-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Vgf0BhGHKLY0D0bWR4BLOTqKSPZwNRczHB4XWw4/2wgcN0AXz3t1H4fetmBx2CjV 22qpr5YnYX3YoPIMrNRS1w== 0000950137-04-001795.txt : 20040312 0000950137-04-001795.hdr.sgml : 20040312 20040312155027 ACCESSION NUMBER: 0000950137-04-001795 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 20031231 FILED AS OF DATE: 20040312 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WEYCO GROUP INC CENTRAL INDEX KEY: 0000106532 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-APPAREL, PIECE GOODS & NOTIONS [5130] IRS NUMBER: 390702200 STATE OF INCORPORATION: WI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-09068 FILM NUMBER: 04666113 BUSINESS ADDRESS: STREET 1: 333 W ESTABROOK BOULEVARD CITY: GLENDALE STATE: WI ZIP: 43312 BUSINESS PHONE: 4149081600 MAIL ADDRESS: STREET 1: 333 W ESTABROOK BOULEVARD CITY: GLENDALE STATE: WI ZIP: 43312 FORMER COMPANY: FORMER CONFORMED NAME: WEYENBERG SHOE MANUFACTURING CO DATE OF NAME CHANGE: 19900514 10-K 1 c83596e10vk.txt ANNUAL REPORT 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 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2003 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 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: Title of each class Name of each exchange on None which registered - ------------------------------ -------------------------- 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) Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).Yes [X] No [ ] State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant's most recently completed second fiscal quarter. $111,233,000. As of March 8, 2004, there were outstanding 4,334,875 shares of Common Stock and 1,306,043 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 $122,856,000. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Corporation's Annual Report to Shareholders for the year ended December 31, 2003, are incorporated by reference in Part II of this report. Portions of the Corporation's Proxy Statement, dated March 26, 2004, prepared for the Annual Meeting of Shareholders scheduled for April 27, 2004, are incorporated by reference in Part III of this report. 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 distribution of men's footwear. The Company does not sell women's shoes because this market differs significantly from the men's market. On May 20, 2002, the Company acquired from Florsheim Group, Inc. and its subsidiaries (collectively, "Florsheim"), certain assets of Florsheim's U.S. wholesale business, including its accounts receivable, trademarks, and other information assets, wholesale inventory (with specified exceptions) and other specified assets, as well as the leaseholds and associated assets for 23 retail and outlet shoe stores. On July 1 and July 27, 2002, the Company acquired certain assets and assumed the operating liabilities of Florsheim Europe S.r.l. and Florsheim France SARL, respectively. This business consists of Florsheim's European wholesale business, as well as three retail stores in Germany, Italy and France. The total purchase price of the acquisition was $48.5 million, including $1.7 million of acquisition costs. The principal brands of shoes sold by the Company are "Florsheim," "Nunn Bush," "Nunn Bush NXXT," "Brass Boot," "Stacy Adams," and "SAO by Stacy Adams." 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 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 purchased to meet the needs and desires of the American male population. The Company purchases finished shoes from outside suppliers around the world. The majority of these foreign-sourced purchases are denominated in U. S. dollars. 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. The Company previously assembled a small portion of its footwear at one plant in Beaver Dam, Wisconsin. In December 2003, the Company ceased its manufacturing operations. All inventory is now purchased from foreign suppliers. The Beaver Dam facility still operates the Company's reconditioning, rework and returned goods departments. -1- The Company's business is separated into two segments - wholesale and retail. Wholesale sales constituted approximately 88% of total sales in 2003, 91% in 2002 and 96% in 2001. At wholesale, shoes are marketed nationwide through more than 10,000 shoe, clothing and department stores. Sales are to unaffiliated customers, primarily in North America, with some distribution in Europe. Sales to the Company's largest customer, J. C. Penney, were 12% of total sales in 2003. There were no customers that accounted for 10% or more of total sales in 2002. Sales to the Company's largest customer, Brown Shoe Group, were 10% of total sales for 2001. The Company employs traveling salesmen who sell the Company's products to retail outlets. Shoes are shipped to these retailers primarily from the Company's distribution center 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. The Company also has licensing agreements with third parties who sell its branded shoes overseas, as well as licensing agreements with apparel and accessory manufacturers in the United States. Retail sales constituted approximately 12% of total sales in 2003, 9% of total sales in 2002 and 4% of total sales in 2001. In the retail division, there are currently 30 company-operated stores in principal cities of the United States and three retail stores in major cities in Europe. 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. As of December 31, 2003, the Company had $76.0 million of backlog orders, as compared with $72.5 million as of December 31, 2002. The Company believes these orders are firm, and all orders are expected to be filled within one year. As of December 31, 2003, the Company employed approximately 408 persons. Of those 408 employees, approximately 32 were members of bargaining units. The Company ratified new contracts covering the majority of these employees during 2002 and in early 2003. Future wage and benefit increases under the contracts 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. The Company makes available, free of charge, copies of its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports upon written or telephone request. Investors can also access these reports through the Company's website, www.weycogroup.com. -2- Item 2. Properties The following facilities are operated by the Company and its subsidiaries:
Square Location Character Owned/Leased Footage % Utilized -------- --------- ------------ ------- ---------- Glendale, Wisconsin One story office and distribution center Owned 780,000 90% Beaver Dam, Wisconsin Multistory factory Leased (1) 100,000 50% Florence, Italy One story office, warehouse and distribution facility Leased (1) 9,500 100%
(1) Not material leases. In addition to the above-described distribution and warehouse facilities, the Company operates thirty retail stores throughout the United States and three in Europe under various rental agreements. See Note 13 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- Executive Officers of the Registrant
Served Officer Age Office(s) Since Business Experience ------- --- --------- ----- ------------------- Thomas W. Florsheim, Jr. 45 Chairman and Chief Executive 1996 Chairman and Chief Executive Officer of the Officer Company -- 2002 to present; President and Chief Executive Officer of the Company -- 1999 to 2002; President and Chief Operating Officer of the Company -- 1996 to 1999; Vice President of the Company - 1988 to 1996 John W. Florsheim 40 President, Chief Operating 1996 President, Chief Operating Officer and Officer and Assistant Assistant Secretary of the Company - 2002 to Secretary present; Executive Vice President, Chief Operating Officer and Assistant Secretary of the Company - 1999 to 2002; Executive Vice President of the Company --1996 to 1999; Vice President of the Company -- 1994 to 1996 James F. Gorman 60 Senior Vice President 1975 Senior Vice President of the Company - 2002 to present; Vice President of the Company -- 1975 to 2002 Peter S. Grossman 60 Senior Vice President 1971 Senior Vice President of the Company - 2002 to present; Vice President of the Company -- 1971 to 2002 John F. Wittkowske 44 Senior Vice President, 1993 Senior Vice President, Chief Financial Chief Financial Officer Officer and Secretary of the Company - 2002 and Secretary to present Vice President, Chief Financial Officer and Secretary of the Company -- 1995 to 2002; Secretary/Treasurer of the Company -- 1993 to 1995
Thomas W. Florsheim, Jr. and John W. Florsheim are brothers, and Chairman Emeritus Thomas W. Florsheim is their father. -4- PART II Item 5. Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities Information required by this Item is set forth on pages 4, 19 and 25 of the Annual Report to Shareholders for the year ended December 31, 2003, and is incorporated herein by reference. Item 6. Selected Financial Data Information required by this Item is set forth on page 4 of the Annual Report to Shareholders for the year ended December 31, 2003, and is incorporated herein by reference. Item7. Management's Discussion and Analysis of Financial Condition and Results of Operations Information required by this Item is set forth on pages 5 through 8 of the Annual Report to Shareholders for the year ended December 31, 2003, 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, 2003, 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 22 of the Annual Report to Shareholders for the year ended December 31, 2003, and is incorporated herein by reference. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures We changed independent accountants in June 2002 from Arthur Andersen LLP to Deloitte and Touche LLP. Information regarding the change in accountants was reported in our current report on Form 8-K dated June 14, 2002. -5- Item 9A. Control and Procedures The Company maintains disclosure controls and procedures designed to ensure that the information the Company must disclose in its filings with the Securities and Exchange Commission is recorded, processed, summarized and reported on a timely basis. The Company's principal executive officer and principal financial officer have reviewed and evaluated the Company's disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act") as of the end of the period covered by this report (the "Evaluation Date"). Based on such evaluation, such officers have concluded that, as of the Evaluation Date, the Company's disclosure controls and procedures are effective in bringing to their attention on a timely basis material information relating to the Company required to be included in the Company's periodic filings under the Exchange Act. There have not been any changes in the Company's internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) that occurred during the Company's most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. PART III Item 10. Directors and Executive Officers of the Registrant Information required by this Item is set forth on pages 1 through 5 of the Company's proxy statement for the Annual Meeting of Shareholders to be held on April 27, 2004, and is incorporated herein by reference. Item 11. Executive Compensation Information required by this Item is set forth on pages 8 through 12 of the Company's proxy statement for the Annual Meeting of Shareholders to be held on April 27, 2004, and is incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners of Management and Related Shareholder Matters Information required by this Item is set forth on pages 1,2, 11 and 12 of the Company's proxy statement for the Annual Meeting of Shareholders to be held on April 27, 2004, and is incorporated herein by reference. -6- Item 13. Certain Relationships and Related Transactions Information required by this Item is set forth on pages 11 and 12 of the Company's proxy statement for the Annual Meeting of Shareholders to be held on April 27, 2004, and is incorporated herein by reference. Item 14. Principal Accountant Fees and Services Information required by this Item is set forth on page 7 of the Company's proxy statement for the Annual Meeting of Shareholders to be held on April 27, 2004, and is incorporated herein by reference. -7- PART IV Item 15. 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, 2003, 2002 and 2001 9 Consolidated Balance Sheets - December 31, 2003 and 2002 10 Consolidated Statements of Shareholders' Investment for the years ended December 31, 2003, 2002 and 2001 11 Consolidated Statements of Cash Flows for the years ended December 31, 2003, 2002 and 2001 12 Notes to Consolidated Financial Statements for the years ended December 31, 2003, 2002 and 2001 13 - 22 Reports of Independent Auditors 23 - 24
Page Reference to Form 10-K ---------------- 2. Financial Statement Schedules for the years ended December 31, 2003, 2002 and 2001 - Schedule II - Valuation and Qualifying Accounts 9 Reports of Independent Auditors 10 - 11 All other schedules have been omitted because of the absence of the conditions under which they are required. 3. Exhibits and Exhibit Index. See the Exhibit Index included as the last part of this report, which is incorporated herein by reference. Each management contract and compensatory plan or arrangement required to be filed as a exhibit to this report is identified in the Exhibit Index by an asterisk following its exhibit number.
