-----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, GhMne3uR4eBsBQxs4KNaE4G768d3Dkjr1tCwRJIAFohRb1rXkyCjvGp41s5v+4M7 KRgC2bAhjhEji2zSDJ1DCA== 0000950124-99-002184.txt : 19990331 0000950124-99-002184.hdr.sgml : 19990331 ACCESSION NUMBER: 0000950124-99-002184 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990330 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: 99577507 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 ANNUAL REPORT 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, 1998 . ------------------------------- 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 8, 1999, there were outstanding 3,418,497 shares of Common Stock and 954,128 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 $67,896,000. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Corporation's Annual Report to Shareholders for the year ended December 31, 1998, are incorporated by reference in Parts I, II and IV of this report. Portions of the Corporation's Proxy Statement, dated March 30, 1999, prepared for the Annual Meeting of Shareholders scheduled for April 27, 1999, 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 15% 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 1998, 93% in 1997, and 92% in 1996. 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 10%, 13% and 13% of total sales for 1998, 1997 and 1996, respectively. Sales to another customer, J C Penney, were 10% of total sales for 1996. 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 warehouses maintained in Milwaukee and Beaver Dam, 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 1998, 7% in 1997 and 8% in 1996. 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 leased departments and company-operated stores. In 1998, 2 company-operated stores were closed. In 1997, 4 company-operated stores were closed. In 1996, 1 company-operated store and 13 leased departments 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 1997 it sold approximately 3% of the total men's non-rubber dress and casual shoes sold in the United States. As of December 31, 1998, the Company employed approximately 375 persons. Of those 375 employees, approximately 155 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 Milwaukee, Wisconsin Multistory office Owned and warehouse Milwaukee, Wisconsin Multistory warehouse Owned Beaver Dam, Wisconsin Multistory warehouse 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 68 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. 41 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 35 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 50 Vice President 1981 Vice President of the Company -- 1981 to present James F. Gorman 55 Vice President 1975 Vice President of the Company -- 1975 to present Peter S. Grossman 55 Vice President 1971 Vice President of the Company -- 1971 to present John F. Wittkowske 39 Vice President-Finance 1993 Vice President-Finance and Secretary of and Secretary 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 2 and 21 of the Annual Report to Shareholders for the year ended December 31, 1998, and is incorporated herein by reference. Item 6. Selected Financial Data Information required by this Item is set forth on page 2 of the Annual Report to Shareholders for the year ended December 31, 1998, 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 3 through 6 of the Annual Report to Shareholders for the year ended December 31, 1998, and is incorporated herein by reference. Item 8. Financial Statements and Supplementary Data Information required by this Item is set forth on pages 7 through 19 of the Annual Report to Shareholders for the year ended December 31, 1998, 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 3 of the Company's proxy statement for the Annual Meeting of Shareholders to be held on April 27, 1999, and is incorporated herein by reference. Item 11. Executive Compensation Information required by this Item is set forth on pages 4 through 8 of the Company's proxy statement for the Annual Meeting of Shareholders to be held on April 27, 1999, 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 27, 1999, 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 27, 1999, 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, 1998, 1997 and 1996 7 Consolidated Balance Sheets - December 31, 1998 and 1997 8-9 Consolidated Statements of Shareholders' Investment for the years ended December 31, 1998, 1997 and 1996 10 Consolidated Statements of Cash Flows for the years ended December 31, 1998, 1997 and 1996 11 Notes to Consolidated Financial Statements - December 31, 1998, 1997 and 1996 12-19 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, 1998, 1997 and 1996 - 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 generally accepted auditing standards, the consolidated financial statements included in Weyco Group, Inc.'s Annual Report to Shareholders incorporated by reference in this Form 10-K, and have issued our report thereon dated February 12, 1999. 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 12, 1999. -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 21 Subsidiaries of the Registrant 23.1 Consent of Independent Public Accountants Dated March 26, 1999 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, 1995 $1,023,180 $ 66,000 $ 960,000 $2,049,180 Add - Additions charged to earnings 438,938 454,241 4,314,617 5,207,796 Deduct - Charges for purposes for which reserves were established (313,938) (456,241) (4,194,617) (4,964,796) ---------- -------- ---------- ---------- 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 ========== =========== ========== ==========
-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 30 , 1999 ----------------------------------------- ----------------------- 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 30 , 1999 - ------------------------------------------- ----------------------- Thomas W. Florsheim, Chairman of the Board /s/ Thomas W. Florsheim, Jr. March 30 , 1999 - ------------------------------------------- ----------------------- Thomas W. Florsheim, Jr., President and Chief Executive Officer and Director /s/ John W. Florsheim March 30 , 1999 - ------------------------------------------- ----------------------- John W. Florsheim, Executive Vice President and Chief Operating Officer and Director /s/ John Wittkowske March 30 , 1999 - ------------------------------------------- ----------------------- John Wittkowske, Vice President-Finance (Principal Accounting Officer) /s/ Robert Feitler March 30 , 1999 - ------------------------------------------- ----------------------- Robert Feitler, Director /s/ Leonard J. Goldstein March 30 , 1999 - ------------------------------------------- ----------------------- Leonard J. Goldstein, Director /s/ Frank W. Norris March 30 , 1999 - ------------------------------------------- ----------------------- Frank W. Norris, Director /s/ Frederick P. Stratton, Jr. March 30 , 1999 - ------------------------------------------- ----------------------- Frederick P. Stratton, Jr., Director -12- EX-10.1 