WEYCO GROUP INC, 10-K405, 1999-03-30

WEYCO GROUP INC
10-K405, 1999-03-30
FOOTWEAR, (NO RUBBER)

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<PAGE> 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

<PAGE> 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-

<PAGE> 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-

<PAGE> 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-

<PAGE> 5

Executive Officers of the Registrant

Served
Officer Age Office(s) Since Business Experience
------- --- --------- ----- -------------------

<S> <C> <C> <C> <C>
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

</TABLE>

Thomas W. Florsheim is the father of John W. Florsheim and Thomas W.
Florsheim, Jr.

-4-
<PAGE> 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-

<PAGE> 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-

<PAGE> 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-

<PAGE> 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-

<PAGE> 10

Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K (Continued)

3. Exhibits
<TABLE>
<CAPTION>

Incorporated Herein
Exhibit Description By Reference To
- ------- ----------- -------------------

<S> <C> <C>
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
</TABLE>

-9-

<PAGE> 11

Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K (Continued)

3. Exhibits (Continued)

Incorporated Herein
Exhibit Description By Reference To
------- ----------- -------------------

<S> <C> <C>
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
</TABLE>

-10-

<PAGE> 12

SCHEDULE II

WEYCO GROUP, INC.

VALUATION AND QUALIFYING ACCOUNTS

Deducted from Assets
---------------------------------------------------------
Doubtful Cash Returns and
Accounts Discounts Allowances Total
-------- --------- ---------- ----------

<S> <C> <C> <C> <C>
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
========== =========== ========== ==========
</TABLE>

-11-

<PAGE> 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-

<PAGE> 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."

<PAGE> 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

<PAGE> 1

EXHIBIT 10.2

AMENDMENT NO. 1 TO
EMPLOYMENT AGREEMENT

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:

<PAGE> 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.

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.

<PAGE> 1

EXHIBIT 10.3

AMENDMENT NO. 1 TO
EMPLOYMENT AGREEMENT

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:

2. The first sentence of Paragraph 2 of the Original Agreement is hereby
amended to read as follows:

<PAGE> 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.

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

<PAGE> 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
<PAGE> 2

SELECTED FINANCIAL DATA
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Years Ended December 31
----------------------------------------------------------------------------
1998 1997 1996 1995 1994
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
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
</TABLE>

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
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
1998 1997
---------------------------------------------------------------------
Price Range Cash Price Range Cash
----------- Dividends ----------- Dividends
High Low Declared High Low Declared
Quarter: ---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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
==== ====
</TABLE>

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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 7

CONSOLIDATED
STATEMENTS OF EARNINGS
For the years ended December 31, 1998, 1997 and 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
============ ============ ============
</TABLE>

- -------------------------
* 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
<PAGE> 8

CONSOLIDATED BALANCE SHEETS
December 31, 1998 and 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
=========== ===========
</TABLE>

The accompanying notes to consolidated financial statements are an integral part
of these balance sheets.

8
<PAGE> 9

- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
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
=========== ===========
</TABLE>

9
<PAGE> 10

CONSOLIDATED STATEMENTS
OF SHAREHOLDERS' INVESTMENT
For the years ended December 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Class B Capital in
Common Common Excess of Reinvested
Stock Stock Par Value Earnings
---------- --------- ---------- ------------
<S> <C> <C> <C> <C>
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
========== ========= ========== ============
</TABLE>

- -------------------------
*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
<PAGE> 11

CONSOLIDATED STATEMENTS
OF CASH FLOWS
For the years ended December 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
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 $ -- $ --
</TABLE>

The accompanying notes to consolidated financial statements are an integral part
of these statements.