(b) Reports on Form 8-K One report on Form 8-K was filed during the fourth quarter of 2003. On October 23, 2003, the Company filed a press release announcing its results for the quarter ended September 30, 2003. -8- SCHEDULE II WEYCO GROUP, INC. VALUATION AND QUALIFYING ACCOUNTS
Deducted from Assets ----------------------------------------------------------- Doubtful Cash Returns and Accounts Discounts Allowances Total ----------- ------------ -------------- ------------- BALANCE, DECEMBER 31, 2000 1,650,000 $ 69,000 $ 1,080,000 $ 2,799,000 Add - Additions charged to earnings 460,972 208,885 6,445,176 7,115,033 Deduct - Charges for purposes for which reserves were established (310,972) (208,885) (6,445,176) (6,965,033) ----------- ------------ -------------- ------------- BALANCE, DECEMBER 31, 2001 $ 1,800,000 $ 69,000 $ 1,080,000 $ 2,949,000 Add - Additions charged to earnings 898,836 251,358 6,786,515 7,936,709 Acquisition - related charges 1,902,375 -- -- 1,902,375 Deduct - Charges for purposes for which reserves were established (1,726,211) (320,358) (6,786,515) (8,833,084) ----------- ------------ -------------- ------------- BALANCE, DECEMBER 31, 2002 $ 2,875,000 $ -- $ 1,080,000 $ 3,955,000 Add - Additions charged to earnings 413,330 -- 5,240,124 5,653,454 Deduct - Charges for purposes for which reserves were established (1,270,330) ( --) (4,615,124) (5,885,454) ----------- ------------ -------------- ------------- BALANCE, DECEMBER 31, 2003 $ 2,018,000 $ -- $ 1,705,000 $ 3,723,000 =========== ============ ============== =============
-9- INDEPENDENT AUDITORS' REPORT To the Shareholders and Board of Directors of Weyco Group, Inc. We have audited the consolidated financial statements of Weyco Group, Inc. and subsidiaries (the "Company") as of December 31, 2003 and 2002, and for the years then ended and have issued our report thereon dated February 20, 2004 (which report expresses an unqualified opinion and includes an explanatory paragraph concerning the application of procedures relating to certain disclosures and reclassifications of financial statement amounts related to the 2001 financial statements that were audited by other auditors who have ceased operations); such financial statements and our report are included in your 2003 Annual Report to Shareholders and are incorporated herein by reference. Our audits also included the 2003 and 2002 consolidated financial statement schedules of the Company. These financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such 2003 and 2002 financial statement schedules, when considered in relation to the basic 2003 and 2002 consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein. The consolidated financial statement schedule for the year ended December 31, 2001 was audited by other auditors who have ceased operations. Those auditors expressed an opinion, in their report dated February 14, 2002, that such 2001 financial statement schedule fairly states in all material respects the financial data required to be set forth therein in relation to the basic 2001 consolidated financial statements taken as a whole (prior to the disclosures and reclassifications referred to above). DELOITTE & TOUCHE LLP Milwaukee, Wisconsin, February 20, 2004. -10- THE REPORT SET FORTH BELOW IS A COPY OF A PREVIOUSLY ISSUED AUDIT REPORT BY ARTHUR ANDERSEN LLP. THIS REPORT HAS NOT BEEN REISSUED BY ARTHUR ANDERSEN LLP IN CONNECTION WITH ITS INCLUSION IN THIS FORM 10-K. WE WILL NOT BE ABLE TO OBTAIN THE WRITTEN CONSENT OF ARTHUR ANDERSEN LLP AS REQUIRED BY SECTION 7 OF THE SECURITIES ACT OF 1933 FOR OUR REGISTRATION STATEMENTS ON FORM S-8. ACCORDINGLY, INVESTORS WILL NOT BE ABLE TO SUE ARTHUR ANDERSEN LLP PURSUANT TO SECTION 11(a)(4) OF THE SECURITIES ACT WITH RESPECT TO ANY SUCH REGISTRATION STATEMENTS AND, THEREFORE, ULTIMATE RECOVERY ON A SUCCESSFUL CLAIM MAY BE LIMITED. THE ABILITY OF INVESTORS TO RECOVER FROM ARTHUR ANDERSEN LLP MAY ALSO BE LIMITED AS A RESULT OF ARTHUR ANDERSEN LLP'S FINANCIAL CONDITION OR OTHER MATTERS RESULTING FROM THE VARIOUS CIVIL AND CRIMINAL LAWSUITS AGAINST THAT FIRM. 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 14, 2002, except for Note 15, as to which the date is March 3, 2002. 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 14, 2002. -11- EXHIBIT INDEX
Incorporated Herein Exhibit Description By Reference To - ------- ----------- --------------- 2.1 Asset Purchase Agreement, Florsheim Exhibit 2.1 to Form Group, Inc., dated March 3, 2002 10-K for Year Ended December 31, 2001 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 Last Amended January 28, 2002 10-K for Year Ended December 31, 2001 10.1* Consulting Agreement - Thomas W. Exhibit 10.1 to Form Florsheim, dated December 28, 2000 10-K for Year Ended December 31, 2001 10.2* Employment Agreement - Thomas W. Exhibit 10.2 to Form Florsheim, Jr., dated January 1, 1997, 10-K for Year Ended as amended January 1, 1999 and December 31, 1996, and January 1, 2004 Amendment No. 1 filed as Exhibit 10.2 to Form 10-K for Year Ended December 31, 1998, and Amendment No. 2 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 January 1, 1999 and December 31, 1996, and January 1, 2004 Amendment No. 1 filed as Exhibit 10.3 to Form 10-K for Year Ended December 31, 1998 and Amendment No. 2 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
-12- EXHIBIT INDEX (cont.)
Incorporated Herein Exhibit Description By Reference To - ------- ----------- --------------- 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 10.10* 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
-13- EXHIBIT INDEX (cont.)
