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