2 EMPLOYMENT AGREEMENT 1 EXHIBIT 10.1 AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT This Amendment No. 1 to Employment Agreement ("Amendment") dated as of January 1, 1999, amends the Employment Agreement dated as of January 1, 1997 (the "Original Agreement") between WEYCO GROUP, INC., a Wisconsin corporation ("the "Company") and THOMAS W. FLORSHEIM, SR. ("Florsheim"). Background The Company and Florsheim are parties to the Original Agreement, pursuant to which Florsheim is employed as the Chairman of the Board and Chief Executive Officer of the Company at an annual salary of $400,000, or such greater amount as the Board of Directors of the Company may fix. The Company and Florsheim have now agreed that (a) effective April 1, 1998, Mr. Florsheim will serve at an annual salary of $250,000 or such greater amount as the Board of Directors may fix, and (b) effective January 1, 1999, Mr. Florsheim will serve as the Chairman of the Board of the Company and will no longer be its Chief Executive Officer. The purpose of this Amendment is to revise the Original Agreement to reflect these changes and to extend its term through December 31, 2003. Agreement 1. The second sentence of Paragraph 1 of the Original Agreement is amended as of January 1, 1999, to read as follows: "Florsheim shall have such title and responsibilities as the Company's Board of Directors shall from time to time assign to him, but the duties which he shall be called upon to render hereunder shall not be of a nature substantially inconsistent with those he has rendered and is currently rendering to the Company as its Chairman of the Board." 2 2. The first sentence of Paragraph 2 of the Original Agreement is hereby amended as of April 1, 1998, to read as follows: "As compensation for his services to the Company during the term of this Agreement in whatever capacity or capacities rendered, the Company shall, subject to the provisions of Paragraph 3 hereof, pay Florsheim a salary of $250,000 (Two Hundred Fifty Thousand Dollars) per annum, or such greater amount per annum as the Board of Directors of the Company may, in its discretion, fix; said salary to be payable in equal, or approximately equal, biweekly installments. 3. The first sentence of Paragraph 3 of the Original Agreement is hereby amended to extend the term of the Agreement to and including December 31, 2003. 4. Except as revised herein, the Original Agreement is hereby confirmed in all respects. IN WITNESS WHEREOF, Florsheim has duly executed that this Amendment and the Company has caused this Amendment to be executed by its duly authorized officers and its corporate seal to be affixed hereunto, all as of the day and year first above written. WEYCO GROUP, INC. a Wisconsin corporation By: /s/ Thomas W. Florsheim, Jr. -------------------------------- Name: Thomas W. Florsheim, Jr. ------------------------------- Title: President and Chief Executive Officer ------------------------------ Attest: /s/ John Wittkowske ----------------------------- Name: John Wittkowske ------------------------------- Title: Secretary ------------------------------ /s/ Thomas W. Florsheim ------------------------------------ Thomas W. Florsheim EX-10.2 3 EMPLOYMENT AGREEMENT 1 EXHIBIT 10.2 AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT This Amendment No. 1 to Employment Agreement ("Amendment") dated as of January 1, 1999, amends the Employment Agreement dated as of January 1, 1997 (the "Original Agreement") between WEYCO GROUP, INC., a Wisconsin corporation ("the "Company") and THOMAS W. FLORSHEIM, JR. ("Florsheim"). Background The Company and Florsheim are parties to the Original Agreement, which states that Florsheim is employed as the President and Chief Operating Officer of the Company at an annual salary of $280,000, or such greater amount as the Board of Directors of the Company may fix. The Company and Florsheim have now agreed that Florsheim will serve as the President and Chief Executive Officer of the Company at a salary of $350,000 or such greater amount as the Board of Directors may fix. The purpose of this Amendment is to revise the Original Agreement to reflect these changes and to extend its term through December 31, 2003. Agreement 1. The second sentence of Paragraph 1 of the Original Agreement is amended to read as follows: "Florsheim shall have such title and responsibilities as the Company's Board of Directors shall from time to time assign to him, but the duties which he shall be called upon to render hereunder shall not be of a nature substantially inconsistent with those he has rendered and is currently rendering to the Company as its President and Chief Executive Officer." 2 2. The first sentence of Paragraph 2 of the Original Agreement is hereby amended to read as follows: "As compensation for his services to the Company during the term of this Agreement in whatever capacity or capacities rendered, the Company shall, subject to the provisions of Paragraph 3 hereof, pay Florsheim a salary of $350,000 (Three Hundred Fifty Thousand Dollars) per annum, or such greater amount per annum as the Board of Directors of the Company may, in its discretion, fix; said salary to be payable in equal, or approximately equal, biweekly installments. 3. The first sentence of Paragraph 3 of the Original Agreement is hereby amended to extend the term of the Agreement to and including December 31, 2003. 4. Except as revised herein, the Original Agreement is hereby confirmed in all respects. IN WITNESS WHEREOF, Florsheim has duly executed that this Amendment and the Company has caused this Amendment to be executed by its duly authorized officers and its corporate seal to be affixed hereunto, all as of the day and year first above written. WEYCO GROUP, INC. a Wisconsin corporation By: /s/ Thomas W. Florsheim --------------------------------- Name: Thomas W. Florsheim ------------------------------- Title: Chairman of the Board ------------------------------ Attest: /s/ John Wittkowske ------------------------------ Name: John Wittkowske ------------------------------- Title: Secretary ------------------------------ Thomas W. Florsheim, Jr. ------------------------------------ Thomas W. Florsheim, Jr. EX-10.3 4 EMPLOYMENT AGREEMENT 1 EXHIBIT 10.3 AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT This Amendment No. 1 to Employment Agreement ("Amendment") dated as of January 1, 1999, amends the Employment Agreement dated as of January 1, 1997 (the "Original Agreement") between WEYCO GROUP, INC., a Wisconsin corporation ("the "Company") and JOHN W. FLORSHEIM ("Florsheim"). Background The Company and Florsheim are parties to the Original Agreement, pursuant to which Florsheim is employed as the Executive Vice President of the Company at an annual salary of $200,000, or such greater amount as the Board of Directors of the Company may fix. The Company and Florsheim have now agreed that Florsheim will serve as the Executive Vice President and Chief Operating Officer of the Company at a salary of $260,000 or such greater amount as the Board of Directors may fix. The purpose of this Amendment is to revise the Original Agreement to reflect these changes and to extend its term through December 31, 2003. Agreement 1. The second sentence of Paragraph 1 of the Original Agreement is amended to read as follows: "Florsheim shall have such title and responsibilities as the Company's Board of Directors shall from time to time assign to him, but the duties which he shall be called upon to render hereunder shall not be of a nature substantially inconsistent with those he has rendered and is currently rendering to the Company as its Executive Vice President and Chief Operating Officer." 