Incorporated Herein Exhibit Description By Reference To - ------- ----------- --------------- 23.1 Independent Auditors' Consent Dated March 11, 2004 31.1 Certification of Principal Executive Officer 31.2 Certification of Principal Financial Officer 32.1 Section 906 Certification of Chief Executive Officer 32.2 Section 906 Certification of Chief Financial Officer *Management contract or compensatory plan or arrangement
-14- 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 12, 2004 - --------------------------------------------------- John Wittkowske, Senior Vice President - Chief Financial Officer Power of Attorney KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Thomas W. Florsheim, Jr., John W. Florsheim, 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 12, 2004 - -------------------------------------------------------------- ------------------------------- Thomas W. Florsheim, Chairman Emeritus /s/ Thomas W. Florsheim, Jr. March 12, 2004 - -------------------------------------------------------------- ------------------------------- Thomas W. Florsheim, Jr., Chairman of the Board and Chief Executive Officer /s/ John W. Florsheim March 12, 2004 - -------------------------------------------------------------- ------------------------------- John W. Florsheim, President and Chief Operating Officer and Director /s/ John Wittkowske March 12, 2004 - -------------------------------------------------------------- ------------------------------- John Wittkowske, Senior Vice President, Chief Financial Officer and Secretary (Principal Accounting Officer) /s/ Virgis W. Colbert March 12, 2004 - -------------------------------------------------------------- ------------------------------- Virgis W. Colbert, Director /s/ Robert Feitler March 12, 2004 - -------------------------------------------------------------- ------------------------------- Robert Feitler, Director /s/ Leonard J. Goldstein March 12, 2004 - -------------------------------------------------------------- ------------------------------- Leonard J. Goldstein, Director /s/ Frederick P. Stratton, Jr. March 12, 2004 - -------------------------------------------------------------- ------------------------------- Frederick P. Stratton, Jr., Director
-15- EX-10.2 3 c83596exv10w2.txt EMPLOYMENT AGREEMENT EXHIBIT 10.2 AMENDMENT NO. 2 TO EMPLOYMENT AGREEMENT This Amendment No. 2 to Employment Agreement ("Amendment") dated as of January 1, 2004, amends the Employment Agreement dated as of January 1, 1997 (the "Original Agreement") between WEYCO GROUP, INC., a Wisconsin corporation (the "Company") and THOMAS W. FLORSHEIM, JR. ("Florsheim"). BACKGROUND The Company and Florsheim are parties to the Original Agreement, which states that Florsheim is employed as the President and Chief Operating Officer of the Company at an annual salary of $280,000, or such greater amount as the Board of Directors of the Company may fix. The Company and Florsheim have now agreed that Florsheim will serve as Chairman and Chief Executive Officer of the Company at a salary of $459,000.00 or such greater amount as the Board 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, 2007. AGREEMENT 1. The second sentence of Paragraph 1 of the Original Agreement is amended to read as follows: "Florsheim shall have such title and responsibilities as the Company's Corporate Governance and Compensation Committee of the Board of Directors shall from time to 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 and Chief Executive Officer." 2. The first sentence of Paragraph 2 of the Original Agreement is hereby amended to read as follows: "As compensation for his services to the Company during the term of this Agreement in whatever capacity or capacities rendered, the Company shall, subject to the provisions of Paragraph 3 hereof, pay Florsheim a salary of $459,000.00 (Four Hundred, Fifty-nine Thousand Dollars) per annum, or such greater amount per annum as the Corporate Governance and Compensation Committee of 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 if hereby amended to extend the term of the Agreement to and including December 31, 2007. 4. Except as revised herein, the Original Agreement is hereby confirmed in all respects. IN WITNESS WHEREOF, Florsheim has duly executed 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/ John W. Florsheim ------------------------------------- John W. Florsheim, President & COO Attest: By /s/ John Wittkowske ------------------------------------- John Wittkowske, Secretary /s/ Thomas W. Florsheim, Jr. -------------------------------------- Thomas W. Florsheim, Jr. Personally EX-10.3 4 c83596exv10w3.txt EMPLOYMENT AGREEMENT EXHIBIT 10.3 AMENDMENT NO. 2 TO EMPLOYMENT AGREEMENT This Amendment No. 2 to Employment Agreement ("Amendment") dated as of January 1, 2004, amends the Employment Agreement dated as of January 1, 1997 (the "Original Agreement") between WEYCO GROUP, INC., a Wisconsin corporation (the "Company") and JOHN W. FLORSHEIM ("Florsheim"). BACKGROUND The Company and Florsheim are parties to the Original Agreement, which states that 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 President and Chief Operating Officer of the Company at a salary of $379,500.00 or such greater amount as the Board 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, 2007. AGREEMENT 1. The second sentence of Paragraph 1 of the Original Agreement is amended to read as follows: "Florsheim shall have such title and responsibilities as the Company's Corporate Governance and Compensation Committee of the Board of Directors shall from time to time assign to him, but the duties which he shall be called upon to render hereunder shall not be of a nature substantially inconsistent with those he has rendered and is currently rendering to the Company as its President and Chief Operating Officer." 2. The first sentence of Paragraph 2 of the Original Agreement is hereby amended to read as follows: "As compensation for his services to the Company during the term of this Agreement in whatever capacity or capacities rendered, the Company shall, subject to the provisions of Paragraph 3 hereof, pay Florsheim a salary of $379,500.00 (Three Hundred, seventy-nine Thousand, Five Hundred Dollars) per annum, or such greater amount per annum as the Corporate Governance and Compensation Committee of the Board of Directors of the Company may in its discretion fix; said salary to be payable payable in equal or approximately equal biweekly installments. 3. The first sentence of Paragraph 3 of the Original Agreement if hereby amended to extend the term of the Agreement to and including December 31, 2007. 4. Except as revised herein, the Original Agreement is hereby confirmed in all respects. IN WITNESS WHEREOF, Florsheim has duly executed 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. ----------------------------------- Thomas W. Florsheim, Jr. Chairman and CEO Attest: By /s/ John Wittkowske ----------------------------------- John Wittkowske, Secretary /s/ John W. Florsheim ------------------------------------- John W. Florsheim, Personally EX-13 5 c83596exv13.txt ANNUAL REPORT TO SHAREHOLDERS Exhibit 13 2003 ANNUAL REPORT WEYCO GROUP, INC. To Our Shareholders: 2003 was an exciting year of progress and change for our Company. Following our May 2002 acquisition of the Florsheim brand, 2003 was a year of rolling up our sleeves and completing the integration of Florsheim into our Company. Our net sales for 2003 were a record $215.8 million, up 19% from $181.2 million for 2002. Net earnings for 2003 were also a record $17.1 million, an increase of 30% over net earnings of $13.2 million for 2002. Diluted earnings per share were $2.91, up from $2.29 for 2002, an increase of 27%. Our increases for the year are directly related to our acquisition of the Florsheim brand. Within the Florsheim brand, we worked through the excess inventory that we acquired, pruned back the distribution that did not fit Florsheim's position in the market, and retooled the product line to broaden the brand's appeal to a more modern consumer. In addition, we invested in an advertising campaign for the Florsheim brand, which we believe gives the brand a younger image and builds upon the tremendous awareness that Florsheim already has in the marketplace. Our focus for 2004 is on continuing to build the Florsheim brand for the long term, with the right retail partners, emphasizing department stores and better specialty stores. Our other brands also continued to perform well in the marketplace. Our Comfort-Gel construction continues to be well-received by retail customers and consumers. This has driven our second straight year of wholesale sales growth for the Nunn Bush division. Our Stacy Adams dress shoe business was strong this year, with high-single-digit sales increases. We fell short of last year in our SAO casual business, however, as the preferences of the consumers of streetwear casual footwear shifted more toward the athletic shoe market. We have been very busy putting together new designs for this line, and are committed to maintaining SAO as a key component of the Stacy Adams division. Our licensing revenues more than doubled in 2003. Within the Stacy Adams division, we have had licensing agreements with apparel and accessory manufacturers for five years, with each year better than the last. We are pleased with this progression and even more pleased with the exposure this has provided for Stacy Adams. Florsheim royalties from footwear sales overseas also increased in 2003, partially due to the fact that this has been the first full year that we have owned the Florsheim brand, but also due to a new licensing agreement for socks sold in the United States. We are excited about the prospects for continued growth in this area of our business. Our balance sheet continues to strengthen. Our cash flow from operations was up over 80% in 2003. We are pleased that our cash and marketable securities increased $2.1 million, while at the same time we paid down $9.9 million of our outstanding debt, spent $8.5 million on the expansion of our distribution center and repurchased $3.4 million of our common stock. We are also proud to state that we continue to pay annually increasing dividends to our shareholders, with a dividend increase of over 15% during 2003. Operationally, we had initially made room for the additional Florsheim inventory in 2002 by purchasing a new building adjacent to our existing distribution facility. During 2003, we connected the two separate buildings with a 275,000 square foot expansion, and reconfigured our distribution systems to create an efficient distribution flow for all products. The expansion project was completed in the third quarter of 2003. The result was one contiguous state of the art distribution center with room for future growth. While we are pleased with our results for 2003, our work is far from over. We are excited about the growth opportunities of our brands as we head into 2004. We appreciate the support from all of our shareholders and are looking forward to a great 2004. Thomas W. Florsheim, Jr. John W. Florsheim Chairman and Chief Executive Officer President and Chief Operating Officer Annual Report SELECTED FINANCIAL DATA
