-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DRvf3M0Og7Pe4H2yopS8GcjWWfvDEdQ74zAZsirEv4idX1eoY3xsbqToYwtoJPOs Zh3TiwkvwTcJWUyeK/YObw== 0000950124-00-001524.txt : 20000327 0000950124-00-001524.hdr.sgml : 20000327 ACCESSION NUMBER: 0000950124-00-001524 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000324 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WEYCO GROUP INC CENTRAL INDEX KEY: 0000106532 STANDARD INDUSTRIAL CLASSIFICATION: FOOTWEAR, (NO RUBBER) [3140] IRS NUMBER: 390702200 STATE OF INCORPORATION: WI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-09068 FILM NUMBER: 577969 BUSINESS ADDRESS: STREET 1: 234 E RESERVOIR AVE STREET 2: PO BOX 1188 CITY: MILWAUKEE STATE: WI ZIP: 53201 BUSINESS PHONE: 4142638800 MAIL ADDRESS: STREET 1: 234 EAST RESERVOIR AVENUE STREET 2: 234 EAST RESERVOIR AVENUE CITY: MILWAUKEE STATE: WI ZIP: 53212 FORMER COMPANY: FORMER CONFORMED NAME: WEYENBERG SHOE MANUFACTURING CO DATE OF NAME CHANGE: 19900514 10-K405 1 FORM 10-K405 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE - --- ACT OF 1934 (FEE REQUIRED) For the fiscal year ended December 31, 1999 . ------------------------------- OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES - --- EXCHANGE ACT OF 1934 (NO FEE REQUIRED) For 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, WI 53201 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, include area code (414) 908-1600 ------------------------------- Securities registered pursuant to Section 12(b) of the Act: Name of each exchange on Title of each class which registered None - -------------------------------------- ----------------------------------- - -------------------------------------- ----------------------------------- Securities registered pursuant to Section 12(g) of the Act: Common Stock - $1.00 par value per share - -------------------------------------------------------------------------------- (Title of Class) - -------------------------------------------------------------------------------- (Title of Class) 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 if disclosure of delinquent filers pursuant to Item 405 of Regulations S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in any definitive proxy of information statements incorporated by reference or in any amendment to this Form 10-K. (X) As of March 6, 2000, there were outstanding 3,178,231 shares of Common Stock and 941,763 shares of Class B Common Stock. At the same date, the aggregate market value (based upon the average of the high and low trades for that day) of all common stock held by non-affiliates was approximately $57,280,000. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Corporation's Annual Report to Shareholders for the year ended December 31, 1999, are incorporated by reference in Parts II and IV of this report. Portions of the Corporation's Proxy Statement, dated March 24, 2000, prepared for the Annual Meeting of Shareholders scheduled for April 25, 2000, are incorporated by reference in Part III of this report. Exhibit Index Pages 9-10 2 PART I Item 1. Business The Company is a Wisconsin corporation incorporated in the year 1906 as Weyenberg Shoe Manufacturing Company. Effective April 25, 1990, the name of the corporation was changed to Weyco Group, Inc. The Company and its subsidiaries engage in one line of business, the manufacture, purchase and distribution of men's footwear. The Company does not sell women's or children's shoes because these markets differ significantly from the men's market. The principal brands of shoes sold are "Nunn Bush," "Brass Boot," and "Stacy Adams," and trademarks maintained by the Company on these names are important to the business. The Company's products consist of both mid-priced quality leather dress shoes which would be worn as a part of more formal and traditional attire and lower priced quality casual footwear of man-made materials or leather which would be appropriate for leisure or less formal occasions. The Company's footwear, and that of the industry in general, is available in a broad range of sizes and widths, primarily produced or purchased to meet the needs and desires of the American male population. The Company assembles footwear at one manufacturing plant in Wisconsin. Shoe components, referred to as "uppers," are purchased from outside sources, generally foreign, and turned into complete shoes by attaching the sole, either leather or man-made, applying appropriate "finishes" and packing the shoes into individual cartons, ready for sale. The Company purchases raw materials and shoe components from many suppliers and is not dependent on any one of them. The supply of these items is generally plentiful and there are no long-term purchase commitments. Over the past five years, production at the Company's plant has accounted for approximately 12% of the value of the Company's wholesale footwear sales. In addition to the production of footwear at the Company's own manufacturing plant, complete shoes are purchased from many sources worldwide, generally in U. S. dollars. These purchases account for the balance of the Company's wholesale footwear sales. In recent years, domestic production of men's shoes by the Company and the industry has declined, while imports to the United States have increased. The Company's business is separated into two divisions - wholesale and retail. Wholesale sales constituted approximately 95% of total sales in 1999, 95% in 1998, and 93% in 1997. At wholesale, shoes are marketed nationwide through more than 8,000 shoe, clothing and department stores. All sales are to unaffiliated customers in North America. Sales to the Company's largest customer, Brown Shoe Group, were 12%, 10% and 13% of total sales for 1999, 1998 and 1997, respectively. There are no other individually significant customers. The Company employs traveling salesmen who sell the Company's products to the retail outlets. Shoes are shipped to these retailers primarily from a warehouse maintained in Glendale, Wisconsin. Although there is no clearly identifiable seasonality in the men's footwear business, new styles are historically developed and shown twice each year, in spring and fall. In accordance with the industry practices, the Company is required to carry significant amounts of inventory to meet customer delivery requirements and periodically provides extended payment terms to customers. -1- 3 Retail sales constituted approximately 5% of total sales in 1999 and 1998 and 7% in 1997. In the retail division, there are currently 11 company-operated stores in principal cities of the United States. The decrease in retail sales in recent years is a result of the termination of company-operated stores. There were no store closings in 1999. In 1998, 2 stores were closed and in 1997, 4 stores were closed. These stores were closed primarily due to unprofitable operations or unattractive lease renewal terms. Management intends to continue to closely monitor retail operations and may close other retail units in the future if they are deemed unprofitable. Sales in retail outlets are made directly to the consumer by Company employees. In addition to the sale of the Company's brands of footwear in these retail outlets, other branded footwear and accessories are also sold in order to provide the consumer with as complete a selection as practically possible. In dollar sales, management estimates that the Company is about eighth largest among approximately 900 domestic men's shoe distributors. During 1999, it sold approximately 3% of the total men's non-rubber dress and casual shoes sold in the United States. As of December 31, 1999, the Company employed approximately 400 persons. Of those 400 employees, approximately 140 were members of the United Food and Commercial Works Local 651 Union. The Company ratified a new contract with the Union during 1997, which will expire in March 2003. Future wage and benefit increases under the new contract are not expected to have a significant impact on the future operations or financial position of the Company. Price, quality and service are all important competitive factors in the shoe industry and the Company has been recognized as a leader in all of them. Although the Company engages in no specific research and development activities, new products and new processes are continually being tested by the Company and used where appropriate, in order to produce the best value for the consumer, consistent with reasonable price. Compliance with environmental regulations historically has not had, and is not expected to have, a material adverse effect on the Company's results of operations or cash flows. -2- 4 Item 2. Properties The following facilities are operated by the Company and its subsidiaries: Location Character Owned/Leased Glendale, Wisconsin One story office and distribution center Owned Beaver Dam, Wisconsin Multistory factory Leased (1) (1) Not a material lease. The manufacturing facilities noted above are adequately equipped, well maintained and suitable for foreseeable needs. If all available manufacturing space were utilized and significant additional shoe making equipment were acquired, production could be increased about 25%. In addition to the above-described manufacturing and warehouse facilities, the Company operates 11 retail stores throughout the United States under various rental agreements. See Note 10 to Consolidated Financial Statements and Item 1. Business above. Item 3. Legal Proceedings Not Applicable Item 4. Submission of Matters to a Vote of Security Holders Not Applicable -3- 5 Executive Officers of the Registrant