2. The first sentence of Paragraph 2 of the Original Agreement is hereby amended to read as follows: "As compensation for his services to the Company during the term of this Agreement in whatever capacity or capacities rendered, the Company shall, subject to the provisions of Paragraph 3 hereof, pay Florsheim a salary of $260,000 (Two Hundred Sixty Thousand Dollars) per annum, or such greater amount per annum as the 2 Board of Directors of the Company may, in its discretion, fix; said salary to be payable in equal, or approximately equal, biweekly installments. 3. The first sentence of Paragraph 3 of the Original Agreement is hereby amended to extend the term of the Agreement to and including December 31, 2003. 4. Except as revised herein, the Original Agreement is hereby confirmed in all respects. IN WITNESS WHEREOF, Florsheim has duly executed that this Amendment and the Company has caused this Amendment to be executed by its duly authorized officers and its corporate seal to be affixed hereunto, all as of the day and year first above written. WEYCO GROUP, INC. a Wisconsin corporation By: /s/ Thomas W. Florsheim --------------------------------- Name: Thomas W. Florsheim ------------------------------- Title: Chairman of the Board ------------------------------ Attest: /s/ John Wittkowske ------------------------------ Name: John Wittkowske ------------------------------- Title: Secretary ------------------------------ /s/ John W. Florsheim ------------------------------------ John W. Florsheim EX-13 5 ANNUAL REPORT 1 TO OUR SHAREHOLDERS: - -------------------------------------------------------------------------------- 1998 was another record year for our company. Net earnings grew to $9.8 million, an increase of 8% over 1997. Our earnings per share were $2.07, an increase of over 10%. This now marks the fourth straight year we have achieved record earnings. Our continuing mission is to provide the best value across the various footwear categories in which we compete. Our commitment to this end has enabled us to strengthen our position as a key player in the men's branded footwear market. During 1998, our wholesale sales increased $1.6 million, or 1%. Despite a challenging retail environment, our sales were buoyed, in part, by the successful introduction of two brand extensions, SAO by Stacy Adams and Nunn Bush NXXT, both of which exceeded our expectations. As we look toward 1999, we believe all of our brands are well positioned for continued growth. In 1998, our Retail Division was reduced from 13 units to 11 units. This resulted in overall retail sales declining by $1.6 million, which offset the increase in wholesale sales. Retail sales now account for only 5% of overall Company sales. We will continue to evaluate our Retail Division as store leases expire, in an effort to continue to maintain our profitability in this division. The Company's corporate office moved into a new 346,000 square foot office and distribution center on February 5, 1999. We plan to move both of our warehouses to the new facility in the second quarter of 1999. We are confident that this facility, coupled with our system improvements, will greatly enhance our distribution process enabling us to better serve our customers and continue to grow as we move into the next millenium. Effective January 1, 1999, Thomas Florsheim stepped down as Chief Executive Officer of the Company. He remains Chairman of the Board. His leadership is succeeded by his sons, Thomas Florsheim, Jr. and John Florsheim. Thomas Florsheim, Jr., who has been with the Company for over 17 years and has served as President since 1996, was appointed Chief Executive Officer of the Company. John Florsheim, who has worked for the Company since 1994 and has been its Executive Vice President since 1996, was appointed Chief Operating Officer of the Company. With the continuing consolidation of retailers, the current environment presents unique challenges. We believe that we are taking the necessary steps to keep our brands relevant and profitable. We look forward to a successful 1999. /s/ Thomas W. Florsheim Thomas W. Florsheim Chairman of the Board /s/ Thomas W. Florsheim, Jr. Thomas W. Florsheim, Jr. President & Chief Executive Officer 1 2 SELECTED FINANCIAL DATA - --------------------------------------------------------------------------------
Years Ended December 31 ---------------------------------------------------------------------------- 1998 1997 1996 1995 1994 ------------ ------------ ------------ ------------ ------------ Net sales............... $127,074,000 $127,029,000 $129,314,000 $120,643,000 $114,719,000 Net earnings............ $ 9,805,000 $ 9,068,000 $ 8,072,000 $ 6,807,000 $ 6,179,000 Diluted earnings per share................. $ 2.07 $ 1.88 $ 1.65 $ 1.21 $ .99 Weighted average diluted shares outstanding.... 4,731,075 4,825,050 4,886,188 5,647,360 6,250,480 Cash dividends per share................. $ .35 $ .31 $ .29 $ .28 $ .27 Total assets............ $ 92,782,000 $ 82,204,000 $ 73,077,000 $ 79,328,000 $ 72,827,000
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 - --------------------------------------------------------------------------------
1998 1997 --------------------------------------------------------------------- Price Range Cash Price Range Cash ----------- Dividends ----------- Dividends High Low Declared High Low Declared Quarter: --------------------------------------------------------------------- First................................. $23.75 $21.00 $.08 $16.50 $13.42 $.07 Second................................ 28.25 21.88 .09 23.08 15.33 .08 Third................................. 28.50 26.13 .09 34.00 21.17 .08 Fourth................................ 26.75 25.00 .09 33.00 20.00 .08 ---- ---- $.35 $.31 ==== ====
