         
Balance, June 30, 2010
  $ 11,353     $ 18,242     $ 147,140     $ (10,578 )   $ 3,829  

 
8

 

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

FORWARD-LOOKING STATEMENTS

This report contains certain forward-looking statements with respect to the Company’s outlook for the future.  These statements represent the Company's reasonable judgment with respect to future events and are subject to risks and uncertainties that could cause actual results to differ materially.  The reader is cautioned that these forward-looking statements are subject to a number of risks, uncertainties or other factors that may cause (and in some cases have caused) actual results to differ materially from those described in the forward-looking statements. These risks and uncertainties include, but are not limited to, the risk factors described under Item 1A, “Risk Factors,” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2009.

GENERAL

The Company is a distributor of men’s casual, dress and fashion shoes.  The principal brands of shoes sold by the Company are “Florsheim,” “Nunn Bush,”  “Stacy Adams” and “Umi.”   Inventory is purchased from third-party overseas manufacturers. The majority of foreign-sourced purchases are denominated in U.S. dollars. The Company has two reportable segments, North American wholesale operations (“wholesale”) and North American retail operations (“retail”).  In the wholesale segment, the Company’s products are sold to shoe specialty stores, department stores and clothing retailers, primarily in the United States and Canada.  The Company also has licensing agreements with third parties who sell its branded apparel, accessories and specialty footwear in the United States, as well as its footwear in Mexico and certain markets overseas.  Licensing revenues are included in the Company’s wholesale segment.  The Company’s retail segment consisted of 35 Company-owned retail stores in the United States and an Internet business as of June 30, 2010.  Sales in retail outlets are made directly to consumers by Company employees.  The Company’s “other” operations include the Company’s wholesale and retail operations in Australia, South Africa, Asia Pacific and Europe.  The majority of the Company’s operations are in the United States, and its results are primarily affected by the economic conditions and the retail environment in the United States.

On April 28, 2010, the Company acquired certain assets, including the Umi brand name, intellectual property and accounts receivable, from Umi LLC, a children’s footwear company, for an aggregate price of approximately $2.5 million.  The Company has preliminarily allocated the purchase price to accounts receivable and other assets.  The operating results related to the Umi acquisition have been included in the Company’s consolidated financial statements from the date of acquisition.  The Umi operating results are included in the Company’s North American wholesale operations, and the current quarter results primarily relate to operating expenses as sales of Umi in the current quarter were minimal due to the seasonality of the business.  Shipments of Umi autumn/winter product will begin in the third quarter of 2010.

On January 23, 2009, the Company acquired a majority interest in a new subsidiary, Florsheim Australia.  Accordingly, the Company’s year to date results at June 30, 2010 included Florsheim Australia’s operations for the entire first six months, while the year to date results at June 30, 2009 only included the consolidated financial statements of Florsheim Australia from January 23 through June 30, 2009.

 
9

 

CONSOLIDATED OVERVIEW

Second Quarter Highlights

Consolidated net sales for the second quarter of 2010 were $48.7 million, down 3% from last year’s second quarter net sales of $50.1 million.  The Company’s consolidated earnings from operations for this year’s second quarter were $1.7 million, down from $2.2 million last year.

Consolidated earnings before tax were $1.9 million in the second quarter of 2010 compared with $3.7 million for the same period in 2009.  This decrease was caused by the lower earnings from operations and a net decrease in other income and expense this quarter compared with last year.  This year’s other income and expense included foreign exchange transaction losses of $344,000 on intercompany loans between the Company’s U.S. business and Florsheim Australia.  Last year’s other income and expense included foreign exchange transaction gains of $870,000 on the intercompany loans.

The Company’s net earnings this quarter were $1.3 million, down from $2.2 million in the same quarter last year.  Diluted earnings per share for the three months ended June 30, 2010 were $.11 per share compared with $.19 per share in last year’s second quarter.

Year to Date Highlights

Consolidated net sales for the first half of 2010 were $109.8 million compared with $109.0 million last year.  The Company’s consolidated earnings from operations for the first six months of 2010 were $7.1 million, up from $5.5 million last year.  The Company achieved higher gross earnings from operations this year compared with last year primarily as a result of higher gross margins in its wholesale segment.