Years Ended December 31 ------------------------------------------------------------------------ 2003(1) 2002 (1) 2001 2000 1999 ------------ ------------ ------------ ------------ ------------ Net sales ............................. $215,761,000 $181,200,000 $131,693,000 $148,155,000 $132,905,000 Net earnings .......................... $17,135,000 $ 13,188,000 $ 9,501,000 $ 10,622,000 $ 11,058,000 Diluted earnings per share(2) ......... $ 2.91 $ 2.29 $ 1.64 $ 1.72 $ 1.70 Weighted average diluted shares outstanding(2) ....................... 5,878,287 5,753,442 5,792,501 6,162,351 -- 6,507,881 Cash dividends per share(2) .......... $ .38 $ .34 $ .31 $ .29 $ .26 Total assets .......................... $151,186,000 $149,239,000 $ 97,954,000 $ 91,943,000 $ 95,919,000 Bank borrowings ....................... $ 27,945,000 $ 37,802,000 $ -- $ -- $ --
(1) Includes the operating results of the acquired Florsheim business. See Note 3 to the Consolidated Financial Statements for additional information. (2) Earnings per share, weighted average shares and cash dividends per share for all years presented have been retroactively restated for the October 1, 2003, 50% stock dividend. COMMON STOCK DATA
2003 2002 -------------------------- -------------------------- Price Range Cash Price Range Cash -------------- Dividends --------------- Dividends Quarter: High Low Declared Quarter: High Low Declared - -------- ------ ------ --------- -------- ------ ------ --------- First ............................. $29.02 $20.51 $ .09 First ............................. $21.67 $16.90 $ .08 Second ............................ 35.06 28.12 .09 Second ............................ 27.33 19.33 .08 Third ............................. 32.91 28.65 .10 Third ............................. 26.67 20.67 .09 Fourth ............................ 38.22 27.63 .10 Fourth ............................ 25.13 21.84 .09 ----- ----- $ .38 $ .34 ===== =====
Note: All stock price and dividend information has been adjusted to reflect the October 1, 2003, 50% stock dividend. There are 268 holders of record of the Company's common stock and 114 holders of record of the Company's Class B common stock as of March 8, 2004. 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 14 to the Consolidated Financial Statements for additional information. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The Company is a distributor of men's casual, dress and fashion shoes under the Florsheim, Nunn Bush, Nunn Bush NXXT, Brass Boot, Stacy Adams and SAO by Stacy Adams brand names. Inventory is purchased from third party overseas manufacturers. The majority of foreign-sourced purchases are denominated in U.S. dollars. The Company's products are sold to shoe specialty stores, department stores and clothing retailers primarily in North America, with some distribution in Europe. The Company also has a retail division, which consists of 30 Company-owned retail stores in the United States and three in Europe. Sales in retail outlets are made directly to consumers by Company employees. The Company also has licensing agreements with third parties who sell its branded shoes overseas, as well as licensing agreements with apparel and accessory manufacturers in the United States. As such, the Company's results are primarily impacted by the economic conditions and the retail environment in the United States. The $48.5 million acquisition of the Florsheim brand and related assets in May 2002 had a significant impact on the operating results of the Company in 2002 and 2003. The largest impact of the acquisition is the overall increase in sales and earnings in 2002 and 2003. Also, in 2002 the Company purchased a new building adjacent to its current distribution center primarily to store the Florsheim inventory, at a total cost of $6.3 million. In 2003, the Company expanded its distribution center into one contiguous facility and reconfigured its distribution systems to maximize efficiency, at a total cost of $8.5 million. These are the major events affecting the operating results of 2002 and 2003. A more detailed analysis of results follows. ACQUISITION On May 20, 2002, the Company acquired certain assets of Florsheim Group, Inc.'s domestic wholesale and retail operations. On July 1 and July 27, 2002, the Company acquired certain assets and assumed the operating liabilities of Florsheim Europe S.r.l. and Florsheim France SARL, respectively. The total purchase price was $48.5 million, and the Company entered into a two-year revolving line of credit to fund the acquisition and related expenses. See Notes 3 and 9 of the Notes to Consolidated Financial Statements for further details of the acquisition and borrowings under the line of credit. LIQUIDITY & CAPITAL RESOURCES The Company's primary source of liquidity is its cash and short-term marketable securities, which aggregated $13,298,000 at December 31, 2003 and $9,400,000 as of December 31, 2002. During 2003, the primary source of cash was operations, while the primary uses of cash were purchases of plant and equipment, repayment on borrowings, and the repurchase of shares of the Company's common stock. The increase in net cash provided by operating activities this year reflects the increase in net income for the year, which is largely the result of increased sales volume since the 2002 acquisition. In addition, inventory, accounts payable and accrued income tax receivable balances were at high levels at December 31, 2002 due to the acquisition. By the end of 2003, they have returned to more normalized levels. The changes in these account balances had a positive impact on net cash provided by operating activities. Capital expenditures included $8.5 million to expand and reconfigure the distribution center to more efficiently handle the increased volumes resulting from the acquisition. The project was completed in the third quarter of 2003, and was financed by draws on the existing line of credit. As of December 31, 2003, there were no significant commitments for this or other capital projects. Capital expenditures for 2004 are expected to return to normal levels of approximately $1 to $2 million. As of December 31, 2003, the Company had a total of $50 million available under its existing borrowing facility, of which total borrowings were $27,945,000. This facility includes certain financial covenants, including minimum net worth levels, minimum levels of Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) and a maximum ratio of funded debt to EBITDA. As of December 31, 2003 the Company was in compliance with all covenants. In February 2004, the Company entered into an amended and restated loan agreement. The total credit available remained at $50 million and financial covenants remained the same. The major difference in the new facility is that it is now a one-year credit agreement and allows the Company to finance more of its debt at lower interest rates and reduces fees. The Company believes that available cash and marketable securities, cash provided by operations, and available borrowing facilities will provide adequate support for the cash needs of the business in 2004. RESULTS OF OPERATIONS 2003 vs. 2002 Overall net sales for the year ended December 31, 2003 of $215.8 million increased 19% compared with $181.2 million for 2002. The increase resulted from increases in both the wholesale and retail segments (See Note 16 of the Notes to Consolidated Financial Statements for more information on operating segments). Wholesale net sales for the current year were $187.3 million, as compared with $163.6 million for 2002. Retail net sales for 2003 were $24.9 million, as compared with $15.9 million in 2002. Also included in overall net sales are licensing revenues of $3.6 million in 2003, as compared with $1.7 million in 2002. For both the retail and wholesale segments, the primary reason for the increase in net sales between 2002 and 2003 was due to 2003 including the Florsheim brand for a full year as compared with roughly seven months in 2002. In the Company's other brands, wholesale net sales for the Nunn Bush brand were up 1% while the Stacy Adams brand was down 2%. The Nunn Bush brand held steady in a challenging retail environment, while the Stacy Adams brand saw increases in its dress shoe business, but decreases in its SAO casual business. Management believes that its SAO casual business was down this year due to a shift by consumers from streetwear casual shoes toward athletic shoes. The Company is responding to this shift with new designs in the SAO line for 2004. In the retail division, the Company closed one retail store and opened one new store during 2003. Same-store sales increased 1.4% in 2003. Gross earnings as a percent of net sales increased from 32.6% in 2002 to 35.4% for 2003. Licensing revenues, which have no related cost of sales, had an effect of increasing gross margins by .5% between 2002 and 2003. The remaining increase was due to an increase in wholesale gross margins of 1.3%, from 29.2% in 2002 to 30.5% in 2003. This increase was due primarily to increased gross margins in the Company's Florsheim division and was due to changes in product mix, as less excess and closeout merchandise was sold in 2003. In addition, 1% of the increase in overall gross margins is due to changes in the mix of wholesale and retail sales as a percentage of total sales. Retail sales, which carry a higher margin, comprised 11.5% of overall net sales in 2003 versus 8.8% in 2002. Selling and administrative expenses as a percent of net sales were 22.8% in 2003 versus 20.8% in 2002. The increase is the result of increased wholesale selling and administrative expenses as a percent of net sales, from 18.2% in 2002 to 19.6% in 2003, and due to the previously discussed changes in the mix of wholesale and retail sales. Retail selling and administrative expenses as a percent of retail net sales dropped from 48.0% in 2002 to 47.6% in 2003. The increase in wholesale selling and administrative expenses is primarily due to increased advertising expenses in 2003, as 2003 was the first year that the Company put forth full promotional efforts for the Florsheim brand. Advertising, net of co-op expenses, increased $1,843,000 in 2003. In addition, wholesale selling and administrative expenses included $478,000 of expenses related to eliminating manufacturing activities at the Company's plant in Beaver Dam, Wisconsin, late in 2003. The product that was previously assembled in Beaver Dam is now purchased from an overseas manufacturer. Finally, wholesale selling and administrative expenses increased approximately $980,000 in 2003 due to increased pension expense this year which resulted from a curtailment loss due to the previously mentioned reduction in employees at Beaver Dam, as well as higher amortization of actuarial losses caused by the continued reduction in discount rates and lower than expected returns on prior year plan assets. Interest income for 2003 was $529,000 as compared with $853,000 for 2002. This decrease was due to reductions in the average balance of marketable securities outstanding between 2002 and 2003. Interest expense for 2003 was $1,375,000 as compared with $1,289,000 for 2002. The increase is primarily due to slightly higher average borrowings in 2003 due to the acquisition occurring mid-year in 2002. The effective tax rate for 2003 is 35.8% as compared with 37.2% in 2002. The decrease in the rate is primarily due to the 2003 resolution of certain tax matters related to an audit of the Company's 1996 Federal tax return. The settlement had a favorable impact on the Company's 2003 tax provision, as the Company had previously provided an amount in excess of the final settlement. 