Note: All share, per share, stock price and dividend information has been adjusted to reflect the September 2, 1997 200% stock dividend. There are approximately 500 holders of record of the Company's common stock as of March 1, 1999. 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. 2 3 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 approximately $36,254,000 at December 31, 1998, and $40,789,000 at December 31, 1997. In addition, the Company maintains a $7,500,000 bank line of credit and has banker acceptance loan facilities to provide funds on a short-term basis when necessary. There were no draws on the line of credit during 1998. The Company's capital expenditures were $12,116,000, $554,000 and $251,000 in 1998, 1997 and 1996, respectively. The increase in capital expenditures in 1998 was due 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. The commercial paper is backed by a three-year, $12 million revolving credit agreement. At December 31, 1998, $9,522,000 of commercial paper was outstanding. The Company's corporate offices moved into the new building in February 1999. The warehouses are expected to move to the new building in the second quarter of 1999. The total cost of the facility, including machinery and equipment, is expected to be approximately $14,000,000. In the past several years, the Company has repurchased shares of its Common and Class B Common Stock. In April 1998, the 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 this program. The Company also purchased 76,500 shares at a total cost of $1,932,000 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. RESULTS OF OPERATIONS 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. 3 4 - -------------------------------------------------------------------------------- The provision for income taxes was at an effective rate of 36% in both 1998 and 1997. 1997 VS. 1996 Sales in 1997 were $127,029,000 compared with $129,314,000 in 1996. The decrease in overall net sales is the result of a decline in retail sales from $10,952,000 in 1996 to $8,423,000 in 1997. This decline was caused by the closing of 13 leased departments in July 1996 and the closing of 4 additional retail units in 1997. Same store retail sales increased 7.6% in 1997. Sales in the wholesale division were up slightly from $118,362,000 in 1996 to $118,606,000 in 1997. Overall gross earnings as a percent of net sales were 28% for 1997 and 27% for 1996. Wholesale gross earnings as a percent of wholesale net sales were 26% for 1997 and 25% for 1996. Retail gross earnings as a percent of retail net sales increased from 47% for 1996 to 50% for 1997, primarily due to a $600,000 charge made to retail cost of sales during the first quarter of 1996 for the closing of retail units. Overall selling and administrative expenses as a percent of net sales were consistent at 18% for the years ended December 31, 1997 and 1996. Wholesale selling and administrative expenses as a percent of wholesale net sales increased from 15% in 1996 to 16% in 1997, primarily due to fees incurred in 1997 relating to enhancements of our information systems. Retail selling and administrative expenses as a percent of retail net sales decreased from 49% in 1996 to 46% in 1997. The decreases noted in the retail figures resulted from the closing of less profitable retail units during 1996 and 1997. Sales at the remaining retail stores have increased in relation to occupancy and employee expenses. Interest income increased from $1,144,000 in 1996 to $1,475,000 in 1997, primarily due to higher marketable securities balances during the year. The provision for income taxes was at an effective rate of 36% in 1997 and 37% in 1996. 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. 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 developed a plan to modify or replace systems as considered necessary. STATE OF READINESS Management has completed their assessment of potential Year 2000 issues, and to date, has completed approximately 75% of the overall project. The project is currently expected to be completed by September 1999. The Company has recently gone live with critical systems, and no major problems have been detected. All machinery in the new warehouse facility is 4 5 - -------------------------------------------------------------------------------- new and is Year 2000 compliant. The Company is currently in the process of assessing any issues with machinery at the manufacturing facility in Beaver Dam, WI. Management has sent out questionnaires to major suppliers and other third parties with whom the Company has material relationships, and is in the process of assessing any potential problems. To date, no major problems have been discovered through this process. RELATED COSTS The total cost for the entire Year 2000 Project is estimated to be $800,000, of which approximately $700,000 has been incurred to date. RISKS The Company presently does not anticipate that a material business disruption will occur as a result of Year 2000 issues. However, to the extent the Company is unable to resolve Year 2000 issues, the Company's business, financial position and results of operations could be materially adversely affected. The Company's Year 2000 compliance efforts are subject to several risks, including, among others: the failure of its external business partners to achieve Year 2000 compliance in a timely manner; unexpected problems identified in testing results; delays in system conversion or implementation; the Company's failure to identify fully all Year 2000 dependencies in its systems and in the systems of its external business partners; and the failure of parts of the global infrastructure, including national banking systems, power, transportation facilities, communications and governmental activities, to be fully functional after 1999. As the Company's testing and implementation of its systems and assessment of its manufacturing machinery are underway, and as responses from many of its third parties are not completely assessed, the Company cannot fully and accurately quantify the impact of its most reasonably likely worst case Year 2000 scenario at the present time. CONTINGENCY PLANS Management currently anticipates that the Year 2000 project will be completed, and the systems will be tested and implemented before the end of the third quarter of 1999. If issues arise which lead management to conclude that the project or certain portions thereof may not be completed on a timely basis, then management will develop contingency plans to address those issues or problems as considered necessary. FORWARD-LOOKING STATEMENTS This report contains certain forward-looking statements with respect to the Company's new office and distribution center, Year 2000 issues, and its outlook for 1999. These statements represent the Company's reasonable judgement with respect to future events and are subject to risks and uncertainties that could cause actual results to differ materially. These factors could include the effects of delays in the implementation of our warehouse systems or significant adverse changes in the economic conditions affecting 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. 5 6 - -------------------------------------------------------------------------------- At December 31, 1998, the Company has financial contracts outstanding to purchase 1.5 billion lira at a total price of $869,000. Based on the December 31, 1998 exchange rate, the deferred gain (which is not recorded) on these contracts would be $39,000. All of the contracts expire in less than one year. As of December 31, 1998, the Company has not entered any forward exchange contracts for selling Canadian dollars, therefore, there is no hedge against exposure for these transactions. As of December 31, 1998, the Company has approximately $1.4 million US dollars of Canadian accounts receivable outstanding, all which are all due to be paid within one year. INTEREST RATES The Company is exposed to interest rate fluctuations on its borrowings. During 1998, the Company issued fixed rate commercial paper with maturities of 30 to 90 days. At December 31, 1998, $9,522,000 of commercial paper was outstanding at interest rates ranging from 5.35% to 5.95%. Total related interest expense for 1998 was $360,000. There were no other borrowings during 1998 or outstanding as of December 31, 1998. 6 7 CONSOLIDATED STATEMENTS OF EARNINGS For the years ended December 31, 1998, 1997 and 1996 - --------------------------------------------------------------------------------