The Company’s consolidated year to date earnings before tax at June 30, 2010 were $7.9 million compared with $7.3 million at June 30, 2009.  This year’s earnings before tax included year to date foreign exchange transaction losses of $217,000 on intercompany loans between the Company’s U.S. business and Florsheim Australia while last year’s earnings before tax included foreign exchange transaction gains of $758,000 on these same loans.

Consolidated net earnings for the six months ended June 30, 2010 were $5.1 million as compared with last year’s $4.7 million.  Diluted earnings per share to-date through June 30, 2010 were $.45, up from $.41 for the same period in 2009.

Financial Position Highlights

The Company’s cash and marketable securities totaled $78.0 million at June 30, 2010 compared with $76.8 million at December 31, 2009.  The Company had no outstanding debt at June 30, 2010.

 
10

 

SEGMENT ANALYSIS

Net sales and earnings from operations for the Company’s segments in the three and six months ended June 30, 2010 and 2009 were as follows:

   
Three Months Ended June 30,
         
Six Months Ended June 30,
       
   
2010
   
2009
   
% Change
   
2010
   
2009
   
% Change
 
   
(Dollars in thousands)
         
(Dollars in thousands)
       
Net Sales
                                   
North American Wholesale
  $ 35,278     $ 35,925       -2 %   $ 79,946     $ 82,307       -3 %
North American Retail
    5,301       5,431       -2 %     10,575       10,671       -1 %
Other
    8,145       8,697       -6 %     19,241       15,983       20 %
Total
  $ 48,724     $ 50,053       -3 %   $ 109,762     $ 108,961       1 %
                                                 
Earnings from Operations
                                               
North American Wholesale
  $ 1,750     $ 1,935       -10 %   $ 6,142     $ 5,229       17 %
North American Retail
    (160 )     (138 )     -16 %     (349 )     (411 )     15 %
Other
    96       405       -76 %     1,334       718       86 %
Total
  $ 1,686     $ 2,202       -23 %   $ 7,127     $ 5,536       29 %

North American Wholesale Segment

Net Sales

Sales in the Company’s wholesale segment for the three and six months ended June 30, 2010 and 2009 were as follows:

North American Wholesale Segment Net Sales
                         
                                     
   
Three Months Ended June 30,
         
Six Months Ended June 30,
       
   
2010
   
2009
   
% Change
   
2010
   
2009
   
% Change
 
   
(Dollars in thousands)
         
(Dollars in thousands)
       
North American Net Sales
                                   
Stacy Adams
  $ 10,192     $ 9,982       2 %   $ 26,603     $ 25,436       5 %
Nunn Bush
    14,433       14,447       0 %     30,314       32,518       -7 %
Florsheim
    10,161       10,944       -7 %     21,957       23,052       -5 %
Umi
    22       -       n/a       22       -       n/a  
Total North American Wholesale
  $ 34,808     $ 35,373       -2 %   $ 78,896     $ 81,006       -3 %
Licensing
    470       552       -15 %     1,050       1,301       -19 %
Total North American Wholesale Segment
  $ 35,278     $ 35,925       -2 %   $ 79,946     $ 82,307       -3 %

The quarter and year to date growth at Stacy Adams this year was achieved through stronger business with department stores and national shoe chains.  Year to date net sales of Nunn Bush were down this year primarily due to reduced shipments of product to off-price retailers.  Florsheim net sales were down in the second quarter and first half of 2010 compared with the same periods last year due to lower sales to national footwear chains.

 
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Earnings from Operations

North American wholesale segment earnings from operations in the quarter ended June 30, 2010 were $1.8 million, compared with $1.9 million in last year’s second quarter.  For the six months ended June 30, North American wholesale segment earnings from operations were $6.1 million this year compared with $5.2 million last year.  The year to date increase this year was achieved through higher gross margins, which were offset slightly by the decrease in net sales this year.

Wholesale gross earnings were 30.3% of net sales in the second quarter of 2010 compared with 29.6% in last year’s second quarter.  For the six months ended June 30, wholesale gross earnings were 30.6% in 2010 and 27.9% in 2009.  The year to date increase this year was due to higher selling prices on select products and an overall reduction this year in sales to off-price retailers.