2002 vs. 2001 Overall net sales for the year ended December 31, 2002 of $181.2 million have increased 38% compared with $131.7 million for 2001. The increase resulted from increases in both the wholesale and retail segments (See Note 16 of the Notes to Consolidated Financial Statements for more information on operating segments). Wholesale net sales for 2002 were $163.6 million, as compared with $125.8 million for 2001. Retail net sales for 2002 were $15.9 million, as compared with $5.1 million in 2001. Also included in overall net sales are licensing revenues of $1.7 million in 2002, as compared with $0.8 million in 2001. Net sales for 2002 relating to the Florsheim wholesale and retail operations were $36.3 million and $11.7 million, respectively. Florsheim licensing revenues were $0.8 million. The Nunn Bush division sales were up 7% while the Stacy Adams division sales were down 3%. Excluding the acquisition of the Florsheim wholesale business and related licensing revenue, sales for Weyco's existing wholesale business were up $1.5 million in 2002. On the retail side, excluding the 2002 Florsheim retail business, retail sales were down $900,000 between 2001 and 2002. This is primarily due to the closing of two retail stores in January 2002. Gross earnings as a percent of net sales increased from 28.5% in 2001 to 32.6% for 2002. Licensing revenues, which have no related cost of sales, had an effect of increasing gross margins by 0.1% between 2001 and 2002. The remaining increase is a result of increased gross earnings as a percent of net sales in the wholesale segment, from 27.1% in 2001 to 29.2% in 2002, as well as in the retail segment, from 52.5% in 2001 to 61.1% in 2002. In both segments, the increases are due to changes in product mix between years. In addition, a part of the increase in overall gross earnings as a percent of net sales is due to changes in the mix of wholesale and retail sales as a percentage of total sales. Retail sales, which carry a higher margin, comprised 8.8% of overall net sales in 2002 versus 3.9% in 2001. Selling and administrative expenses as a percent of net sales were 18.4% in 2001 versus 20.8% in 2002. This is the result of increased wholesale selling and administrative expenses as a percent of net sales, from 17.0% in 2001 to 18.2% in 2002, and decreased retail selling and administrative expenses as a percent of net sales, from 52.3% in 2001 to 48.0% in 2002. The increase in wholesale selling and administrative expenses is due to the ramp-up of operations in 2002 to accommodate the Florsheim acquisition. The decrease in retail selling and administrative expenses as a percent of net sales is due to lower operating costs at the stores that were acquired in the 2002 acquisition. Overall selling and administrative expenses as a percent of net sales increased due to these factors and also due to the previously discussed change in the mix of retail and wholesale sales. The retail segment has significantly higher selling and administrative expenses as a percent of net sales than the wholesale segment. Interest income for 2002 was $853,000 as compared with $1,022,000 for 2001. This decrease was due to reductions in the average balance of marketable securities outstanding between 2001 and 2002. Interest expense for 2002 was $1,289,000 as compared with $296,000 for 2001. The increase is primarily due to borrowings under the line of credit during 2002 to fund the acquisition and related expenses. 2001 other income and expense included a $504,000 gain on the sale of other investments. The effective tax rate for 2002 is 37.2% as compared with 35.4% in 2001. The increase in the rate is primarily due to an increased federal statutory tax rate of 35% for 2002, as compared with 34% for 2001. Also, municipal bond income decreased for 2002 relative to pre-tax earnings, resulting in an increase in the effective tax rate. Off-Balance Sheet Arrangements The Company does not utilize any special purpose entities or other off-balance sheet arrangements. Commitments The Company's significant contractual obligations are its bank borrowings, deferred compensation agreements, unfunded supplemental pension plan, and its operating leases, which are discussed further in the notes to the financial statements. The Company also has significant obligations to purchase inventory. The bank borrowings, deferred compensation and supplemental pension obligations are recorded on the Company's Consolidated Balance Sheets. Future obligations under operating leases are disclosed in Note 13. The table below provides summary information about these obligations.
Payments Due by Period (in 000's) -------------------------------------------- Less More Than a 1 - 3 3 - 5 Than 5 Total Year Years Years Years ------- ------- ------ ------ ------ Bank borrowings ................... $27,945 $27,945 -- -- -- Deferred compensation ............. 3,016 3,016 -- -- -- Supplemental pension plan ......... 3,077 172 344 344 2,217 Operating leases .................. 10,550 2,356 3,502 1,618 3,074 Purchase obligations .............. 41,960 41,960 -- -- -- ------- ------- ------ ------ ------ Total ..................... $86,548 $75,449 $3,846 $1,962 $5,291
OTHER Critical Accounting Policies The Company's accounting policies are more fully described in Note 2 of the Notes to Consolidated Financial Statements. As disclosed in Note 2, the preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes. Future events and their effects cannot be determined with absolute certainty. Therefore, the determination of estimates requires the exercise of judgment. Actual results inevitably will differ from those estimates, and such differences may be material to the financial statements. The most significant accounting estimates inherent in the preparation of the Company's financial statements include estimates as to the recovery of accounts receivable, as well as those used in the determination of liabilities related to taxation and pension benefits. The allowances for sales returns and doubtful accounts are fact-specific and take into account such factors as specific customer situations, historical experience and current and expected economic conditions. Changes in these allowances may be required if actual returns, discounts and bad debt activity varies from the original estimates. The effective income tax rate is based on estimates of taxable income in each jurisdiction where income is earned. The Company also records a liability for potential income tax assessments based on estimates of potential exposure. Adjustments to the effective income tax rate may be required if actual taxable income or actual income tax assessments vary from the original estimates. The pension benefit obligation and pension expense are calculated in accordance with SFAS No. 87, "Employers' Accounting for Pensions", and are impacted by certain actuarial assumptions, including the discount rate and the expected rate of return on plan assets. These rates are evaluated on an annual basis considering such factors as market interest rates and historical asset performance. Actuarial valuations at December 31, 2003 used a discount rate of 6.0% and an expected rate of return on plan assets of 8.5%. A 0.5% decrease in the discount rate would increase annual pension expense by approximately $15,000. A 0.5% decrease in expected return on plan assets would increase annual pension expense by approximately $117,000. 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. The Company does not have significant market risk on its marketable securities as those investments consist of high-grade securities and are held to maturity. 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, 2003, the Company has forward exchange contracts outstanding to sell 6,000,000 Canadian dollars at a total price of $4,355,000. Based on December 31, 2003 exchange rates, there are no significant gains or losses on these contracts. All contracts expire in less than one year. Assuming a 10% appreciation in the U. S. dollar at December 31, 2003, there would be a loss on forward exchange contracts of $544,000. Interest Rates The Company is exposed to interest rate fluctuations on borrowings under its Revolving Line of Credit (the "Line of Credit"). As of December 31, 2003, $10 million of advances on the Line of Credit were outstanding at an average interest rate of 2.7% and $17.9 million of commercial paper was outstanding at an average interest rate of 1.4%. The interest expense for 2003 was $923,000. Assuming a 10% increase in the Company's weighted average interest rate on borrowings, interest expense in 2003 would have increased by $79,000. 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, as well as changes in interest rates, discount rates, or currency exchange rates as discussed above. CONSOLIDATED STATEMENTS OF EARNINGS For the years ended December 31, 2003, 2002 and 2001
2003 2002 2001 ------------- ------------- ------------- NET SALES .............................................. $ 215,760,531 $ 181,200,118 $ 131,692,896 COST OF SALES .......................................... 139,315,498 122,062,238 94,107,329 ------------- ------------- ------------- Gross earnings .................................. 76,445,033 59,137,880 37,585,567 SELLING AND ADMINISTRATIVE EXPENSES .................... 49,184,303 37,731,912 24,231,452 ------------- ------------- ------------- Earnings from operations ........................ 27,260,730 21,405,968 13,354,115 INTEREST INCOME ....................................... 528,531 853,032 1,021,687 INTEREST EXPENSE ....................................... (1,374,682) (1,289,159) (296,178) OTHER INCOME AND EXPENSE, net ......................... 275,222 18,077 621,618 ------------- ------------- ------------- Earnings before provision for income taxes ...... 26,689,801 20,987,918 14,701,242 PROVISION FOR INCOME TAXES ............................. 9,555,000 7,800,000 5,200,000 ------------- ------------- ------------- Net earnings .................................... $ 17,134,801 $ 13,187,918 $ 9,501,242 ============= ============= ============= BASIC EARNINGS PER SHARE* .............................. $ 3.01 $ 2.34 $ 1.65 ============= ============= ============= DILUTED EARNINGS PER SHARE* ............................ $ 2.91 $ 2.29 $ 1.64 ============= ============= =============
*Earnings per share figures have been adjusted to reflect the October 1, 2003, 50% stock dividend. The accompanying notes to consolidated financial statements are an integral part of these statements. CONSOLIDATED BALANCE SHEETS December 31, 2003 and 2002