Served Officer Age Office(s) Since Business Experience - --------------------------- --- --------------------- ----- ----------------------------------------- Thomas W. Florsheim 69 Chairman of the Board 1968 Chairman of the Board - 1968 to present; Chief Executive Officer of the Company -- 1968 to 1999 Thomas W. Florsheim, Jr. 42 President and Chief 1995 President and Chief Executive Officer Executive Officer of the Company - 1999 to present; President and Chief Operating Officer of the Company -- 1996 to 1999; Vice President of the Company - 1988 to 1995 John W. Florsheim 36 Executive Vice President, 1995 Executive Vice President, Chief Chief Operating Officer Operating Officer and Assistant and Assistant Secretary Secretary of the Company - 1999 to present; Executive Vice President of the Company --1996 to 1999; Vice President of the Company -- 1994 to 1996; Brand Manager, M & M/Mars, Inc. -- 1990 to 1994 David N. Couper 51 Vice President 1981 Vice President of the Company -- 1981 to present James F. Gorman 56 Vice President 1975 Vice President of the Company -- 1975 to present Peter S. Grossman 56 Vice President 1971 Vice President of the Company -- 1971 to present John F. Wittkowske 40 Vice President-Finance 1993 Vice President-Finance and Secretary and Secretary of the Company -- 1995 to present; Secretary/Treasurer of the Company -- 1993 to 1995; Audit Manager, Arthur Andersen LLP, Independent Public Accountants -- 1986 to 1993
Thomas W. Florsheim is the father of John W. Florsheim and Thomas W. Florsheim, Jr. -4- 6 PART II Item 5. Market for Registrant's Common Equity and Related Shareholder Matters Information required by this Item is set forth on pages 5, 17 and 21 of the Annual Report to Shareholders for the year ended December 31, 1999, and is incorporated herein by reference. Item 6. Selected Financial Data Information required by this Item is set forth on page 5 of the Annual Report to Shareholders for the year ended December 31, 1999, and is incorporated herein by reference. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Information required by this Item is set forth on pages 6 through 8 of the Annual Report to Shareholders for the year ended December 31, 1999, and is incorporated herein by reference. Item 7a. Quantitative and Qualitative Disclosures about Market Risk Information required by this Item is set forth on page 8 of the Annual Report to Shareholders for the year ended December 31, 1999, and is incorporated herein by reference. Item 8. Financial Statements and Supplementary Data Information required by this Item is set forth on pages 9 through 19 of the Annual Report to Shareholders for the year ended December 31, 1999, and is incorporated herein by reference. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures Not applicable. -5- 7 PART III Item 10. Directors and Executive Officers of the Registrant Information required by this Item is set forth on pages 1 through 4 of the Company's proxy statement for the Annual Meeting of Shareholders to be held on April 25, 2000, and is incorporated herein by reference. Item 11. Executive Compensation Information required by this Item is set forth on pages 4 through 6 of the Company's proxy statement for the Annual Meeting of Shareholders to be held on April 25, 2000, and is incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners of Management Information required by this Item is set forth on pages 1 and 2 of the Company's proxy statement for the Annual Meeting of Shareholders to be held on April 25, 2000, and is incorporated herein by reference. Item 13. Certain Relationships and Related Transactions Information required by this Item is set forth on pages 6 through 8 of the Company's proxy statement for the Annual Meeting of Shareholders to be held on April 25, 2000, and is incorporated herein by reference. -6- 8 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (a) The following documents are filed as a part of this report:
Page Reference to Annual Report ------------- 1. Financial Statements - Consolidated Statements of Earnings for the years ended December 31, 1999, 1998 and 1997 9 Consolidated Balance Sheets - December 31, 1999 and 1998 10 - 11 Consolidated Statements of Shareholders' Investment for the years ended December 31, 1999, 1998 and 1997 12 Consolidated Statements of Cash Flows for the years ended December 31, 1999, 1998 and 1997 13 Notes to Consolidated Financial Statements - December 31, 1999, 1998 and 1997 14 - 19 Report of Independent Public Accountants 20
-7- 9 Item 14. Exhibits, Financial Statement Schedules, and Report on Form 8-K (Continued)
Page Reference to Form 10-K --------- 2. Financial Statement Schedules for the years ended December 31, 1999, 1998 and 1997 - Schedule II - Valuation and Qualifying Accounts 11 All other schedules have been omitted because of the absence of the conditions under which they are required.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS We have audited in accordance with auditing standards generally accepted in the United States, the consolidated financial statements included in Weyco Group, Inc.'s Annual Report to Shareholders included and incorporated by reference in this Form 10-K, and have issued our report thereon dated February 17, 2000. Our audit was made for the purpose of forming an opinion on those statements taken as a whole. The schedule listed in the index at item 14(a)(2) is the responsibility of the company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN LLP Milwaukee, Wisconsin, February 17, 2000. -8- 10 Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K (Continued) 3. Exhibits
Incorporated Herein Exhibit Description By Reference To ------- --------------------------------------- -------------------------------- 3.1 Articles of Incorporation as Restated Exhibit 3.1 to Form August 29, 1961, and Last Amended 10-K for Year Ended April 25, 1990 December 31, 1990 3.2 Bylaws as Revised January 21, 1991 Exhibit 3.2 to Form and Amended November 3, 1992 10-K for Year Ended December 31, 1992 10.1* Employment Agreement - Thomas W. Exhibit 10.1 to Form Florsheim, dated January 1, 1997, 10-K for Year Ended as amended December 31, 1996, and Amendment No. 1 filed as Exhibit 10.1 with this 10-K 10.2* Employment Agreement - Thomas W. Exhibit 10.2 to Form Florsheim, Jr., dated January 1, 1997, 10-K for Year Ended as amended December 31, 1996, and Amendment No. 1 filed as Exhibit 10.2 with this 10-K 10.3* Employment Agreement - John W. Exhibit 10.3 to Form Florsheim, dated January 1, 1997, 10-K for Year Ended as amended December 31, 1996, and Amendment No. 1 filed as Exhibit 10.3 with this 10-K 10.4* Restated and Amended Deferred Exhibit 10.3 to Form Compensation Agreement - Thomas W. 10-K for Year Ended Florsheim, dated December 1, 1995 December 31, 1995 10.5* Restated and Amended Deferred Exhibit 10.4 to Form Compensation Agreement - Robert 10-K for Year Ended Feitler, dated December 1, 1995 December 31, 1995 10.6* Excess Benefits Plan - Restated Effective Exhibit 10.6 to Form as of January 1, 1989 10-K for Year Ended December 31, 1991 10.7* Pension Plan - Amended and Restated Exhibit 10.7 to Form Effective January 1, 1989 10-K for Year Ended December 31, 1991 10.8* Deferred Compensation Plan - Effective Exhibit 10.8 to Form as of January 1, 1989 10-K for Year Ended December 31, 1991 10.9* 1992 Nonqualified Stock Option Plan Exhibit 10.9 to Form 10-K for Year Ended December 31, 1991
-9- 11 Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (Continued) 3. Exhibits (Continued)
Incorporated Herein Exhibit Description By Reference To ------- ------------------------------- ------------------------- 10.10* Death Benefit Plan Agreement - Exhibit 10.10 to Form Thomas W. Florsheim, dated 10-K for Year Ended November 8, 1993 December 31, 1993 10.12* 1996 Nonqualified Stock Option Plan Exhibit 10.12 to Form 10-K for Year Ended December 31, 1995 10.13* 1997 Stock Option Plan Exhibit 10.13 to Form 10-K for Year Ended December 31, 1997 10.14* Change of Control Agreement Exhibit 10.14 to Form John Wittkowske, dated 10-K for Year Ended January 26, 1998 December 31, 1997 10.15* Change of Control Agreement Exhibit 10.15 to Form Peter S. Grossman, dated 10-K for Year Ended January 26, 1998 December 31, 1997 10.16* Change of Control Agreement Exhibit 10.16 to Form James F. Gorman, dated 10-K for Year Ended January 26, 1998 December 31, 1997 10.17* Change of Control Agreement Exhibit 10.17 to Form David N. Couper, dated 10-K for Year Ended January 26, 1998 December 31, 1997 13 Annual Report to Shareholders 21 Subsidiaries of the Registrant 23.1 Consent of Independent Public Accountants Dated March 24, 2000 27 Financial Data Schedule
*Management contract or compensatory plan or arrangement (b) Reports on Form 8-K None -10- 12 SCHEDULE II WEYCO GROUP, INC. VALUATION AND QUALIFYING ACCOUNTS
Deducted from Assets --------------------------------------------------------- Doubtful Cash Returns and Accounts Discounts Allowances Total ---------- ------------ ---------- --------- BALANCE, DECEMBER 31, 1996 $1,148,180 $ 64,000 $1,080,000 $2,292,180 Add - Additions charged to earnings 434,599 491,925 4,086,561 5,013,085 Deduct - Charges for purposes for which reserves were established (234,599) (513,925) (4,086,561) (4,835,085) ----------- --------- ---------- ---------- BALANCE, DECEMBER 31, 1997 $1,348,180 $ 42,000 $1,080,000 $2,470,180 Add - Additions charged to earnings 815,123 477,534 3,148,775 4,441,432 Deduct - Charges for purposes for which reserves were established (663,303) (467,534) (3,148,775) (4,279,612) ----------- ----------- ---------- ---------- BALANCE, DECEMBER 31, 1998 $1,500,000 $ 52,000 $1,080,000 $2,632,000 Add - Additions charged to earnings 391,149 495,918 3,521,913 4,408,980 Deduct - Charges for purposes for which reserves were established (241,149) (492,918) (3,521,913) (4,255,980) ----------- ---------- ----------- ----------- BALANCE, DECEMBER 31, 1999 $1,650,000 $ 55,000 $1,080,000 $2,785,000 ========= ========= ========= =========