1998 1997 1996 ------------ ------------ ------------ NET SALES............................................ $127,074,114 $127,028,749 $129,314,045 COST OF SALES........................................ 90,961,465 91,708,986 94,474,268 ------------ ------------ ------------ Gross earnings..................................... 36,112,649 35,319,763 34,839,777 SELLING AND ADMINISTRATIVE EXPENSES.................. 22,311,362 22,673,557 23,175,555 ------------ ------------ ------------ Earnings from operations........................... 13,801,287 12,646,206 11,664,222 INTEREST INCOME...................................... 1,786,402 1,475,230 1,143,523 INTEREST EXPENSE..................................... (367,542) -- -- OTHER INCOME AND EXPENSE, net........................ 34,372 12,032 (17,324) ------------ ------------ ------------ Earnings before provision for income taxes......... 15,254,519 14,133,468 12,790,421 PROVISION FOR INCOME TAXES........................... 5,450,000 5,065,000 4,718,000 ------------ ------------ ------------ Net earnings....................................... $ 9,804,519 $ 9,068,468 $ 8,072,421 ============ ============ ============ BASIC EARNINGS PER SHARE*............................ $2.10 $1.90 $1.66 ============ ============ ============ DILUTED EARNINGS PER SHARE*.......................... $2.07 $1.88 $1.65 ============ ============ ============
- ------------------------- * Earnings per share figures have been adjusted to reflect the September 2, 1997 200% stock dividend. The accompanying notes to consolidated financial statements are an integral part of these statements. 7 8 CONSOLIDATED BALANCE SHEETS December 31, 1998 and 1997 - --------------------------------------------------------------------------------
1998 1997 ----------- ----------- ASSETS CURRENT ASSETS: Cash and cash equivalents................................. $ 4,240,991 $ 3,323,035 Marketable securities, at amortized cost.................. 8,853,095 7,360,953 Accounts receivable, less reserves of $2,632,000 and $2,470,180, respectively................................ 19,597,979 17,672,176 Inventories............................................... 11,786,330 11,161,453 Deferred income tax benefits.............................. 3,573,000 3,357,000 Prepaid expenses and other current assets................. -- 37,447 ----------- ----------- Total current assets................................. 48,051,395 42,912,064 ----------- ----------- MARKETABLE SECURITIES, at amortized cost.................... 23,160,287 30,105,090 OTHER ASSETS................................................ 7,769,106 6,874,191 PLANT AND EQUIPMENT, net.................................... 13,801,210 2,312,770 ----------- ----------- $92,781,998 $82,204,115 =========== ===========
The accompanying notes to consolidated financial statements are an integral part of these balance sheets. 8 9 - --------------------------------------------------------------------------------
1998 1997 ----------- ----------- LIABILITIES AND SHAREHOLDERS' INVESTMENT CURRENT LIABILITIES: Short-term borrowings..................................... $ 9,521,545 $ -- Accounts payable.......................................... 7,389,680 6,275,563 Dividend payable.......................................... 403,103 381,954 Accrued liabilities - Wages, salaries and commissions........................ 3,044,012 2,785,932 Taxes other than income taxes.......................... 98,718 134,958 Other.................................................. 4,493,374 4,085,278 Accrued income taxes...................................... 1,436,689 979,024 ----------- ----------- Total current liabilities............................ 26,387,121 14,642,709 ----------- ----------- DEFERRED INCOME TAX LIABILITIES............................. 1,247,000 884,000 SHAREHOLDERS' INVESTMENT: Common Stock, $1.00 par value, authorized 4,000,000 shares, issued and outstanding 3,469,358 shares in 1998 and 3,809,171 shares in 1997........................... 3,469,358 3,809,171 Class B Common Stock, $1.00 par value, authorized 2,000,000 shares, issued and outstanding 954,567 shares in 1998 and 965,754 shares in 1997..................... 954,567 965,754 Capital in excess of par value............................ 2,615,295 2,086,054 Reinvested earnings....................................... 58,108,657 59,816,427 ----------- ----------- Total shareholders' investment....................... 65,147,877 66,677,406 ----------- ----------- $92,781,998 $82,204,115 =========== ===========
9 10 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' INVESTMENT For the years ended December 31, 1998, 1997 and 1996 - --------------------------------------------------------------------------------
Class B Capital in Common Common Excess of Reinvested Stock Stock Par Value Earnings ---------- --------- ---------- ------------ Balance, December 31, 1995.................... $1,442,787 $ 441,228 $2,772,530 $ 59,426,452 Add (Deduct) - Net earnings............................. -- -- -- 8,072,421 Cash dividends declared ($.29 per share*)................................ -- -- -- (1,394,930) Conversions of Class B Common Stock to Common Stock........................... 6,446 (6,446) -- -- Stock options exercised.................. 2,500 -- 77,031 -- Shares purchased and retired............. (192,680) (106,360) (1,183,496) (10,253,231) ---------- --------- ---------- ------------ Balance, December 31, 1996.................... 1,259,053 328,422 1,666,065 55,850,712 Add (Deduct) - Net earnings............................. -- -- -- 9,068,468 Cash dividends declared ($.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 ========== ========= ========== ============
- ------------------------- *Adjusted to reflect the September 2, 1997 200% stock dividend, as well as dilution from outstanding stock options. The accompanying notes to consolidated financial statements are an integral part of these statements. 10 11 CONSOLIDATED STATEMENTS OF CASH FLOWS For the years ended December 31, 1998, 1997 and 1996 - --------------------------------------------------------------------------------