2003 2002 ------------- ------------- ASSETS CURRENT ASSETS: Cash and cash equivalents ............................................. $ 9,091,567 $ 7,301,104 Marketable securities, at amortized cost .............................. 4,206,100 2,099,140 Accounts receivable, less reserves of $3,722,634 and $3,954,515 respectively ............................................ 29,900,197 32,170,795 Accrued income tax receivable ......................................... 228,074 1,008,079 Inventories ........................................................... 43,727,578 49,740,933 Deferred income tax benefits .......................................... 2,483,037 2,421,000 Prepaid expenses and other current assets ............................. 968,264 803,108 ------------- ------------- Total current assets ................................................ 90,604,817 95,544,159 ------------- ------------- MARKETABLE SECURITIES, at amortized cost ................................... 6,273,638 8,026,127 OTHER ASSETS ............................................................... 13,750,574 12,687,075 PLANT AND EQUIPMENT, net ................................................... 29,689,257 22,159,983 TRADEMARK .................................................................. 10,867,969 10,821,681 ------------- ------------- $ 151,186,255 $ 149,239,025 ============= ============= LIABILITIES AND SHAREHOLDERS' INVESTMENT CURRENT LIABILITIES: Short-term borrowings ................................................. $ 27,944,830 $ -- Accounts payable ...................................................... 7,465,606 11,268,713 Dividend payable ...................................................... 563,642 490,810 Accrued liabilities - Wages, salaries and commissions ................................... 4,335,408 4,615,368 Taxes other than income taxes ..................................... 376,773 88,385 Other ............................................................. 3,567,665 3,769,620 ------------- ------------- Total current liabilities ............................................. 44,253,924 20,232,896 ------------- ------------- LONG-TERM PENSION LIABILITY ................................................ 3,077,285 3,003,823 DEFERRED INCOME TAX LIABILITIES ............................................ 5,009,158 3,416,000 LONG TERM DEBT ............................................................. -- 37,801,992 SHAREHOLDERS' INVESTMENT: Common Stock, $1.00 par value, authorized 10,000,000 shares, issued and outstanding 4,324,983 shares in 2003 and 2,886,456 shares in 2002 . 4,324,983 2,886,456 Class B Common Stock, $1.00 par value, authorized 2,000,000 shares, issued and outstanding 1,305,435 shares in 2003 and 902,608 shares in 2002 ............................................ 1,305,435 902,608 Capital in excess of par value ........................................ 4,189,138 4,999,047 Reinvested earnings ................................................... 88,917,253 77,092,150 Accumulated other comprehensive income (loss) ......................... 109,079 (1,095,947) ------------- ------------- Total shareholders' investment ..................................... 98,845,888 84,784,314 ------------- ------------- $ 151,186,255 $ 149,239,025 ============= =============
The accompanying notes to consolidated financial statements are an integral part of these statements. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' INVESTMENT For the years ended December 31, 2003, 2002 and 2001
Accumulated Class B Capital Other Common Common in Excess of Reinvested Comprehensive Comprehensive Stock Stock Par Value Earnings Income/(Loss) Income ------------- ----------- ------------- ---------- ------------- ------------ Balance, December 31, 2000 .......................... 3,053,895 918,955 3,780,797 63,591,622 -- Net earnings.................................. -- -- -- 9,501,242 -- $ 9,501,242 =========== Cash dividends declared ($.31 per share)* ... -- -- -- (1,796,554) -- Conversions of Class B Common Stock to Common Stock ............................ 2,620 (2,620) -- -- -- Stock options exercised ...................... 18,500 -- 236,875 -- -- Income tax benefit from stock options exercised ................. -- -- 70,841 -- -- Shares purchased and retired ................. (235,228) (7,304) (199,125) (5,342,753) -- ---------- ----------- ----------- ------------ ----------- Balance, December 31, 2001 .......................... 2,839,787 909,031 3,889,388 65,953,557 -- Comprehensive Income - Net earnings ................................ -- -- -- 13,187,918 -- $13,187,918 Foreign currency translation adjustments .... -- -- -- -- (231,636) (231,636) Additional minimum pension liability (net of tax of $552,594) ..................... -- -- -- -- (864,311) (864,311) ----------- Total Comprehensive Income ......................... -- -- -- -- -- $12,091,971 =========== Cash dividends declared ($.34 per share)* ... -- -- -- (1,917,816) Conversions of Class B Common Stock to Common Stock ............................ 6,423 (6,423) -- -- -- Stock options exercised ..................... 47,746 -- 1,016,409 -- -- Income tax benefit from stock options exercised ................. -- -- 149,688 -- -- Shares purchased and retired ................ (7,500) -- (56,438) (131,509) -- ---------- ----------- ----------- ------------ ----------- Balance, December 31, 2002 .......................... 2,886,456 902,608 4,999,047 77,092,150 (1,095,947) Comprehensive Income - Net earnings ................................ -- -- -- 17,134,801 -- 17,134,801 Foreign currency translation adjustments .... -- -- -- -- 340,715 340,715 Additional minimum pension liability (net of tax of $552,594) .............. -- -- -- -- 864,311 864,311 ----------- Total Comprehensive Income ......................... -- -- -- -- -- $18,339,827 =========== Cash dividends declared ($.38 per share)* ... -- -- -- (2,158,520) -- Common stock dividend ....................... 1,463,354 437,269 (1,901,697) -- -- Conversions of Class B Common Stock to Common Stock ............................ 34,442 (34,442) -- -- -- Stock options exercised ..................... 50,881 -- 962,061 -- -- Income tax benefit from stock options exercised ................. -- -- 229,693 -- -- Shares purchased and retired ................ (110,150) -- (99,966) (3,151,178) -- ---------- ----------- ----------- ------------ ----------- Balance, December 31, 2003 .......................... $4,324,983 $ 1,305,435 $ 4,189,138 $ 88,917,253 $ 109,079 ========== =========== =========== ============ ===========
*Cash dividends declared have been adjusted to reflect the October 1, 2003, 50% stock dividend. The accompanying notes to consolidated financial statements are an integral part of these statements. CONSOLIDATED STATEMENTS OF CASH FLOWS For the years ended December 31, 2003, 2002 and 2001
2003 2002 2001 ---- ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings .............................................. $ 17,134,801 $ 13,187,918 $ 9,501,242 Adjustments to reconcile net earnings to net cash provided by operating activities - Depreciation ........................................... 2,322,794 2,104,960 1,608,525 Amortization of debt issuance costs .................... 187,020 126,159 -- Deferred income taxes................................... 978,527 1,164,000 295,000 Deferred compensation .................................. 197,292 184,380 172,307 Pension expense (income)................................ 992,050 13,971 (241,850) (Gain) loss on sale of assets .......................... (25,819) 5,694 (95,350) Gain on sale of other investments....................... -- -- (504,427) Increase in cash surrender value of life insurance...... (574,371) (551,394) (493,376) Changes in operating assets and liabilities (net of acquired business) - Accounts receivable..................................... 2,270,598 852,193 2,997,233 Inventories ............................................ 6,013,355 (7,374,620) (3,788,440) Prepaids and other current assets....................... (165,156) (39,647) 19,811 Accounts payable........................................ (3,803,107) 5,672,219 (638,056) Accrued liabilities and other........................... (258,149) 1,439,578 34,937 Accrued income taxes.................................... 1,009,700 (2,468,382) 1,121,040 ------------ ------------ ------------ Net cash provided by operating activities........ 26,279,535 14,317,029 9,988,596 ------------ ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of Florsheim assets........................... (46,288) (48,477,847) -- Purchase of marketable securities......................... (5,163,270) (6,004,234) -- Proceeds from maturities of marketable securities......... 4,808,799 9,899,355 8,334,637 Proceeds from sales of other investments.................. -- -- 603,807 Purchase of plant and equipment........................... (9,833,660) (8,194,532) (743,956) Proceeds from sales of plant and equipment ............... 37,623 2,200 165,595 ------------ ------------ ------------ Net cash (used for) provided by investing activities.. (10,196,796) (52,775,058) 8,360,083 ------------ ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Debt issuance costs....................................... -- (374,057) -- Cash dividends paid ...................................... (2,086,763) (1,878,604) (1,790,792) Shares purchased and retired.............................. (3,361,294) (195,447) (5,784,410) Proceeds from stock options exercised..................... 1,012,943 1,064,155 255,375 Net (repayments) borrowings under revolving credit facilities............................................ (9,857,162) 30,292,088 2,302,956 ------------ ------------ ------------ Net cash (used for) provided by financing activities.. (14,292,276) 28,908,135 (5,016,871) ------------ ------------ ------------ Net increase (decrease) in cash and cash equivalents....... 1,790,463 (9,549,894) 13,331,808 ------------ ------------ ------------ CASH AND CASH EQUIVALENTS, at beginning of year................ $ 7,301,104 $ 16,850,998 $ 3,519,190 ------------ ------------ ------------ CASH AND CASH EQUIVALENTS, at end of year...................... $ 9,091,567 $ 7,301,104 $ 16,850,998 ============ ============ ============ SUPPLEMENTAL CASH FLOW INFORMATION: Income taxes paid, net of refunds.......................... $ 7,543,171 $ 9,069,613 $ 3,787,203 Interest paid.............................................. $ 1,383,664 $ 893,957 $ 321,574