-11- 13 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. (Registrant) By /s/ John Wittkowske March 24, 2000 ------------------------------------------ --------------------- John Wittkowske, Vice President-Finance ----------------- Power of Attorney KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Thomas W. Florsheim, Sr., Thomas W. Florsheim, Jr., and John Wittkowske, and each of them, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this report, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their substitutes, may lawfully do or cause to be done by virtue thereof. ------------------- Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signatures and Titles Date --------------------- ---- /s/ Thomas W. Florsheim March 24, 2000 - ----------------------------------------------- --------------- Thomas W. Florsheim, Chairman of the Board /s/ Thomas W. Florsheim, Jr. March 24, 2000 - ----------------------------------------------- --------------- Thomas W. Florsheim, Jr., President and Chief Executive Officer and Director /s/ John W. Florsheim March 24, 2000 - ----------------------------------------------- --------------- John W. Florsheim, Executive Vice President and Chief Operating Officer and Director /s/ John Wittkowske March 24, 2000 - ----------------------------------------------- --------------- John Wittkowske, Vice President-Finance (Principal Accounting Officer) /s/ Virgis W. Colbert March 24, 2000 - ----------------------------------------------- --------------- Virgis W. Colbert, Director /s/ Robert Feitler March 24, 2000 - ----------------------------------------------- --------------- Robert Feitler, Director /s/ Leonard J. Goldstein March 24, 2000 - ----------------------------------------------- --------------- Leonard J. Goldstein, Director /s/ Frank W. Norris March 24, 2000 - ----------------------------------------------- --------------- Frank W. Norris, Director /s/ Frederick P. Stratton, Jr. March 24, 2000 - ----------------------------------------------- --------------- Frederick P. Stratton, Jr., Director -12- EX-13 2 ANNUAL REPORT TO SHAREHOLDERS 1 EXHIBIT 13 TO OUR SHAREHOLDERS: We are pleased to report that Weyco Group, Inc. continued its strong performance in 1999. Wholesale sales and earnings hit record levels, all of our warehouse operations were consolidated into one efficient, highly-automated distribution center and we expanded our licensing activities to leverage the equity of our brand names. EARNINGS, SALES SET RECORDS Net earnings grew to $11.1 million in 1999, a 13% increase over 1998 net earnings of $9.8 million. Our diluted earnings per share totaled $2.55, an increase of 23% over 1998. This is the fifth straight year that we have achieved record net earnings. Over these last five years our diluted earnings per share has increased at a 21% compound annual growth rate. Sales reached $133.5 million in 1999, a 5% increase over 1998, with the strongest performance coming from our Stacy Adams division. Overall wholesale unit shipments increased 8% in 1999. Stacy Adams sales were helped by strong first-year consumer acceptance of our "SAO by Stacy Adams" casual line, as well as growth in our Stacy Adams dress shoe business. Our Nunn Bush brand enjoyed a solid 1999 with an exceptional performance from Nunn Bush NXXT contemporary shoes. 2 STRONG BRANDS ADD POTENTIAL SAO by Stacy Adams extends the strength of the Stacy Adams brand, a leader in fashion dress footwear, into the casual market. The Nunn Bush NXXT line responds to the growing trend toward contemporary footwear capturing a younger, more fashion forward consumer. These sub-brands expand our reach into growing new markets and demonstrate our ability to successfully introduce new products. During 1999, we also introduced a Stacy Adams boys' and youth line of shoes with good initial consumer acceptance. Also during 1999, we expanded our brand extension activities with the licensing of five new products in our line of Stacy Adams men's fashions. New items include ties, hats, belts, suits and formal wear. These join the line of hosiery that we licensed in 1998. We feel that we have a very strong brand in Stacy Adams and these licensing agreements will help us realize the potential of our brand. To further strengthen the value of our brands, during the past year we increased our marketing activities by expanding our advertising program and giving our ads more of a lifestyle appeal. We find this to be helpful in attracting new wholesale business and in increasing our value to existing accounts. ENHANCED DISTRIBUTION RESPONSIVENESS In the third quarter of 1999, we consolidated our warehousing and distribution operations into one distribution center. As part of that process, we invested in a new state-of-the-art warehouse management system and changed the process of how we fill and ship customer orders. 3 In today's "just-in-time" business environment, it's absolutely essential to meet customer delivery requirements. Many no longer order in advance, therefore, lead times are shorter. In addition, customers have special requirements that must be fulfilled prior to shipment. Many want special price stickers, labels or tags to be put on their shoes. As a result, we must be able to react to these requests quickly and fill orders correctly. Our new distribution center, which on average has over one million pairs of shoes under one roof, coupled with our new warehouse management system, gives us the flexibility to meet these needs, support our customers and increase our value to them. POSITIONED FOR GROWTH We continue to see our growth coming from the wholesale market, as merchandisers seek suppliers with well recognized brands who can meet their expectations for delivery. Looking forward, we have a strong backlog across all brands. We strive to provide superior value and relevant styling in every market in which we compete. Our focus has strengthened our position as a dominant player in the moderately-priced footwear market with our Stacy Adams and Nunn Bush brands and has enhanced our performance in the better-grade market through our Brass Boot brand. Although our retail operations have become a smaller part of our company, we believe that there are some strategic advantages for us to continue to participate in the retail side of the business, such as monitoring the pulse of merchandising and style trends. However, we still require these stores to meet our investment objectives. 4 We face the new century with a solid foundation. We have popular products and strong brands capable of attracting a bigger customer base. Our state-of-the-art distribution facility provides the flexibility to meet ever-changing customer requirements. Expanded licensing and brand extensions provide opportunities for future growth. And we have a consistent and solid track record of sales and earnings growth. During the year, we continued our program to repurchase our shares at prices that we believe do not reflect our true value. Purchases have been made in open market and in private transactions. In the past two years, the company has repurchased 709,000 shares of its common stock. Today, we're stronger than ever. We believe we're well positioned for continued steady growth and increased profitability. We look forward to a successful 2000 and beyond. We appreciate the support of our shareholders as we continue to build our future. Thomas W. Florsheim Chairman of the Board Thomas W. Florsheim, Jr. President and Chief Executive Officer 5 SELECTED FINANCIAL DATA
Years Ended December 31 ------------------------------------------------------------------------------------- 1999 1998 1997 1996 1995 ------------ ------------ ------------ ------------ ------------ Net sales ................................... $133,498,000 $127,074,000 $127,029,000 $129,314,000 $120,643,000 Net earnings ................................ $ 11,058,000 $9,805,000 $9,068,000 $8,072,000 $6,807,000 Diluted earnings per share .................. $2.55 $2.07 $1.88 $1.65 $1.21 Weighted average diluted shares outstanding ................................ 4,338,587 4,731,075 4,825,050 4,886,188 5,647,360 Cash dividends per share .................... $.39 $.35 $.31 $.29 $.28 Total assets ................................ $95,919,000 $92,782,000 $ 82,204,000 $ 73,077,000 $ 79,328,000
Note: Earnings per share and weighted average shares shown above for 1997 and previous years have been restated to reflect dilution in accordance with Statement of Accounting Standards No. 128. See Notes 1 and 12 to the Consolidated Financial Statements. They have also been retroactively restated for a 200% stock dividend declared in 1997. COMMON STOCK DATA
1999 1998 ------------------------------ ---------------------------- Price Range Cash Price Range Cash ----------- Dividends ----------- Dividends Quarter: High Low Declared High Low Declared - -------- ------------------------------ ---------------------------- First ....................................... $25.31 $24.00 $.09 $23.75 $21.00 $.08 Second ...................................... 24.29 23.08 .10 28.25 21.88 .09 Third ....................................... 24.19 22.71 .10 28.50 26.13 .09 Fourth ...................................... 26.00 23.38 .10 26.75 25.00 .09 ---- ---- $.39 $.35 ==== ====