The Company’s cost of sales does not include distribution costs (e.g., receiving, inspection or warehousing costs).  Distribution costs were approximately $2.0 million for each of the three- month periods ended June 30, 2010 and 2009.  For the six months ended June 30, 2010 and 2009, distribution costs were approximately $4.0 million in each six month period.  These costs were included in selling and administrative expenses.  The Company’s gross earnings may not be comparable to other companies, as some companies may include distribution costs in cost of sales.

North American wholesale segment selling and administrative expenses include, and are primarily related to, distribution costs, salaries and commissions, advertising costs, employee benefit costs and depreciation.  Wholesale selling and administrative expenses for the quarter and first half of 2010 were approximately level with the same periods in 2009.  As a percent of net sales, wholesale selling and administrative expenses were 26.6% this quarter compared with 25.7% in the same quarter last year.  For the six months ended June 30, wholesale selling and administrative expenses were 24.1% of net sales in 2010 and 23.1% of net sales in 2009.  The percentage increase for both comparative periods reflects the fixed nature of most of the wholesale selling and administrative expenses.

North American Retail Segment

Net Sales

Second quarter net sales in the Company’s North American retail segment were down 2% compared with last year and down 1% for the six months ended June 30, 2010 compared with the same period last year.  There was one fewer store at June 30, 2010 as compared with June 30, 2009.  One retail store closed during the second quarter of 2010, and the Company plans to close one additional store in the fourth quarter this year.  Same store sales were down 1% for the second quarter and were flat for the first half of 2010.  The Company continues to evaluate its stores and the retail landscape on an on-going basis and make adjustments when necessary.

Earnings from Operations

The North American retail segment incurred operating losses of $160,000 and $138,000 in the quarters ended June 30, 2010 and 2009, respectively, and $349,000 and $411,000 for the six-month periods ended June 30, 2010 and 2009, respectively.  Both gross margins and selling and administrative expenses were relatively flat between periods.

 
12

 

North American retail segment gross earnings as a percent of net retail sales were approximately level with the prior year at 64.1% for the three months ended June 30, 2010 and 64.6% for the six months ended June 30, 2010.  Retail selling and administrative expenses as a percent of retail sales were 67.2% in the current quarter and 66.5% in last year’s second quarter.  To date in 2010, retail selling and administrative expenses were 67.9% of net sales compared with 68.2% of net sales for first half of 2009.  Selling and administrative expenses at the retail segment include and are primarily related to, rent and occupancy costs, employee costs and depreciation.  Many retail selling and administrative expenses are fixed in nature.

Other

The Company’s other businesses include its wholesale and retail operations in Australia, South Africa, Asia Pacific and Europe.  The decrease in other net sales for the quarter was due to a decrease in the net sales of the Australian wholesale business. The increase in other net sales for the six months ended June 30, 2010 was due mainly to the weaker U.S. dollar this year compared to 2009, and also due to the additional 23 days of Florsheim Australia’s operations this year.

Other income and expense and taxes

Other income and expense for the second quarter of 2010 was a net expense of $351,000, as compared to net income of $893,000 for the same period of 2009.  For the six months ended June 30, 2010, other income and expense was a net expense of $218,000 compared to net income of $799,000 last year.  The decrease this year primarily related to foreign currency transaction gains and losses on intercompany loans denominated in U.S. dollars between the Company’s U.S. business and Florsheim Australia.  In 2010, there were foreign currency transaction losses on these loans of $344,000 for the quarter and $217,000 year to date.  In 2009, there were foreign currency transaction gains of $870,000 for the quarter and $758,000 year to date.

The Company’s effective tax rate for the quarter ended June 30, 2010 was 41.7%, as compared to 31.8% for the same period of 2009.  For the six months ended June 30, 2010, the effective tax rate was 36.1% as compared with 33.8% for the same period of 2009.  The higher effective rates this year were due to various foreign taxes on foreign earnings and dividends.

LIQUIDITY AND CAPITAL RESOURCES

The Company’s primary source of liquidity is its cash and short-term marketable securities.  During the first half of 2010, the Company generated $7.9 million in cash from operating activities compared with $20.8 million in the same period one year ago.  This decrease was primarily due to a smaller decrease in inventory levels in the first half of 2010 compared with the same period of 2009.  Cash from operations in 2010 was used mainly to pay dividends and to fund the Umi acquisition (see Note 2).  Additionally, the Company purchased $21.8 million of marketable securities using both current maturities and available cash.  Capital expenditures were $646,000 through June 30, 2010.  The Company expects annual capital expenditures for 2010 to be between $1.0 million and $2.0 million.