1998 1997 1996 ------------ ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings........................................ $ 9,804,519 $ 9,068,468 $ 8,072,421 Adjustments to reconcile net earnings to net cash provided by operating activities-- Depreciation..................................... 626,324 821,317 1,044,559 Deferred income taxes............................ 133,000 (176,000) 71,000 Deferred compensation............................ 140,664 131,460 130,185 Pension income................................... (401,508) (364,173) (361,173) Loss on retirement of assets..................... 949 22,696 62,468 Investment in officers' life insurance........... (456,873) (479,113) (445,718) Changes in operating assets and liabilities-- Accounts receivable............................. (1,925,803) 563,228 632,102 Inventories..................................... (624,877) 1,237,991 2,546,263 Prepaids and other current assets............... 37,447 (37,441) 10,211 Accounts payable................................ 1,114,117 (517,992) (2,388,378) Accrued liabilities............................. 643,157 1,254,831 1,306,691 Accrued income taxes............................ 471,665 (116,217) 901,875 ------------ ------------ ------------ Net cash provided by operating activities...... 9,562,781 11,409,055 11,582,506 ------------ ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of marketable securities................... (10,141,119) (26,018,202) (15,192,006) Proceeds from sales of marketable securities........ 15,604,075 13,268,698 13,720,516 Purchase of plant and equipment..................... (12,115,713) (553,911) (250,893) Proceeds from sales of plant and equipment.......... -- 50,000 4,430 ------------ ------------ ------------ Net cash used for investing activities......... ( 6,652,757) (13,253,415) (1,717,953) ------------ ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Payment of deferred compensation.................... -- -- (1,175,000) Cash dividends paid................................. (1,614,460) (1,444,232) (1,442,689) Shares purchased and retired........................ (10,416,575) (650,989) (11,735,767) Proceeds from stock options exercised............... 517,422 424,851 79,531 Short-term borrowings............................... 9,521,545 -- -- ------------ ------------ ------------ Net cash used for financing activities......... (1,992,068) (1,670,370) (14,273,925) ------------ ------------ ------------ Net increase (decrease) in cash and cash equivalents...................................... 917,956 (3,514,730) (4,409,372) CASH AND CASH EQUIVALENTS, at beginning of year....... $ 3,323,035 $ 6,837,765 $ 11,247,137 ------------ ------------ ------------ CASH AND CASH EQUIVALENTS, at end of year............. $ 4,240,991 $ 3,323,035 $ 6,837,765 ============ ============ ============ SUPPLEMENTAL CASH FLOW INFORMATION: Income taxes paid................................... $ 4,516,938 $ 5,145,963 $ 3,744,349 Interest paid....................................... $ 330,259 $ -- $ --
The accompanying notes to consolidated financial statements are an integral part of these statements. 11 12 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1998, 1997 and 1996 - -------------------------------------------------------------------------------- 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 - In 1997, the Financial Accounting Standards Board issued Statement No. 128, Earnings Per Share. Statement 128 replaced the calculation of primary and fully diluted earnings per share with basic and diluted earnings per share. Unlike primary earnings per share, basic earnings per share excludes any dilutive effects of options, warrants and convertible securities. Diluted earnings per share is very similar to the previously reported fully diluted earnings per share. All earnings per share amounts have been restated to conform to the Statement 128 requirements. 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, 1998, the Company has financial contracts outstanding to purchase 1.5 billion lira at a total price of $869,000. Based upon current exchange rates, the deferred gain/loss on these contracts is not significant. 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 2000. 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 $3,356,000, $3,058,000 and $2,951,000 in 1998, 1997 and 1996, 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 4. 12 13 - -------------------------------------------------------------------------------- 3. INVENTORIES At December 31, 1998 and 1997, inventories consist of:
1998 1997 ----------- ----------- Finished shoes......................................... $11,303,009 $10,713,099 Shoes in Process....................................... 388,160 347,189 Raw materials.......................................... 95,161 101,165 ----------- ----------- Total inventories................................. $11,786,330 $11,161,453
The excess of current cost over LIFO cost of inventories as of December 31, 1998 and 1997 was $16,663,000 and $16,769,000, respectively. 4. 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, 1998 and 1997 are as follows:
1998 1997 -------------------------- -------------------------- Amortized Market Amortized Market Cost Value Cost Value ----------- ----------- ----------- ----------- Municipality and revenue bonds: Current.................................. $ 8,853,095 $ 8,914,570 $ 7,360,953 $ 7,383,257 Due from one through five years.......... 19,500,433 19,870,771 26,397,247 26,599,729 Due from five through ten years.......... 2,575,885 2,644,780 3,707,843 3,801,006 Due from ten through twenty years........ 1,083,969 1,153,618 -- -- ----------- ----------- ----------- ----------- Total................................. $32,013,382 $32,583,739 $37,466,043 $37,783,992 =========== =========== =========== ===========
The unrealized gains and losses on investment securities at December 31 are:
1998 1997 1996 ----------------------- ----------------------- ----------------------- Unrealized Unrealized Unrealized Unrealized Unrealized Unrealized Gains Losses Gains Losses Gains Losses ---------- ---------- ---------- ---------- ---------- ---------- Municipality and revenue bonds....... $571,242 $885 $337,496 $19,547 $127,490 $33,600
5. PLANT AND EQUIPMENT At December 31, 1998 and 1997, plant and equipment consists of:
1998 1997 ----------- ---------- Land.................................................... $ 678,395 $ 678,395 Buildings............................................... 1,858,423 1,858,423 Machinery and equipment................................. 4,638,815 4,036,486 Retail fixtures and leasehold improvements.............. 1,779,557 2,034,745 Construction in progress................................ 11,492,351 -- ----------- ---------- Plant and equipment................................... $20,447,541 $8,608,049 Less: Accumulated depreciation.......................... 6,646,331 6,295,279 ----------- ---------- Plant and equipment, net.............................. $13,801,210 $2,312,770 =========== ==========