There are 364 holders of record of the Company's common stock and 150 holders of record of the Company's Class B common stock as of March 6, 2000. The stock prices shown above are the high and low actual trades for the calendar periods indicated. The Class B Common Stock is not listed nor does it trade publicly because of its limited transferability. See Note 11 to the Consolidated Financial Statements for additional information. 6 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS LIQUIDITY & CAPITAL RESOURCES The Company's primary source of liquidity is its cash and marketable securities which aggregated $26,377,000 at December 31, 1999, and $36,254,000 at December 31, 1998. The decrease in cash and marketable securities in 1999 is primarily due to capital expenditures, stock purchases, and increases in inventory and accounts receivable balances since the prior year. The increase in inventory from $11.8 million in 1998 to $19.5 million in 1999 is due to increased order backlog and shorter customer lead times. These uses of cash are offset by the proceeds generated by maturities of marketable securities and short-term borrowings. In addition, the Company maintains $19.5 million in lines of credit, $12 million of which is used to back the issuance of commercial paper. The Company's capital expenditures were $4,431,000, $12,116,000 and $554,000 in 1999, 1998 and 1997, respectively. Capital expenditures in 1998 and 1999 were primarily related to the construction of the Company's new 346,000 square foot corporate office and distribution center. The Company issued commercial paper with 30 to 90 day maturities to finance the construction project. Short-term borrowings under this arrangement were $8,800,000 at December 31, 1999 and $9,522,000 at December 31, 1998. The Company completed its move to the new facility in the third quarter of 1999. The total cost of the facility, including machinery and equipment, was approximately $14,500,000. In the past several years, the Company has repurchased shares of its Common and Class B Common Stock. In April 1998, the Company's Board of Directors authorized a stock repurchase program for up to 500,000 shares or approximately 10% of its common stock in open market transactions at prevailing prices. During 1998, the Company purchased 320,000 shares at a total cost of $8,484,000 under the program, and an additional 76,500 shares at a total cost of $1,932,000 in private transactions. In April 1999, the Board of Directors extended the stock repurchase program to repurchase up to an additional 500,000 shares of Common Stock. During 1999, the Company purchased 204,400 shares at a total cost of $4,895,000 under the program, and 108,000 shares at a total cost of $2,664,000 in private transactions. The Company believes that available cash and marketable securities, cash provided from operations and available borrowing facilities will provide adequate support for the cash needs of the business. 7 RESULTS OF OPERATIONS 1999 vs. 1998 Net sales in 1999 were $133,498,000 compared with $127,074,000 in 1998. The 5% increase in overall net sales is the result of an increase in wholesale net sales from $120,255,000 in 1998 to $126,630,000 in 1999, and an increase in retail net sales from $6,819,000 in 1998 to $6,868,000 in 1999. The increase in wholesale net sales is due to an increase of 8% in units shipped, offset by a slight reduction in average price per pair resulting from a change in the mix of product sold. Same-store retail net sales increased 11% between 1998 and 1999. The increase in wholesale net sales was driven primarily by the Stacy Adams division, whose performance was helped by strong first-year consumer acceptance of the "SAO by Stacy Adams" casual line, which was introduced in late 1998, as well as solid growth in the Stacy Adams dress shoe business. Overall gross earnings as a percent of net sales was 28% for 1998 and 1999. Wholesale gross earnings as a percent of net sales was similarly consistent at 27% for 1998 and 1999. Retail gross earnings as a percent of retail net sales was also consistent between 1998 and 1999 at 50% and 51%, respectively. Overall selling and administrative expenses as a percent of net sales decreased from 18% in 1998 to 17% in 1999. This reflects the slight decrease in wholesale selling and administrative expenses as a percent of wholesale net sales, which was 16% for 1998 compared to 15% for 1999. Retail selling and administrative expenses as a percent of net sales decreased from 49% in 1998 to 44% in 1999. Interest income decreased from $1,786,000 in 1998 to $1,370,000 in 1999 due to a decrease in the average balance of marketable securities outstanding between 1998 and 1999. Interest expense relates to short-term issuances of commercial paper and short-term advances. The increase in interest expense from $368,000 in 1998 to $539,000 in 1999 reflects the increase in average short-term borrowings between years. Other income and expense in 1999 includes an $800,000 gain on the sales of the Company's former warehouse facilities. The provision for income taxes was at an effective rate of 35% in 1999 vs. 36% in 1998. Net earnings for 1999 were $11,058,000, an increase of 13% over 1998 net earnings of $9,805,000. Included in 1999 net earnings is the $800,000 ($496,000 after tax) gain on the sales of the warehouse facilities. Excluding the gain from the sales, net earnings were $10,562,000, an increase of 8% over the prior year. 8 1998 vs. 1997 Net sales in 1998 were $127,074,000 compared with $127,029,000 in 1997. The change between years resulted from an increase in wholesale net sales from $118,606,000 in 1997 to $120,255,000 in 1998, and a decrease in retail net sales from $8,423,000 in 1997 to $6,819,000 in 1998. The increase of $1,649,000, or 1%, in wholesale net sales is due to slight sales volume increases and changes in the mix of product sold. The $1,604,000, or 19%, decrease in retail net sales between years is the result of the closing of 4 retail stores in 1997 and 2 retail stores in 1998. As of December 31, 1998, there are 11 retail stores remaining, which constitute only 5% of overall net sales for the year. Overall gross earnings as a percent of net sales was 28% for 1998 and 1997. Wholesale gross earnings as a percent of net sales increased from 26% in 1997 to 27% in 1998 due to increases in margins and changes in product mix sold. Retail gross earnings as a percent of retail net sales was consistent between 1997 and 1998 at 50%. Overall selling and administrative expenses as a percent of net sales was consistent at 18% for 1998 and 1997. This reflects the consistency in wholesale selling and administrative expenses as a percent of wholesale net sales, which was 16% for both 1998 and 1997. Retail selling and administrative expenses as a percent of net sales increased from 46% in 1997 to 49% in 1998, which reflects the increase in fixed costs of retail operations in relation to overall retail costs as we continue to close retail stores. Interest income increased from $1,475,000 in 1997 to $1,786,000 in 1998 due to an increase in the average balance of marketable securities outstanding between 1997 and 1998. Interest expense in 1998 relates to short-term issuances of commercial paper. There was $9,522,000 of commercial paper outstanding at December 31, 1998. The commercial paper was issued during 1998 to finance the construction of the Company's new corporate office and warehouse facilities. The provision for income taxes was at an effective rate of 36% in both 1998 and 1997. Overall Analysis The Company continues to purchase finished shoes and components from outside suppliers around the world. The majority of these foreign sourced purchases are denominated in U. S. dollars. The Company presently operates one shoe manufacturing plant in Wisconsin. Production in this factory has changed little during the past three years. There have been few inflationary pressures in the shoe industry in recent years and leather and other component prices have been stable. It is anticipated that, when necessary, selling price increases could be initiated to offset periodic increases in costs of purchased shoes, components, materials, labor and other expenses. 9 In recent years, management has focused on the wholesale portion of the business, and has closed the less profitable retail units upon the expiration of their leases. Management intends to continue to evaluate the remaining 11 retail units from a profitability standpoint, and may close more retail stores in the future if they are deemed unprofitable. OTHER Year 2000 Computer Compliance In response to the Year 2000 issue relating to the inability of certain computer software programs to process 2-digit year-date codes after December 31, 1999, management conducted a comprehensive review of the Company's systems and modified and replaced systems as considered necessary at a total cost of approximately $750,000. The project was successful and resulted in no unexpected delays or costs. 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. Quantitative and Qualitative Disclosures about Market Risk The Company is exposed to market risk from changes in foreign exchange and interest rates. To reduce the risk from changes in foreign exchange rates, the Company selectively uses financial instruments. The Company does not hold or issue financial instruments for trading purposes. Foreign Currency The Company's earnings are affected by fluctuations in the value of the U.S. dollar against foreign currencies, primarily as a result of purchasing inventory from Italian suppliers and the sale of product to Canadian customers. Forward exchange contracts are used to partially hedge against the earnings effects of such fluctuations. At December 31, 1999, the Company has forward exchange contracts outstanding to purchase 2.5 billion lira at a total price of $1,372,000 and forward exchange contracts outstanding to sell 700,000 Canadian dollars at a total price of $479,000. Based on December 31, 1999 exchange rates, the deferred loss on these contracts is $67,000. All contracts expire in less than one year. Assuming a 10% appreciation in the U. S. dollar at December 31, 1999, the potential deferred loss on forward exchange contracts of $67,000 would be increased by $75,000. 10 Interest Rates The Company is exposed to interest rate fluctuations on its borrowings. During 1999, the Company issued fixed rate commercial paper with maturities of 30 to 90 days and took back-up advances on its revolving line of credit at times when the commercial paper was not sold. As of December 31, 1999, an $8,800,000 advance was outstanding at an overnight rate of 5.2%. Total related interest expense for 1999 was $539,000. Assuming a 10% appreciation in the Company's weighted average interest rate on short-term borrowings, interest expense would increase by $47,000. 11 CONSOLIDATED STATEMENTS OF EARNINGS For the years ended December 31, 1999, 1998 and 1997