The Company paid cash dividends of $3.4 million and $3.2 million during the six months ended June 30, 2010 and 2009, respectively.  On April 21, 2010, the Company’s Board of Directors increased the quarterly dividend rate from $.15 per share to $.16 per share.  This represents an increase of 7% in the quarterly dividend rate.  The impact of this will be to increase cash dividends paid annually by approximately $450,000.

 
13

 

The Company continues to repurchase its common stock under its share repurchase program when the Company believes market conditions are favorable.  To date in 2010, the Company has repurchased 32,906 shares at a total cost of approximately $753,000.  The Company currently has 1,352,839 shares available under its previously announced buyback program.  See Part II, Item 2, “Unregistered Sales of Equity Securities and Use of Proceeds” below for more information.

The Company had a total of $50.0 million available under its borrowing facility, and no outstanding borrowings as of June 30, 2010.  The facility includes one financial covenant that specifies a minimum level of net worth.  The Company was in compliance with the covenant at June 30, 2010.  The facility expired on April 30, 2010 and was renewed through April 30, 2011.

The Company will continue to evaluate the best uses for its free cash, including continued stock repurchases and additional acquisitions.

The Company believes that available cash and marketable securities, cash provided by operations, and available borrowing facilities will provide adequate support for the cash needs of the business in 2010 and 2011.

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, 2009.

Item 4.  Controls and Procedures

The Company maintains disclosure controls and procedures designed to ensure that the information the Company must disclose in its filings with the Securities and Exchange Commission is recorded, processed, summarized and reported on a timely basis.  The Company’s Chief Executive Officer and Chief Financial Officer have reviewed and evaluated the Company’s disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of the end of the period covered by this report (the “Evaluation Date”).  Based on such evaluation, such officers have concluded that, as of the Evaluation Date, the Company’s disclosure controls and procedures are effective in bringing to their attention on a timely basis material information relating to the Company required to be included in the Company’s periodic filings under the Exchange Act.  Such officers have also concluded that, as of the Evaluation Date, the Company’s disclosure controls and procedures are effective in accumulating and communicating information in a timely manner, allowing timely decisions regarding required disclosures.

There have not been any changes in the Company’s internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) that occurred during the Company’s most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 
14

 

PART II.  OTHER INFORMATION

Item 1.   Legal Proceedings

None

Item 1A. Risk Factors

There have been no material changes to the risk factors affecting the Company from those disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009.
  
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

The table below presents information pursuant to Item 703(a) of Regulation S-K regarding the repurchase of the Company’s common stock by the Company in the three month period ended June 30, 2010.

               
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
 
4/1/10 - 4/30/10
    -     $ -       -       1,381,645  
                                 
5/1/10 - 5/31/10
    8,870     $ 23.02       8,870       1,372,775  
                                 
6/1/10 - 6/30/10
    19,936     $ 22.99       19,936       1,352,839  
                                 
Total
    28,806     $ 23.00       28,806          

Item 6.  Exhibits

See the Exhibit Index included herewith for a listing of exhibits.

 
15

 

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.
     
August 5, 2010
 
/s/ John  F. Wittkowske
Date
 
John F. Wittkowske
   
Senior Vice President and
   
Chief Financial Officer

 
16

 

WEYCO GROUP, INC.
(THE “REGISTRANT”)
(COMMISSION FILE NO. 0-9068)

EXHIBIT INDEX
TO
CURRENT REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED  June 30, 2010

       
Incorporated Herein
 
Filed
Exhibit
 
Description
 
By Reference
 
Herewith
             
10.1
 
Amendment to loan agreement dated
       
   
April 28, 2006 which extends the revolving
       
   
loan maturity date to April 30, 2011
 
 
 
             
31.1
 
Certification of Chief Executive Officer
 
 
 
             
31.2
 
Certification of Chief Financial Officer
 
 
 
             
32
 
Section 906 Certification of Chief
       
   
Executive Officer and Chief Financial Officer
 
 
 

 
17