At December 31, 1998, plant and equipment includes $11,492,000 of construction costs for the Company's new office and distribution center and related equipment. The Company's corporate offices moved into the new building in February 1999. The warehouses are expected to move to the new building in the second quarter of 1999. 13 14 - -------------------------------------------------------------------------------- 6. SHORT-TERM BORROWINGS AND BANK LINES OF CREDIT During 1998, 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. 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 $360,000. 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, 1998 and 1997 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. In February, 1998 The Financial Accounting Standards Board issued Statement No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits." The Company has 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, 1998 and 1997:
1998 1997 ----------- ----------- CHANGE IN BENEFIT OBLIGATION Benefit obligation, beginning of year.................. $15,960,000 $15,295,000 Service benefit........................................ 328,000 331,000 Interest cost.......................................... 1,139,000 1,071,000 Amendments............................................. 318,000 248,000 Actuarial gain......................................... (676,000) (208,000) Benefits paid.......................................... (1,127,000) (777,000) ----------- ----------- Benefit obligation, end of year........................ $15,942,000 $15,960,000 CHANGE IN PLAN ASSETS Fair value of plan assets, beginning of year........... $20,554,000 $18,805,000 Actual return on plan assets........................... 1,478,000 2,538,000 Expenses............................................... (13,000) (14,000) Contribution........................................... 47,000 2,000 Benefits paid.......................................... (1,127,000) (777,000) ----------- ----------- Fair value of plan assets, end of year................. $20,939,000 $20,554,000 Funded status of plan.................................. $ 4,997,000 $ 4,594,000 Unrecognized net actuarial gain........................ (1,690,000) (1,284,000) Unrecognized prior service cost........................ 466,000 232,000 Unrecognized net transition asset...................... (601,000) (820,000) ----------- ----------- Prepaid benefit cost................................... $ 3,172,000 $ 2,722,000
Assumptions used in determining the funded status for both 1998 and 1997 are: Discount rate............................................... 7% Rate of compensation increase............................... 5% Long-term rate of return on plan assets..................... 8.5%
14 15 - -------------------------------------------------------------------------------- The components of net periodic pension cost for the years ended December 31, 1998, 1997 and 1996, are:
1998 1997 1996 ----------- ----------- ----------- Benefits earned during the period........................ $ 341,000 $ 345,000 $ 349,000 Interest cost on projected benefit obligation............ 1,139,000 1,071,000 1,025,000 Expected return on plan assets........................... (1,478,000) (2,538,000) (1,663,000) Net amortization and deferral............................ (404,000) 758,000 (72,000) ----------- ----------- ----------- Net pension income.................................... $ (402,000) $ (364,000) $ (361,000) =========== =========== ===========
The Company also has a defined contribution plan covering substantially all employees not covered by a collective bargaining agreement. During 1998, 1997 and 1996 the Company contributed $87,000, $96,000 and $85,000, respectively, to the Plan. 8. INCOME TAXES The provision for income taxes includes the following components:
1998 1997 1996 ---------- ---------- ---------- Current - Federal.................................................. $4,369,000 $4,225,000 $3,854,000 State.................................................... 948,000 907,000 793,000 Foreign.................................................. -- 109,000 -- ---------- ---------- ---------- Total................................................. 5,317,000 5,241,000 4,647,000 Deferred................................................... 133,000 (176,000) 71,000 ---------- ---------- ---------- Total provision....................................... $5,450,000 $5,065,000 $4,718,000 ========== ========== ========== Effective tax rate......................................... 35.7% 35.8% 36.9% ========== ========== ==========
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 3.9% in 1998, 4.1% in 1997 and 4.2% in 1996, the effect of municipal bond interest of (3.8%) in 1998, (3.3%) in 1997 and (2.8%) in 1996, and other miscellaneous items. The components of the net deferred tax asset as of December 31, 1998 and 1997, are as follows:
1998 1997 ----------- ----------- Deferred tax assets: Accounts receivable and inventory reserves............ $ 1,155,000 $ 1,171,000 Deferred compensation................................. 839,000 784,000 Depreciation.......................................... 717,000 689,000 Other................................................. 1,502,000 1,402,000 ----------- ----------- 4,213,000 4,046,000 ----------- ----------- Deferred tax liabilities: Prepaid pension....................................... (1,237,000) (1,101,000) Cash value of life insurance.......................... (650,000) (472,000) ----------- ----------- (1,887,000) (1,573,000) ----------- ----------- Net deferred tax asset............................. $ 2,326,000 $ 2,473,000 =========== ===========
15 16 - -------------------------------------------------------------------------------- The net deferred tax asset is classified in the Consolidated Balance Sheets as follows:
1998 1997 ----------- ---------- Current deferred income tax benefits..................... $ 3,573,000 $3,357,000 Noncurrent deferred income tax liabilities............... (1,247,000) (884,000) ----------- ---------- $ 2,326,000 $2,473,000 =========== ==========
9. DEFERRED COMPENSATION The Company has deferred compensation agreements with one current and one former executive. The Company expensed $141,000 in 1998, $131,000 in 1997, and $130,000 in 1996 in connection with these agreements. On December 1, 1995, the Company amended each of these agreements to allow for the acceleration of payments under such agreements, regardless of whether the executive has retired, remains in the Company's employ or otherwise terminates his employment. Accordingly, the Company paid $1,175,000 under these amended agreements in 1996. Remaining amounts owed are included in accrued wages, salaries and commissions on the Consolidated Balance Sheets. 10. OPERATING LEASES The Company operates retail shoe stores and departments 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 $908,000 in 1998, $999,000 in 1997 and $1,160,000 in 1996. Percentage rentals were $0 in 1998, $87,000 in 1997 and $401,000 in 1996. 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, 1998, are shown below. Renewal options exist for many long-term leases. 1999........................................................ $ 633,000 2000........................................................ 477,000 2001........................................................ 325,000 2002........................................................ 104,000 2003 and thereafter......................................... 125,000 ---------- Total....................................................... $1,664,000 ==========