1999 1998 1997 -------------- -------------- -------------- NET SALES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 133,498,206 $ 127,074,114 $ 127,028,749 COST OF SALES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95,737,375 90,961,465 91,708,986 -------------- -------------- -------------- Gross earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37,760,831 36,112,649 35,319,763 SELLING AND ADMINISTRATIVE EXPENSES . . . . . . . . . . . . . . . . . . . . 22,537,515 22,311,362 22,673,557 -------------- -------------- -------------- Earnings from operations . . . . . . . . . . . . . . . . . . . . . . 15,223,316 13,801,287 12,646,206 INTEREST INCOME. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,369,965 1,786,402 1,475,230 INTEREST EXPENSE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (539,244) (367,542) -- OTHER INCOME AND EXPENSE, net. . . . . . . . . . . . . . . . . . . . . . . 904,245 34,372 12,032 -------------- -------------- -------------- Earnings before provision for income taxes . . . . . . . . . . . . . 16,958,282 15,254,519 14,133,468 PROVISION FOR INCOME TAXES. . . . . . . . . . . . . . . . . . . . . . . . . 5,900,000 5,450,000 5,065,000 -------------- -------------- -------------- Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 11,058,282 $ 9,804,519 $ 9,068,468 ============== ============== ============== BASIC EARNINGS PER SHARE. . . . . . . . . . . . . . . . . . . . . . . . . . $ 2.58 $ 2.10 $ 1.90 ============== ============== ============== DILUTED EARNINGS PER SHARE. . . . . . . . . . . . . . . . . . . . . . . . . $ 2.55 $ 2.07 $ 1.88 ============== ============== ==============
The accompanying notes to consolidated financial statements are an integral part of these statements. 12 CONSOLIDATED BALANCE SHEETS December 31, 1999 and 1998
1999 1998 ------------- ------------ ASSETS CURRENT ASSETS: Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,843,915 $ 4,240,991 Marketable securities, at amortized cost. . . . . . . . . . . . . . . . . . . . 4,860,576 8,853,095 Accounts receivable, less reserves of $2,785,000 and $2,632,000, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . 21,903,407 19,597,979 Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,539,731 11,786,330 Deferred income tax benefits. . . . . . . . . . . . . . . . . . . . . . . . . . 2,880,000 3,573,000 Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . 65,537 -- ------------ ------------ Total current assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53,093,166 48,051,395 ------------ ------------ MARKETABLE SECURITIES, at amortized cost. . . . . . . . . . . . . . . . . . . . . . 17,672,907 23,160,287 OTHER ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,559,332 7,769,106 PLANT AND EQUIPMENT, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,593,776 13,801,210 ------------ ------------ $ 95,919,181 $ 92,781,998 ============ ============
The accompanying notes to consolidated financial statements are an integral part of these balance sheets. 13
1999 1998 LIABILITIES AND SHAREHOLDERS' INVESTMENT ------------ ------------ CURRENT LIABILITIES: Short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,800,000 $ 9,521,545 Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,403,897 7,389,680 Dividend payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 421,277 403,103 Accrued liabilities - Wages, salaries and commissions . . . . . . . . . . . . . . . . . . . . . 3,330,647 3,044,012 Taxes other than income taxes . . . . . . . . . . . . . . . . . . . . . . 296,311 98,718 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,795,927 4,493,374 Accrued income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . 1,204,621 1,436,689 ------------ ------------ Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 26,252,680 26,387,121 ------------ ------------ DEFERRED INCOME TAX LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . 1,916,000 1,247,000 SHAREHOLDERS' INVESTMENT: Common Stock, $1.00 par value, authorized 4,000,000 shares, issued and outstanding 3,215,443 shares in 1999 and 3,469,358 shares in 1998 . . . . 3,215,443 3,469,358 Class B Common Stock, $1.00 par value, authorized 2,000,000 shares, issued and outstanding 945,543 shares in 1999 and 954,567 shares in 1998. . . . . . . . . . . . . . . . . . . . . . . . . . 945,543 954,567 Capital in excess of par value. . . . . . . . . . . . . . . . . . . . . . . 3,076,392 2,615,295 Reinvested earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60,513,123 58,108,657 ------------ ------------ Total shareholders' investment. . . . . . . . . . . . . . . . . . . . . 67,750,501 65,147,877 ------------ ------------ $ 95,919,181 $ 92,781,998 ============ ============
14 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' INVESTMENT For the years ended December 31, 1999, 1998 and 1997
Class B Capital Common Common in Excess of Reinvested Stock Stock Par Value Earnings ---------- ---------- ---------- ----------- Balance, December 31, 1996. . . . . . . . . . . . . . . . . $1,259,053 $ 328,422 $1,666,065 $55,850,712 Add (Deduct) - Net earnings. . . . . . . . . . . . . . . . . . . . -- -- -- 9,068,468 Cash dividends declared ($.31 per share*) . . . . . -- -- -- (1,476,832) Common Stock Dividend . . . . . . . . . . . . . . . 2,522,898 648,052 -- (3,170,950) Conversions of Class B Common Stock to Common Stock. . . . . . . . . . . . . . . . . . 8,720 (8,720) -- -- Stock options exercised . . . . . . . . . . . . . . 35,700 -- 389,151 -- Income tax benefit from stock options exercised . . . . . . . . . . . . -- -- 207,656 -- Shares purchased and retired. . . . . . . . . . . . (17,200) (2,000) (176,818) (454,971) ---------- ---------- ---------- ----------- Balance, December 31, 1997. . . . . . . . . . . . . . . . . 3,809,171 965,754 2,086,054 59,816,427 Add (Deduct) - Net earnings. . . . . . . . . . . . . . . . . . . . -- -- -- 9,804,519 Cash dividends declared ($.35 per share) . . . . . -- -- -- (1,635,609) Conversions of Class B Common Stock to Common Stock. . . . . . . . . . . . . . . . . . 5,187 (5,187) -- -- Stock options exercised . . . . . . . . . . . . . . 45,500 -- 471,926 -- Income tax benefit from stock options exercised . . . . . . . . . . . . -- -- 200,710 -- Shares purchased and retired. . . . . . . . . . . . (390,500) (6,000) (143,395) (9,876,680) ---------- ---------- ---------- ----------- Balance, December 31, 1998. . . . . . . . . . . . . . . . . 3,469,358 954,567 2,615,295 58,108,657 Add (Deduct) - Net earnings. . . . . . . . . . . . . . . . . . . . -- -- -- 11,058,282 Cash dividends declared ($.39 per share). . . . . . -- -- -- (1,670,872) Conversions of Class B Common Stock to Common Stock. . . . . . . . . . . . . . . . . . 9,024 (9,024) -- -- Stock options exercised . . . . . . . . . . . . . . 49,500 -- 524,125 -- Income tax benefit from stock options exercised . . . . . . . . . . . . . . . -- -- 200,485 -- Shares purchased and retired . . . . . . . . . . . (312,439) -- (263,513) (6,982,944) ---------- ---------- ---------- ----------- Balance, December 31, 1999. . . . . . . . . . . . . . . . . $3,215,443 $ 945,543 $3,076,392 $60,513,123 ========== ========== ========== ===========
*Adjusted to reflect the September 2, 1997 200% stock dividend. The accompanying notes to consolidated financial statements are an integral part of these statements. 15 CONSOLIDATED STATEMENTS OF CASH FLOWS For the years ended December 31, 1999, 1998 and 1997
1999 1998 1997 ----------- ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . $11,058,282 $ 9,804,519 $ 9,068,468 Adjustments to reconcile net earnings to net cash provided by operating activities - Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . 1,241,958 626,324 821,317 Deferred income taxes. . . . . . . . . . . . . . . . . . . . . 1,332,000 133,000 (176,000) Deferred compensation. . . . . . . . . . . . . . . . . . . . . 150,504 140,664 131,460 Pension income . . . . . . . . . . . . . . . . . . . . . . . . (438,422) (401,508) (364,173) (Gain) loss on retirement of assets. . . . . . . . . . . . . (854,025) 949 22,696 Investment in officers' life insurance . . . . . . . . . . . . (320,219) (456,873) (479,113) Changes in operating assets and liabilities - Accounts receivable . . . . . . . . . . . . . . . . . . . . . (2,305,428) (1,925,803) 563,228 Inventories . . . . . . . . . . . . . . . . . . . . . . . . . (7,753,401) (624,877) 1,237,991 Prepaids and other current assets . . . . . . . . . . . . . . (65,537) 37,447 (37,441) Accounts payable. . . . . . . . . . . . . . . . . . . . . . . 2,014,217 1,114,117 (517,992) Accrued liabilities . . . . . . . . . . . . . . . . . . . . . (1,201,312) 643,157 1,254,831 Accrued income taxes. . . . . . . . . . . . . . . . . . . . . (202,068) 471,665 (116,217) ----------- ----------- ----------- Net cash provided by operating activities . . . . . . . . . 2,656,549 9,562,781 11,409,055 ----------- ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of marketable securities . . . . . . . . . . . . . . . . (1,962,456) (10,141,119) (26,018,202) Proceeds from sales of marketable securities. . . . . . . . . . . 11,448,839 15,604,075 13,268,698 Purchase of plant and equipment . . . . . . . . . . . . . . . . . (4,431,437) (12,115,713) (553,911) Proceeds from sales of plant and equipment. . . . . . . . . . . . 1,250,938 -- 50,000 ----------- ----------- ----------- Net cash provided by (used for) investing activities .. . . 6,305,884 (6,652,757) (13,253,415) ----------- ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Cash dividends paid . . . . . . . . . . . . . . . . . . . . . . . (1,652,693) (1,614,460) (1,444,232) Shares purchased and retired. . . . . . . . . . . . . . . . . . . (7,558,896) (10,416,575) (650,989) Proceeds from stock options exercised . . . . . . . . . . . . . . 573,625 517,422 424,851 Short-term borrowings . . . . . . . . . . . . . . . . . . . . . . (721,545) 9,521,545 -- ----------- ----------- ----------- Net cash used for financing activities. . . . . . . . . . . (9,359,509) (1,992,068) (1,670,370) ----------- ----------- ----------- Net increase (decrease) in cash and cash equivalents. . . . . . . (397,076) 917,956 (3,514,730) CASH AND CASH EQUIVALENTS, at beginning of year . . . . . . . . . . $ 4,240,991 $ 3,323,035 $ 6,837,765 ----------- ----------- ----------- CASH AND CASH EQUIVALENTS, at end of year . . . . . . . . . . . . . $ 3,843,915 $ 4,240,991 $ 3,323,035 =========== =========== =========== SUPPLEMENTAL CASH FLOW INFORMATION: Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . $ 4,675,062 $ 4,516,938 $ 5,145,963 Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . $ 576,527 $ 330,259 $ --