The accompanying notes to consolidated financial statements are an integral part of these statements. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2003, 2002 and 2001 1. NATURE OF OPERATIONS Weyco Group, Inc. is a U.S. based distributor of men's branded footwear. The Company's brands include Florsheim, Nunn Bush, Nunn Bush NXXT, Brass Boot, Stacy Adams and SAO by Stacy Adams. The Company's products are primarily sold to unaffiliated retailers throughout the United States. The Company also has a wholesale operation in Europe and has licensing agreements with third parties to sell its products internationally. In addition, the Company operates 30 retail stores in the United States and three in Europe. 2. SUMMARY OF SIGNIFICANT 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. Use of Estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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. Cash and Cash Equivalents - The Company considers all highly liquid investments with maturities of three months or less at the date of purchase to be cash equivalents. At December 31, 2003 and 2002, approximately $6.4 million and $5.5 million, respectively, of the Company's cash and cash equivalents were held at two banks. Inventories - Inventories are valued at cost, which is not in excess of market. Substantially all inventories are determined on a last-in, first-out (LIFO) basis. Inventory costs include the cost of shoes purchased from third party manufacturers, as well as related freight and duty. See Note 6. 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. Impairment of Long-Lived Assets - Property, plant and equipment and other long-term assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If the sum of the expected undiscounted cash flows is less than the carrying value of the related asset or group of assets, a loss is recognized for the difference between the fair value and carrying value of the asset or group of assets. There were no significant adjustments to the carrying value of long-lived assets in fiscal 2003, 2002, or 2001. Income Taxes - Deferred income taxes are provided on temporary differences arising from differences in the basis of assets and liabilities for income tax and financial reporting purposes. See Note 11. Financial Instruments - The Company has entered into forward exchange contracts designated as cash flow hedges in accordance with Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" for the purpose of hedging against foreign currency risk. At December 31, 2003, the Company has financial contracts outstanding to sell 6,000,000 Canadian dollars at a total price of $4,355,000. These contracts all expire in 2004. Based upon year-end exchange rates, there are no significant gains or losses on outstanding contracts. Revenue Recognition - Revenue from the sale of product is recognized when title and risk of loss transfers to the customer and the customer is obligated to pay the Company. 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. All product sales are recorded net of estimated allowances for returns and discounts. Revenue from third party licensing agreements is recognized in the period earned. For December 31, 2003, 2002 and 2001, licensing revenues were $3,576,000, $1,671,000 and $758,000, respectively. Shipping and Handling Fees - The Company classifies shipping and handling fees billed to customers as revenues. The corresponding shipping and handling expenses are included in selling and administrative expenses and totaled $1,531,000, $1,284,000 and $774,000 for 2003, 2002 and 2001, respectively. Advertising Costs - Advertising costs are expensed as incurred. Total advertising costs were $9,265,000, $6,426,000 and $4,961,000 in 2003, 2002 and 2001, respectively. All advertising expenses are included in selling and administrative expenses with the exception of co-op advertising expenses which are recorded as a reduction of net sales. Co-op advertising expenses reduced net sales by $3,838,000, $2,842,000 and $1,949,000 for 2003, 2002 and 2001, respectively. Foreign Currency Translation - Foreign currency balance sheet accounts are translated into United States dollars at the rates of exchange in effect at fiscal year end. Income and expenses are translated at the average rates of exchange in effect during the year. The related translation adjustments are made directly to a separate component of Shareholders' Investment. Earnings Per Share - Basic earnings per share excludes any dilutive effects of common stock options. Diluted earnings per share includes any dilutive effects of common stock options. See Note 15. Stock Dividend - Certain share and all per share figures in this report have been adjusted to reflect the October 1, 2003, 50% stock dividend. Comprehensive Income - Comprehensive Income includes net earnings and changes in Accumulated Other Comprehensive Income (Loss). The Company has chosen to report Comprehensive Income and Accumulated Other Comprehensive Income (Loss) in the Consolidated Statements of Shareholders' Investment. At December 31, 2003, Accumulated Other Comprehensive Income consists of $109,079 of cumulative translation adjustment gains. At December 31, 2002, Accumulated Other Comprehensive Loss consisted of the additional minimum pension liability of $864,311 (net of tax) and cumulative translation adjustment losses of $231,636. Stock-Based Compensation - In December 2002, The Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure". The Company adopted the disclosure provisions of this statement in 2002. At December 31, 2003, the Company has two stock-based employee compensation plans, which are described more fully in Note 17. The Company accounts for those plans under the recognition and measurement principles of APB Opinion No. 25, "Accounting for Stock Issued to Employees", and related interpretations. Reclassification - Certain amounts in the prior year financial statements have been reclassified to conform to the current year presentation. 3. ACQUISITION On May 20, 2002, the Company acquired from Florsheim Group, Inc. and its subsidiaries (collectively, "Florsheim"), certain assets of Florsheim's U.S. wholesale business, including its accounts receivable, trademarks, and other information assets, wholesale inventory (with specified exceptions) and other specified assets, as well as the leaseholds and associated assets for 23 retail and outlet shoe stores. As part of the asset purchase agreement, the Company also agreed to purchase certain assets of Florsheim Europe S.r.l. and Florsheim France SARL, two wholly-owned subsidiaries of Florsheim. The acquisition of Florsheim Europe closed on July 1, 2002 for approximately $400,000 plus the assumption of operating liabilities. The acquisition of Florsheim France closed on July 27, 2002, for approximately $10,000 plus the assumption of certain operating liabilities. The domestic and foreign assets acquired and liabilities assumed are collectively referred to as the "Acquired Business." Florsheim had been an international distributor of men's dress and casual footwear. As a result of the acquisition, the Company acquired a leading brand name in the men's footwear industry with worldwide name recognition. Weyco believes that the brand complements the Company's current brands, enhances the Company's position as a leading distributor of men's casual and dress footwear, and allows the Company to achieve certain economies of scale. The total purchase price of the Acquired Business was $48.5 million, including $1.7 million of acquisition costs. The acquisition has been accounted for using the purchase method of accounting and accordingly, the purchase price was allocated on a preliminary basis to identifiable assets acquired and liabilities assumed based upon their estimated fair values. The purchase price was finalized in 2003, resulting in a $46,000 net increase in the value of the trademark since December 31, 2002. The results of operations of the Acquired Business have been included in the consolidated financial statements since the respective dates of acquisition. The following table summarizes the estimated fair value of the assets acquired and liabilities assumed at the respective dates of acquisition (in thousands): Accounts receivable $ 12,156 Inventory 24,865 Other current assets 597 Fixed assets 734 Trademark 10,868 -------- 49,220 Current liabilities (696) -------- $ 48,524 ========
In accordance with SFAS No. 142, "Goodwill and Other Intangible Assets," the acquired Florsheim trademark of $10.9 million is not being amortized, as it has an indefinite life. The Company completed an impairment test of the acquired trademark as of December 31, 2003, and found that no impairment currently exists. The following table sets forth the unaudited proforma information for the Company as if the acquisition of the Acquired Business had occurred as of the beginning of each previous year shown (in thousands, except per share data):
2002 2001 -------- -------- Net sales $214,399 $222,597 Net earnings $ 15,056 $ 8,719 Basic earnings per share $ 2.67 $ 1.51 Diluted earnings per share $ 2.62 $ 1.51
4. FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amounts of all short-term financial instruments, except marketable securities, approximate fair value due to the short-term nature of those instruments. Marketable securities are carried at amortized cost. The fair value of marketable securities is estimated based upon quoted market rates (See Note 5). The carrying amount of short-term borrowings and long-term debt approximates fair value as it bears interest at current market rates. 5. 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, 2003 and 2002 are as follows:
2002 2003 --------------------------- ------------------------------- Amortized Market Amortized Market Cost Value Cost Value ----------- ----------- ----------- ----------- Municipal bonds : Current $ 4,206,100 $ 4,045,776 $ 2,099,140 $ 2,119,001 Due from one through five years 4,374,350 4,644,362 7,038,428 7,387,517 Due from five through ten years 880,000 880,000 823,614 877,078 Due from ten through twenty years 1,019,288 1,026,353 63,581 63,350 Due from twenty through thirty years -- -- 100,504 100,000 ----------- ----------- ----------- ----------- Total $10,479,738 $10,596,491 $10,125,267 $10,546,946 =========== =========== =========== ===========
The unrealized gains and losses on investment securities at December 31 are:
2003 2002 --------------------------- ------------------------------- Unrealized Unrealized Unrealized Unrealized Gains Losses Gains Losses ---------- ---------- ---------- ---------- Municipal bonds. . . . . . . . . . . $313,495 $196,742 $422,621 $942
6. INVENTORIES At December 31, 2003 and 2002, inventories consist of:
2003 2002 ----------- ----------- Finished goods $43,727,578 $48,951,574 Shoes in process -- 337,221 Raw materials -- 452,138 ----------- ----------- Total inventories $43,727,578 $49,740,933 =========== ===========
The excess of current cost over LIFO cost of inventories as of December 31, 2003 and 2002 was $12,413,000 and $12,488,000, respectively. 7. PLANT AND EQUIPMENT At December 31, 2003 and 2002, plant and equipment consists of:
2003 2002 ------------ ------------ Land $ 2,645,566 $ 2,582,110 Buildings and improvements 19,526,186 13,843,291 Machinery and equipment 16,167,204 12,738,871 Retail fixtures and leasehold improvements 2,575,294 1,922,982 ------------ ------------ Plant and equipment 40,914,250 31,087,254 Less: accumulated depreciation (11,224,993) (8,927,271) ------------ ------------ Plant and equipment, net $ 29,689,257 $ 22,159,983 ============ ============
8. OTHER ASSETS Other Assets include the following amounts at December 31:
2003 2002 ------------ ------------ Pension asset (See Note 10) $ 6,837,669 $ 6,166,831 Cash surrender value of life insurance 6,813,957 6,239,586 Unamortized debt issuance costs 60,878 247,898 Other investments 38,070 32,760 ------------ ------------ $ 13,750,574 $ 12,687,075 ============ ============