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 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. As of December 31, 1998, the Company had purchased 320,000 shares at a total cost of $8,484,000 under the program. 16 17 - -------------------------------------------------------------------------------- 12. EARNINGS PER SHARE The following table sets forth the computation of net earnings per share and diluted net earnings per share:
1998 1997 1996 ---------- ---------- ---------- Numerator: Net earnings............................... $9,804,519 $9,068,468 $8,072,421 ========== ========== ========== Denominator: Basic weighted average shares.............. 4,663,687 4,763,387 4,870,563 Effect of dilutive securities: Employee stock options.................. 67,388 61,663 15,625 ---------- ---------- ---------- Diluted weighted average shares............ 4,731,075 4,825,050 4,886,188 ========== ========== ========== Basic earnings per share..................... $2.10 $1.90 $1.66 ========== ========== ========== Diluted earnings per share................... $2.07 $1.88 $1.65 ========== ========== ==========
13. 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:
1998 1997 1996 ---------- ---------- ---------- Net Earnings As Reported................................ $9,804,519 $9,068,468 $8,072,421 Pro Forma.................................. $9,404,665 $8,706,923 $7,845,795 Basic Earnings Per Share As Reported................................ $2.10 $1.90 $1.66 Pro Forma.................................. $2.02 $1.83 $1.61
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:
1998 1997 1996 -------------------- -------------------- -------------------- Wtd. Avg. Wtd. Avg. Wtd. Avg. Shares Ex. Price Shares Ex. Price Shares Ex. Price ------- --------- ------- --------- ------- --------- Outstanding at beginning of year...... 329,000 $14.62 302,700 $12.26 220,200 $11.65 Granted............................... 69,000 25.53 68,000 22.40 90,000 13.58 Exercised............................. (45,500) 11.37 (41,700) 10.19 (7,500) 10.42 ------- ------ ------- ------ ------- ------ Outstanding at end of year............ 352,500 17.17 329,000 $14.62 302,700 $12.26 Exercisable at end of year............ 283,500 15.13 261,000 $12.59 212,700 $11.70 Weighted average fair market value of options granted..................... $9.02 $8.28 $4.13
The range of exercise prices for the 352,500 options outstanding at December 31, 1998 is $9.67 to $27.64. The weighted average remaining contractual life for these shares is 6 years as of December 31, 1998. 17 18 - -------------------------------------------------------------------------------- At December 31, 1998, 463,000 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:
1998 1997 1996 -------- -------- -------- Risk-free interest rate................................ 4.7% 5.7% 6.1% Expected dividend yields............................... 1.4% 1.4% 2.2% Expected remaining life................................ 8.3 yrs. 8.2 yrs. 9.0 yrs. Expected volatility.................................... 27% 28% 20%
14. SEGMENT INFORMATION In June 1997, the Financial Accounting Standards Board issued Statement No. 131, "Disclosures About Segments of an Enterprise and Related Information" ("SFAS 131"), which is effective for fiscal years beginning after December 15, 1997. The Company has adopted SFAS 131 in 1998. SFAS 131 requires that the Company determine 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 10% of total sales for 1998 and 13% of total sales for 1997 and 1996. Sales to another customer, J C Penney, were 10% of total sales for 1996. There are no other individually significant customers. In the retail division, the Company currently operates 11 company-operated stores in principal cities in the United States. The decrease in retail sales in recent years is a result of the termination of leased departments and company-operated stores. In 1998 and 1997, respectively, 2 and 4 company-operated stores were closed. In 1996, 1 company-operated store and 13 leased departments 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. 18 19 - -------------------------------------------------------------------------------- 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 1998, 1997 and 1996 are as follows:
Wholesale Distribution Retail Total ------------ ----------- ------------ 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 1996 Net Sales............................................. $118,362,000 $10,952,000 $129,314,000 Depreciation and amortization......................... 709,000 336,000 1,045,000 Earnings from operations.............................. 11,892,000 (228,000) 11,664,000 Total assets.......................................... 69,659,000 3,418,000 73,077,000 Capital expenditures.................................. 248,000 3,000 251,000
Net sales above exclude intersegment sales, which are not material. 19 20 - -------------------------------------------------------------------------------- REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the 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, 1998 and 1997, and the related consolidated statements of earnings, shareholders' investment and cash flows for each of the three years in the period ended December 31, 1998. 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 generally accepted auditing standards. 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, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Milwaukee, Wisconsin February 12,1999 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. 20 21 - -------------------------------------------------------------------------------- DIRECTORS Robert Feitler Chairman, Executive Committee John W. Florsheim Executive Vice President and Chief Operating Officer Thomas W. Florsheim Chairman Thomas W. Florsheim, Jr. President and Chief Executive Officer 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 SUPPLEMENTAL INFORMATION 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 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. 21 EX-21 6 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 7 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 or 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 26, 1999. EX-27 8 FINANCIAL DATA SCHEDULE
5 1,000 YEAR DEC-31-1998 JAN-01-1998 DEC-31-1998 4,241 8,853 22,230 2,632 11,786 48,051 20,447 6,646 92,782 26,387 0 0 0 4,424 60,724 92,782 127,074 127,074 90,961 113,272 1,821 815 368 15,255 5,450 9,805 0 0 0 9,805 2.10 2.07
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