The accompanying notes to consolidated financial statements are an integral part of these statements. 16 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999, 1998 and 1997 1. SUMMARY OF ACCOUNTING POLICIES Principles of Consolidation - The consolidated financial statements include the accounts of Weyco Group, Inc. and all subsidiaries ("The Company"). All significant intercompany items are eliminated in the consolidated financial statements. Revenue Recognition - Sales to independent dealers are recorded at the time of shipment to those dealers. Sales through company-owned retail outlets are recorded at the time of delivery to retail customers. Inventories - Inventories are valued at cost, which is not in excess of market, determined on a last-in, first-out (LIFO) basis. Inventory costs include material, labor and factory overhead. Plant and Equipment and Depreciation - Plant and equipment are stated at cost and depreciated using primarily the straight-line method over their estimated useful lives as follows: buildings and improvements, 10 to 39 years; machinery and equipment, 5 to 10 years; furniture and fixtures, 5 to 7 years. Fully depreciated machinery and equipment are eliminated from the accounts. Expenditures for lasts, dies and patterns are charged to earnings as incurred. Income Taxes - Deferred income taxes are provided on temporary differences arising from differences in the basis of assets and liabilities for tax and financial reporting purposes. See Note 8. Earnings Per Share - Basic earnings per share excludes any dilutive effects of options, warrants and convertible securities. Diluted earnings per share includes any dilutive effects of options, warrants and convertible securities. Cash and Cash Equivalents - For purposes of the Consolidated Statements of Cash Flows, the Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. Financial Instruments - The Company has entered into forward exchange contracts for the purpose of hedging firmly committed inventory purchases with outside vendors. The Company accounts for these contracts under the deferral method. Accordingly, gains and losses are recorded in inventory when the inventory is purchased. At December 31, 1999, the Company has financial contracts outstanding to purchase 2.5 billion lira at a total price of $1,372,000. Based upon current exchange rates, the deferred loss on these contracts at December 31, 1999 is $64,000. The Company has also entered into forward exchange contracts for the purpose of hedging cash flows related to receivables denominated in Canadian dollars. At December 31, 1999 the Company has forward exchange contracts outstanding to sell 700,000 Canadian dollars for $479,000. The corresponding loss on these contracts is immaterial. 17 In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities." This standard requires that entities recognize derivatives as either assets or liabilities in the balance sheet and measure those instruments at fair value. The Company intends to adopt this standard in 2001. The adoption of this standard is not expected to have a material effect on the Company's balance sheet or statement of earnings. Use of Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported periods. Actual results could differ from those estimates. Advertising Costs - Advertising costs are expensed as incurred. Advertising costs were $3,588,000, $3,356,000 and $3,058,000 in 1999, 1998 and 1997, respectively. 2. FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amounts of all financial instruments, except marketable securities, approximate fair value due to the short-term nature of those instruments. The fair value of marketable securities is estimated based upon quoted market rates. See Note 3. 3. INVESTMENTS All of the Company's investments are classified as held-to-maturity securities and reported at amortized cost pursuant to SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities," as the Company has the intent and ability to hold all security investments to maturity. A summary of the amortized cost and estimated market values of investment securities at December 31, 1999 and 1998 are as follows:
1999 1998 ---------------------------- --------------------------- Amortized Market Amortized Market Cost Value Cost Value ------------ ----------- ----------- ----------- Municipality and revenue bonds: Current $ 4,860,576 $ 4,872,549 $ 8,853,095 $ 8,914,570 Due from one through five years 13,175,508 13,111,963 19,500,433 19,870,771 Due from five through ten years 3,250,104 3,146,672 2,575,885 2,644,780 Due from ten through twenty years 987,147 1,000,375 1,083,969 1,153,618 Due from twenty through thirty years 260,148 260,560 -- -- ------------ ----------- ----------- ----------- Total $ 22,533,483 $22,392,119 $32,013,382 $32,583,739 ============ =========== =========== ===========
18 The unrealized gains and losses on investment securities at December 31 are:
1999 1998 1997 ----------------------- -------------------------- ------------------------- Unrealized Unrealized Unrealized Unrealized Unrealized Unrealized Gains Losses Gains Losses Gains Losses ---------- ---------- ---------- ---------- ---------- ---------- Municipality and revenue bonds. . . . . . . . . . $58,722 $200,086 $571,242 $885 $337,496 $19,547
4. INVENTORIES At December 31, 1999 and 1998, inventories consist of:
1999 1998 ------------- -------------- Finished shoes $19,026,531 $11,303,009 Shoes in Process 380,957 388,160 Raw materials 132,243 95,161 ------------- -------------- Total inventories $19,539,731 $11,786,330
The excess of current cost over LIFO cost of inventories as of December 31, 1999 and 1998 was $16,801,000 and $16,663,000, respectively. 5. PLANT AND EQUIPMENT At December 31, 1999 and 1998, plant and equipment consists of:
1999 1998 ----------- ----------- Land $ 519,854 $ 678,395 Buildings 9,451,300 1,858,423 Machinery and equipment 9,518,162 4,638,815 Retail fixtures and leasehold improvements 1,722,361 1,779,557 Construction in progress 256,602 11,492,351 ----------- ----------- Plant and equipment $21,468,279 $20,447,541 Less: Accumulated depreciation 4,874,503 6,646,331 ----------- ----------- Plant and equipment, net $16,593,776 $13,801,210 =========== ===========
6. SHORT-TERM BORROWINGS AND BANK LINES OF CREDIT During 1998 and 1999, the Company issued commercial paper with 30 to 90 day maturities to finance the construction project. The commercial paper is backed by a three-year $12,000,000 revolving credit agreement, which the Company takes overnight advances on when the bank is unable to sell the commercial paper. At December 31, 1999 there was no commercial paper outstanding, and $8,800,000 of advances on the revolving credit agreement at a 5.2% interest rate. Total interest expense on commercial paper and advances for 1999 was $539,000. At December 31, 1998, $9,522,000 of commercial paper was outstanding at interest rates ranging from 5.35% to 5.95%, with a weighted average rate of 5.57%. Total related interest expense for 1998 was $368,000. 19 The Company has a short-term line of credit of $7,500,000 with a domestic bank and has banker acceptance loan facilities. There were no borrowings outstanding at December 31, 1999 and 1998 and no bank balances are required in support of these lines of credit. 7. EMPLOYEE RETIREMENT PLANS The Company has defined benefit retirement plans covering substantially all employees. Retirement benefits are provided based on employees' years of credited service and average earnings or stated amounts for years of service. Normal retirement age is 65 with provisions for earlier retirement. The plans also have provisions for disability and death benefits. The Company's funding policy is to make contributions to the plans such that all employees' benefits will be fully provided by the time they retire. Plan assets are stated at market value and consist primarily of U.S. government securities, corporate obligations and corporate equities. The Financial Accounting Standards Board issued Statement No. 132 "Employers' Disclosures about Pensions and Other Postretirement Benefits." The Company adopted this statement in fiscal 1998. The following is a reconciliation of the change in benefit obligation and plan assets for the years ended December 31, 1999 and 1998: CHANGE IN BENEFIT OBLIGATION