11
<PAGE> 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
<PAGE> 13

- --------------------------------------------------------------------------------

3. INVENTORIES

At December 31, 1998 and 1997, inventories consist of:

<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
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
</TABLE>

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:

<TABLE>
<CAPTION>
1998 1997
-------------------------- --------------------------
Amortized Market Amortized Market
Cost Value Cost Value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
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
=========== =========== =========== ===========
</TABLE>

The unrealized gains and losses on investment securities at December 31 are:

<TABLE>
<CAPTION>
1998 1997 1996
----------------------- ----------------------- -----------------------
Unrealized Unrealized Unrealized Unrealized Unrealized Unrealized
Gains Losses Gains Losses Gains Losses
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Municipality and revenue bonds....... $571,242 $885 $337,496 $19,547 $127,490 $33,600
</TABLE>

5. PLANT AND EQUIPMENT

At December 31, 1998 and 1997, plant and equipment consists of:

<TABLE>
<CAPTION>
1998 1997
----------- ----------
<S> <C> <C>
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
=========== ==========
</TABLE>

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
<PAGE> 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:

<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
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
</TABLE>

Assumptions used in determining the funded status for both 1998 and 1997 are:

<TABLE>
<S> <C>
Discount rate............................................... 7%
Rate of compensation increase............................... 5%
Long-term rate of return on plan assets..................... 8.5%
</TABLE>

14
<PAGE> 15

- --------------------------------------------------------------------------------

The components of net periodic pension cost for the years ended December 31,
1998, 1997 and 1996, are:

<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
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)
=========== =========== ===========
</TABLE>

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:

<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
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%
========== ========== ==========
</TABLE>

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:

<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
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
=========== ===========
</TABLE>

15
<PAGE> 16

- --------------------------------------------------------------------------------

The net deferred tax asset is classified in the Consolidated Balance Sheets as
follows:

<TABLE>
<CAPTION>
1998 1997
----------- ----------
<S> <C> <C>
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
=========== ==========
</TABLE>

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.

<TABLE>
<S> <C>
1999........................................................ $ 633,000
2000........................................................ 477,000
2001........................................................ 325,000
2002........................................................ 104,000
2003 and thereafter......................................... 125,000
----------
Total....................................................... $1,664,000
==========
</TABLE>

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
<PAGE> 17

- --------------------------------------------------------------------------------

12. EARNINGS PER SHARE

The following table sets forth the computation of net earnings per share and
diluted net earnings per share:

<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
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
========== ========== ==========
</TABLE>

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:

<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
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
</TABLE>

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:

<TABLE>
<CAPTION>
1998 1997 1996
-------------------- -------------------- --------------------
Wtd. Avg. Wtd. Avg. Wtd. Avg.
Shares Ex. Price Shares Ex. Price Shares Ex. Price
------- --------- ------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
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
</TABLE>

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
<PAGE> 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:

<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
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%
</TABLE>

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
<PAGE> 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:

<TABLE>
<CAPTION>
Wholesale
Distribution Retail Total
------------ ----------- ------------
<S> <C> <C> <C>
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
</TABLE>

Net sales above exclude intersegment sales, which are not material.

19
<PAGE> 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
<PAGE> 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.

<PAGE> 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.

<PAGE> 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.

<ARTICLE> 5
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 4,241
<SECURITIES> 8,853
<RECEIVABLES> 22,230
<ALLOWANCES> 2,632
<INVENTORY> 11,786
<CURRENT-ASSETS> 48,051
<PP&E> 20,447
<DEPRECIATION> 6,646
<TOTAL-ASSETS> 92,782
<CURRENT-LIABILITIES> 26,387
<BONDS> 0
0
0
<COMMON> 4,424
<OTHER-SE> 60,724
<TOTAL-LIABILITY-AND-EQUITY> 92,782
<SALES> 127,074
<TOTAL-REVENUES> 127,074
<CGS> 90,961
<TOTAL-COSTS> 113,272
<OTHER-EXPENSES> 1,821
<LOSS-PROVISION> 815
<INTEREST-EXPENSE> 368
<INCOME-PRETAX> 15,255
<INCOME-TAX> 5,450
<INCOME-CONTINUING> 9,805
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,805
<EPS-PRIMARY> 2.10
<EPS-DILUTED> 2.07

</TABLE>