1999 1998 ----------- ----------- Benefit obligation, beginning of year. . . . . . . . . . . . . . . . . . . $15,942,000 $15,960,000 Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 322,000 328,000 Interest cost. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,116,000 1,139,000 Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 318,000 Actuarial gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (616,000) (676,000) Benefits paid. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (982,000) (1,127,000) ----------- ----------- Benefit obligation, end of year. . . . . . . . . . . . . . . . . . . . . . $15,782,000 $15,942,000 CHANGE IN PLAN ASSETS Fair value of plan assets, beginning of year . . . . . . . . . . . . . . . $20,939,000 $20,554,000 Actual return on plan assets. . . . . . . . . . . . . . . . . . . . . . . 2,019,000 1,478,000 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (12,000) (13,000) Contributions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38,000 47,000 Benefits paid. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (982,000) (1,127,000) ----------- ----------- Fair value of plan assets, end of year . . . . . . . . . . . . . . . . . . $22,002,000 $20,939,000 Funded status of plan . . . . . . . . . . . . . . . . .. . . . . . . . . . 6,220,000 4,997,000 Unrecognized net actuarial gain. . . . . . . . . . . . . . . . . . . . . . (2,530,000) (1,690,000) Unrecognized prior service cost. . . . . . . . . . . . . . . . . . . . . . 381,000 466,000 Unrecognized net transition asset. . . . . . . . . . . . . . . . . . . . . (422,000) (601,000) ----------- ----------- Prepaid benefit cost, recorded in Other assets . . . . . . . . . . . . . . $ 3,649,000 $ 3,172,000
20 Assumptions used in determining the funded status for 1999 and 1998 are:
1999 1998 ---- ---- Discount rate. . . . . . . . . . . . . . . . . . . . . . . . . . 8.0% 7.0% Rate of compensation increase. . . . . . . . . . . . . . . . . . 5.0% 5.0% Long-term rate of return on plan assets. . . . . . . . . . . . . 8.5% 8.5%
The components of net periodic pension cost for the years ended December 31, 1999, 1998 and 1997, are:
1999 1998 1997 --------------------------------------------- Benefits earned during the period. . . . . . . . . . . . . . . . . . . . $ 340,000 $ 341,000 $ 345,000 Interest cost on projected benefit obligation. . . . . . . . . . . . . . 1,116,000 1,139,000 1,071,000 Expected return on plan assets . . . . . . . . . . . . . . . . . . . . . (1,780,000) (1,478,000) (2,538,000) Net amortization and deferral. . . . . . . . . . . . . . . . . . . . . . (114,000) (404,000) 758,000 ------------ ------------- ------------ Net pension income . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (438,000) $ (402,000) $ (364,000) ============ ============= ============
The projected benefit obligation, accumulated benefit obligation, fair value of plan assets, and the accrued benefit liability for the pension plan with accumulated benefit obligations in excess of plan assets were $2,930,000, $2,747,000, $0 and $2,747,000, respectively, as of December 31, 1999, and $2,504,000, $1,941,000, $0 and $2,340,000, respectively, as of December 31, 1998. The Company also has a defined contribution plan covering substantially all employees not covered by a collective bargaining agreement. During 1999, 1998 and 1997 the Company contributed $87,000, $87,000 and $96,000, respectively, to the Plan. 8. INCOME TAXES The provision for income taxes includes the following components:
1999 1998 1997 ---------- ---------- ---------- Current - Federal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,645,000 $4,369,000 $4,225,000 State. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 846,000 948,000 907,000 Foreign. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77,000 -- 109,000 ---------- ---------- ---------- Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,568,000 5,317,000 5,241,000 Deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,332,000 133,000 (176,000) ---------- ---------- ---------- Total provision . . . . . . . . . . . . . . . . . . . . . . . . . . $5,900,000 $5,450,000 $5,065,000 ========== ========== ========== Effective tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34.8% 35.7% 35.8% ==== ==== ====
The difference between the effective tax rate and the Federal income tax rate of 34% is due to state income taxes, net of the Federal tax benefit, of 3.0% in 1999, 3.9% in 1998 and 4.1% in 1997, the effect of municipal bond interest of (2.6%) in 1999, (3.8%) in 1998 and (3.3%) in 1997, and other miscellaneous items. 21 The components of the net deferred tax asset as of December 31, 1999 and 1998, are as follows:
1999 1998 ---------- ---------- Deferred tax assets: Accounts receivable and inventory reserves. . . . . . . . . . . . . . . . . . . $1,219,000 $1,155,000 Deferred compensation . . . . . . . . . . . . . . . . . . . . 897,000 839,000 Depreciation. . . . . . . . . . . . . . . . . . . . . . . . . 333,000 717,000 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . 712,000 1,502,000 ---------- ---------- 3,161,000 4,213,000 ========== ========== Deferred tax liabilities: Prepaid pension . . . . . . . . . . . . . . . . . . . . . . . (1,423,000) (1,237,000) Cash value of life insurance. . . . . . . . . . . . . . . . . (774,000) (650,000) ---------- ---------- (2,197,000) (1,887,000) ---------- ---------- Net deferred tax asset. . . . . . . . . . . . . . . . . $ 964,000 $2,326,000 ========== ==========
The net deferred tax asset is classified in the Consolidated Balance Sheets as follows:
1999 1998 ---------- ---------- Current deferred income tax benefits. . . . . . . . . . . . . . . $2,880,000 $3,573,000 Noncurrent deferred income tax liabilities. . . . . . . . . . . . (1,916,000) (1,247,000) ========== ========== $ 964,000 $2,326,000 ========== ==========
9. DEFERRED COMPENSATION The Company has deferred compensation agreements with one current and one former executive. The Company expensed $151,000 in 1999, $141,000 in 1998, and $131,000 in 1997 in connection with these agreements. Amounts owed under these agreements are included in Accrued Wages, Salaries and Commissions on the Consolidated Balance Sheets. 10. OPERATING LEASES The Company operates retail shoe stores under both short-term and long-term leases. Some leases provide for a minimum rental plus percentage rentals based upon sales in excess of a specified amount, and other leases provide for rentals based solely on a percentage of sales. Total minimum rents were $804,000 in 1999 $908,000 in 1998 and $999,000 in 1997. Percentage rentals were $35,000 in 1999, $0 in 1998 and $87,000 in 1997. 22 Future fixed and minimum rental commitments required under operating leases that have initial or remaining noncancelable lease terms in excess of one year as of December 31,1999, are shown below. Renewal options exist for many long-term leases.
2000 . . . . . . . . . . . . . . . . . . . . . . . . $ 638,000 2001 . . . . . . . . . . . . . . . . . . . . . . . . 484,000 2002 . . . . . . . . . . . . . . . . . . . . . . . . 197,000 2003 . . . . . . . . . . . . . . . . . . . . . . . . 184,000 2004 and thereafter . . . . . . . . . . . . . . . . . . 370,000 ------------ Total. . . . . . . . . . . . . . . . . . . . . . . . $ 1,873,000
11. SHAREHOLDERS' INVESTMENT The Class B Common Stock has 10 votes per share, may only be transferred to certain permitted transferees, is convertible to Common Stock and shares equally with the Common Stock in cash dividends and liquidation rights. On July 21, 1997, the Company's Board of directors declared a 200% stock dividend on the Company's Common Stock, $1.00 par value, and on the Company's Class B Common Stock, $1.00 par value, so as to effect a three-for-one stock split without a change in par value. All previous per share and share data has been retroactively adjusted to reflect this dividend. In April 1998, the Company's Board of Directors authorized a stock repurchase program for up to 500,000 shares or approximately 10% of its common stock in open market transactions at prevailing prices. During 1998, the Company purchased 320,000 shares at a total cost of $8,484,000 under the program, and an additional 76,500 shares at a total cost of $1,932,000 in private transactions. In April 1999, the Board of Directors extended the stock repurchase program to cover the repurchase of 500,000 additional shares of Common Stock. During 1999, the Company purchased 204,400 shares at a total cost of $4,895,000 under the program, and 108,000 shares at a total cost of $2,664,000 in private transactions. 12. EARNINGS PER SHARE The following table sets forth the computation of net earnings per share and diluted net earnings per share:
1999 1998 1997 ----------- ----------- ----------- Numerator: Net earnings. . . . . . . . . . . . . . . . . . . . . . . . . $11,058,282 $ 9,804,519 $ 9,068,468 =========== =========== =========== Denominator: Basic weighted average shares . . . . . . . . . . . . . . . . 4,292,230 4,663,687 4,763,387 Effective of dilutive securities: Employee stock options. . . . . . . . . . . . . . . . . . . 46,357 67,388 61,663 ----------- ----------- ----------- Diluted weighted average shares . . . . . . . . . . . . . . . 4,338,587 4,731,075 4,825,050 =========== =========== =========== Basic earnings per share. . . . . . . . . . . . . . . . . . . . $2.58 $2.10 $1.90 ===== ===== ===== Diluted earnings per share. . . . . . . . . . . . . . . . . . . $2.55 $2.07 $1.88 ===== ====== =====
23 13. SEGMENT INFORMATION The Company determines its operating segments based on the information utilized by the Chief Executive Officer to allocate resources and assess performance. Based upon this criteria, the Company has determined that it operates in two business segments: wholesale distribution and retail sales of men's footwear. Wholesale shoes are marketed nationwide through more than 8,000 shoe, clothing and department stores. All sales are to unaffiliated customers in North America. Sales to the Company's largest customer, Brown Shoe Group, were 12% of total sales for 1999, 10% of total sales for 1998 and 13% of total sales for 1997. There are no other individually significant customers. In the retail division, the Company currently operates 11 company-owned stores in principal cities in the United States. The decrease in retail sales in recent years is a result of closing company-operated stores. Although no stores were closed in 1999, two were closed in 1998 and four were closed in 1997. These stores were closed primarily due to unprofitable operations or unattractive lease renewal terms. Management intends to continue to closely monitor retail operations and may close other retail units in the future if they are deemed unprofitable. Sales in retail outlets are made directly to the consumer by Company employees. In addition to the sale of the Company's brands of footwear in these retail outlets, other branded footwear and accessories are also sold in order to provide the consumer with as complete a selection as practically possible. The accounting policies of the segments are the same as those described in the Summary of Accounting Policies. Intersegment transactions are accounted for at cost. The Company evaluates performance based on earnings from operations before income taxes. Summarized segment data for 1999, 1998 and 1997 are as follows:
Wholesale 1999 Distribution Retail Total - ---- ------------- ---------- ------------ Net Sales $126,630,000 $6,868,000 $133,498,000 Depreciation and amortization 1,103,000 139,000 1,242,000 Earnings from operations 14,724,000 499,000 15,223,000 Total assets 93,865,000 2,054,000 95,919,000 Capital expenditures 4,429,000 2,000 4,431,000 1998 - ---- Net Sales $120,255,000 $6,819,000 $127,074,000 Depreciation and amortization 420,000 206,000 626,000 Earnings from operations 13,703,000 98,000 13,801,000 Total assets 90,506,000 2,276,000 92,782,000 Capital expenditures 12,115,000 1,000 12,116,000 1997 - ---- Net Sales $118,606,000 $8,423,000 $127,029,000 Depreciation and amortization 570,000 251,000 821,000 Earnings from operations 12,318,000 328,000 12,646,000 Total assets 79,454,000 2,750,000 82,204,000 Capital expenditures 548,000 6,000 554,000
Net sales above exclude intersegment sales, which are not material. 24 14. STOCK BASED COMPENSATION PLANS The Company has three stock option plans, the 1992 Nonqualified Stock Option Plan, the 1996 Nonqualified Stock Option Plan, and the 1997 Stock Option Plan. The Company accounts for these plans under APB Opinion No. 25, under which no compensation cost has been recognized. Had compensation cost for these plans been determined consistent with FASB Statement No. 123, the Company's net earnings and net earnings per share would have been reduced to the following pro forma amounts:
1999 1998 1997 -------------- ------------- -------------- Net Earnings As Reported . . . . . . . . . . . . . . . $ 11,058,282 $ 9,804,519 $ 9,068,468 Pro Forma . . . . . . . . . . . . . . . . $ 10,697,021 $ 9,404,665 $ 8,706,923 Basic Earnings Per Share As Reported . . . . . . . . . . . . . . . $ 2.58 $ 2.10 $ 1.90 Pro Forma . . . . . . . . . . . . . $ 2.49 $ 2.02 $ 1.83 Diluted Earnings Per Share As reported . . . . . . . . . . . . . . . $ 2.55 $ 2.07 $ 1.88 Proforma . . . . . . . . . . . . . . . . . $ 2.47 $ 1.99 $ 1.80
Because the Statement No. 123 method of accounting has not been applied to options prior to January 1, 1995, the resulting pro forma compensation cost may not be representative of that to be expected in future years. The following table summarizes the stock option activity under the Company's plans for the years ended December 31:
1999 1998 1997 -------------------- ---------------------- ----------------------- Wtd. Avg. Wtd.Avg. Wtd. Avg. Shares Ex. Price Shares Ex. Price Shares Ex. Price ------- --------- -------- --------- ------- --------- Outstanding at beginning of year 352,500 $ 17.17 329,000 $ 14.62 302,700 $ 12.26 Granted 71,250 22.14 69,000 25.53 68,000 22.40 Exercised (49,500) 11.59 (45,500) 11.37 (41,700) 10.19 -------- --------- -------- ------- -------- ------- Outstanding at end of year 374,250 18.85 352,500 17.17 329,000 $ 14.62 Exercisable at end of year 292,146 17.72 283,500 15.13 261,000 $ 12.59 Weighted average fair market value of options granted $ 7.78 $ 9.02 $ 8.28
The range of exercise prices for the 374,250 options outstanding at December 31, 1999 is $13.08 to $27.64. The weighted average remaining contractual life for these shares is 6 years as of December 31, 1999. At December 31, 1999, 391,750 shares of stock have been reserved for future issuance under the plans. The fair market value of each option granted is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions used:
1999 1998 1997 ----------- ---------- ---------- Risk-free interest rate. . . . . . . . . . . . . . . . . . . . . 6.60% 4.70% 5.70% Expected dividend yields . . . . . . . . . . . . . . . . . . . . 1.75% 1.40% 1.40% Expected remaining life. . . . . . . . . . . . . . . . . . . . . 8.2 yrs. 8.3 yrs. 8.2 yrs. Expected volatility. . . . . . . . . . . . . . . . . . . . . . . 23.0% 27.0% 28.0%
25 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareholders and Board of Directors of Weyco Group, Inc.: We have audited the accompanying consolidated balance sheets of Weyco Group, Inc. (a Wisconsin corporation) and subsidiaries as of December 31, 1999 and 1998, and the related consolidated statements of earnings, shareholders' investment and cash flows for each of the three years in the period ended December 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Weyco Group, Inc. and subsidiaries as of December 31, 1999 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. ARTHUR ANDERSEN LLP Milwaukee, Wisconsin February 17, 2000 26 MANAGEMENT'S RESPONSIBILITIES FOR FINANCIAL REPORTING The management of Weyco Group, Inc. is responsible for the preparation and integrity of all financial statements and other information contained in this Annual Report. The financial statements have been prepared in conformity with generally accepted accounting principles and necessarily include amounts based on judgments and estimates by management giving due consideration to materiality. The Company maintains internal control systems designed to provide reasonable assurance that the Company's financial records reflect the transactions of the Company and that its assets are protected from loss or unauthorized use. The Company's financial statements have been audited by Arthur Andersen LLP, independent public accountants, whose report thereon appears above. Management has made available to Arthur Andersen LLP the Company's financial records and related data to allow them to evaluate the Company's system of accounting controls and provide an independent assessment as to the financial statements. The Audit Committee of the Board of Directors is responsible for reviewing and evaluating the overall performance of the Company's financial reporting and accounting practices. To ensure independence, Arthur Andersen LLP has full and free access to the Audit Committee to discuss the results of their audits, their opinions on the adequacy of internal controls, and the quality of financial reporting. 27 DIRECTORS Thomas W. Florsheim Chairman Thomas W. Florsheim, Jr. President and Chief Executive Officer John W. Florsheim Executive Vice President and Chief Operating Officer Virgis W. Colbert Executive Vice President Miller Brewing Company Robert Feitler Chairman, Executive Committee Leonard J. Goldstein Retired, Former Chairman, President and Chief Executive Officer, Miller Brewing Company Frank W. Norris Chairman and Chief Executive Officer, Ken Cook Company Frederick P. Stratton, Jr. Chairman and Chief Executive Officer, Briggs & Stratton Corporation, Manufacturer of Gasoline Engines OFFICERS Thomas W. Florsheim Chairman Thomas W. Florsheim, Jr. President and Chief Executive Officer John W. Florsheim Executive Vice President and Chief Operating Officer David N. Couper Vice President James F. Gorman Vice President Peter S. Grossman Vice President John F. Wittkowske Vice President - Finance and Secretary 28 SUPPLEMENTAL INFORMATION ANNUAL MEETING Shareholders are invited to attend Weyco Group, Inc.'s 2000 Annual Meeting at 10:00 a.m. on April 25, 2000, at the general offices of the Company, 333 W. Estabrook Boulevard, Glendale, Wisconsin. STOCK EXCHANGE The Company's Common Stock (symbol WEYS) is listed on the NASDAQ Market System (NMS). TRANSFER AGENT AND REGISTRAR American Stock Transfer & Trust Company 40 Wall Street New York, New York 10005 COMPANY HEADQUARTERS Weyco Group, Inc. 333 W. Estabrook Boulevard Glendale, WI 53217 414-908-1600 OTHER INFORMATION A copy of the Company's Annual Report to the Securities and Exchange Commission (Form 10-K) will be furnished without charge to any stockholder upon written request. A copy of the Company's Quarterly Reports will be furnished without charge to any stockholder upon written or telephone request. All written requests should be sent to Investor Relations, Weyco Group, Inc., P. O. Box 1188, Milwaukee, Wisconsin 53201. Telephone requests should be made to (414) 908-1600. EX-21 3 SUBSIDIARIES OF THE REGISTRANT 1 EXHIBIT 21 WEYCO GROUP, INC. ----------------- SUBSIDIARIES OF THE REGISTRANT ------------------------------
Incorporated Name of Company In Subsidiary Of - --------------------------- ------------ ----------------- House of Advertising, Inc. Wisconsin Weyco Group, Inc. Weyco Investments, Inc. Nevada Weyco Group, Inc.
EX-23.1 4 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports included and incorporated by reference in this Form 10-K into the Company's previously filed Registration Statement File Nos. 33-48549, 333-03025 and 333-56035. ARTHUR ANDERSEN LLP Milwaukee, Wisconsin, March 24, 2000. EX-27 5 FINANCIAL DATA SCHEDULE
5 1,000 YEAR DEC-31-1999 JAN-01-1999 DEC-31-1999 3,844 4,861 24,688 2,785 19,540 53,093 21,468 4,874 95,919 26,253 0 0 0 4,161 63,589 95,919 133,498 133,498 95,737 118,275 (2,274) 391 539 16,958 5,900 11,058 0 0 0 11,058 2.58 2.55
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