9. LONG TERM DEBT On May 17, 2002, the Company entered into a two-year $60 million unsecured Revolving Line of Credit (the "Line of Credit") with a group of banks. The Company borrowed under the Line of Credit to fund the 2002 acquisition and for other capital needs. The Line of Credit allowed for the issuance of up to $20 million in non-rated commercial paper at market interest rates and additional bank borrowings at an interest rate of LIBOR plus from 150 to 250 basis points. In accordance with the original agreement, the Line of Credit was reduced to $50 million on April 30, 2003. On May 5, 2003, the Line of Credit agreement was extended an additional year, to April 30, 2005. At December 31, 2003, outstanding borrowings under the Line of Credit were $27.9 million, consisting of $17.9 million of commercial paper with an average interest rate of 1.39% and $10 million of bank borrowings with an average interest rate of 2.7%. The Company also pays a fee of .4375% on the unused portion of the Line of Credit. In 2002, the Company incurred $374,000 of debt issuance costs related to this Line of Credit. These costs are included in Other Assets and are being amortized over the term of the Line of Credit. At December 31, 2003, $61,000 of costs remain in Other Assets. The Line of Credit includes certain financial covenants, including a minimum net worth of $92.8 million at December 31, 2003, minimum levels of Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) and a maximum ratio of funded debt to EBITDA. As of December 31, 2003, the Company is in compliance with all covenants. In February 2004, the Company renegotiated its Line of Credit, consolidating it into a $50 million, 364-day facility with a single bank. The Line of Credit now allows for the issuance of up to $25 million in non-rated commercial paper at market interest rates and additional bank borrowings at a rate of LIBOR plus 150 basis points. There are no fees on the unused portion of the Line of Credit. Financial covenants remain the same. 10. EMPLOYEE RETIREMENT PLANS The Company had two defined benefit retirement plans covering substantially all employees which were combined into one plan as of December 31, 2003, as well as an unfunded supplemental pension plan for key executives. 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 for the defined benefit retirement plan is to make contributions to the plan 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 equity securities and fixed income securities, mainly U. S. government and corporate obligations. The Company's pension plan weighted average asset allocation at December 31, 2003 and 2002, by asset category, is as follows:
Plan Assets at December 31 --------------------------- 2003 2002 ---- ---- Asset Category - Equity Securities. . . . . . . . . . . . . . . . . . . . . 51% 45% Fixed Income Securities . . . . . . . . . . . . . . . . . 48% 49% Other. . . . . . . . . . . . . . . . . . . . . . . . . . . 1% 6% --- ---- Total. . . . . . . . . . . . . . . . . . . . . . . . . . 100% 100%
The Company has a Retirement Plan Committee, consisting of the Chief Executive Officer, Chief Operating Officer and Chief Financial Officer, to manage the operations and administration of all benefit plans and related trusts. The committee has an investment policy for the pension plan assets that establishes target asset allocation ranges for the above listed asset classes as follows: equity securities: 30% - 70%; fixed income securities: 70% - 30%; other, principally cash: 0% - 20%. On a semi-annual basis, the committee reviews progress towards achieving the pension plan's performance objectives. To develop the expected long-term rate of return on assets assumption, the Company considered the historical returns and the future expectations for returns for each asset class, as well as the target asset allocation of the pension portfolio. This resulted in the selection of the 8.5% long-term rate of return on assets assumption. Assumptions used in determining the funded status at December 31 are:
2003 2002 ---- ----- Discount rate ................................................ 6.0% 6.75% Rate of compensation increase ................................ 4.5% 5.0% Long-term rate of return on plan assets ...................... 8.5% 8.5%
All plans have a measurement date of December 31. The following is a reconciliation of the change in benefit obligation and plan assets for the years ended December 31, 2003 and 2002: CHANGE IN BENEFIT OBLIGATION
2003 2002 ----------- ----------- Benefit obligation, beginning of year ................................ $22,283,000 $19,123,000 Service cost ......................................................... 571,000 498,000 Interest cost ........................................................ 1,463,000 1,339,000 Plan amendments ...................................................... 75,000 -- Actuarial loss ....................................................... 4,020,000 2,614,000 Benefits paid ........................................................ (1,316,000) (1,291,000) ----------- ----------- Benefit obligation, end of year ...................................... $27,096,000 $22,283,000 =========== ===========
CHANGE IN PLAN ASSETS
2003 2002 ----------- ----------- Fair value of plan assets, beginning of year ......................... $20,295,000 $21,020,000 Actual return on plan assets ......................................... 4,870,000 394,000 Contributions ........................................................ 172,000 172,000 Benefits paid ........................................................ (1,316,000) (1,291,000) ----------- ----------- Fair value of plan assets, end of year ............................... $24,021,000 $20,295,000 =========== =========== Funded status of plan ................................................ $(3,075,000) $(1,988,000) Unrecognized net actuarial loss ...................................... 6,648,000 6,240,000 Unrecognized prior service cost ...................................... 187,000 328,000 ----------- ----------- Net amount recognized ................................................ $ 3,760,000 $ 4,580,000 =========== ===========
AMOUNTS RECOGNIZED IN THE BALANCE SHEETS CONSIST OF:
2003 2002 ----------- ----------- Other assets ......................................................... $ 6,837,000 $ 6,167,000 Long-term pension liability .......................................... (3,077,000) (3,004,000) Accumulated other comprehensive income ............................... -- 1,417,000 ----------- ----------- Net amount recognized ................................................ $ 3,760,000 $ 4,580,000 =========== ===========
The accumulated benefit obligation for the defined benefit pension plans was $23,562,000 and $19,343,000 at December 31, 2003 and 2002, respectively. Information for pension plans with an accumulated benefit obligation in excess of plan assets:
2003 2002 ---- ---- Projected benefit obligation ................................................ $ 3,887,000 $7,334,000 Accumulated benefit obligation .............................................. $ 2,977,000 $6,778,000 Fair value of pension assets ................................................ $ -- $3,956,000
Assumptions used in determining net periodic pension cost at December 31 are:
2003 2002 2001 ---- ---- ---- Discount rate .......................................................... 6.75% 7.25% 7.5% Rate of compensation increase .......................................... 5.0% 5.0% 5.0% Long-term rate of return on plan assets ................................ 8.5% 8.5% 8.5%
The components of net periodic pension cost for the years ended December 31, 2003, 2002 and 2001, are:
2003 2002 2001 ---------- ----------- ----------- Benefits earned during the period .............................. $ 571,000 $ 498,000 $ 393,000 Interest cost on projected benefit obligation .................. 1,463,000 1,339,000 1,310,000 Expected return on plan assets ................................. (1,674,000) (1,738,000) (1,822,000) Net amortization and deferral .................................. 440,000 (85,000) (123,000) Curtailment loss ............................................... 192,000 -- -- ----------- ----------- ----------- Net pension expense (income) ................................... $ 992,000 $ 14,000 $ (242,000) =========== =========== ===========
The Company does not expect to make any contributions to its defined benefit pension plan in 2004 The Company also has a defined contribution plan covering substantially all employees. During 2003, 2002 and 2001, the Company contributed $125,000, $106,000 and $90,000, respectively, to the plan. 11. INCOME TAXES The provision for income taxes includes the following components:
2003 2002 2001 ---------- ---------- ---------- Current Federal ................ $6,884,000 $5,434,000 $3,766,000 State .................. 1,426,000 1,023,000 860,000 Foreign ................ 266,000 179,000 279,000 ---------- ---------- ---------- Total ............ 8,576,000 6,636,000 4,905,000 Deferred ................... 979,000 1,164,000 295,000 ---------- ---------- ---------- Total provision $9,555,000 $7,800,000 $5,200,000 ========== ========== ========== Effective tax rate ......... 35.8% 37.2% 35.4% ========== ========== ==========
The differences between the U.S. federal statutory income tax rate and the Company's effective tax rate were as follows for the years ended December 31, 2003, 2002 and 2001:
2003 2002 2001 ---- ---- ---- U. S. federal statutory income tax rate ............ 35.0% 35.0% 34.0% State income taxes, net of federal tax benefit...... 3.4 3.1 3.8 Non-taxable municipal bond interest ................ (0.6) (1.2) (2.2) Resolution of prior period tax matters ............. (2.4) -- -- Other .............................................. 0.4 0.3 (0.2) ---- ---- ---- 35.8% 37.2% 35.4% ==== ==== ====
During 2003, the Company resolved certain matters related to an audit of its 1996 Federal income tax return. The settlement had a favorable impact on the Company's 2003 tax provision, as the Company had previously provided an amount in excess of the final settlement. The foreign component of pretax net earnings was $810,000, $664,000 and $699,000 for 2003, 2002 and 2001, respectively. The components of deferred taxes as of December 31, 2003 and 2002, are as follows:
2003 2002 ----------- ------------- Deferred tax assets: Accounts receivable and inventory reserves ....... $ 86,000 $ 307,000 Deferred compensation ............................ 1,176,000 1,099,000 Other ............................................ 1,221,000 1,015,000 ----------- ------------- 2,483,000 2,421,000 ----------- ------------- Deferred tax liabilities: Pension asset .................................... (1,536,000) (1,234,000) Cash value of life insurance ..................... (1,332,000) (1,168,000) Depreciation ..................................... (1,761,000) (1,014,000) Other ............................................ (380,000) -- ----------- ------------- (5,009,000) (3,416,000) ----------- ------------- Net deferred tax liability ................. $(2,526,000) $ (995,000) =========== =============
The net deferred tax liability is classified in the consolidated balance sheets as follows:
2003 2002 ----------- ----------- Current deferred income tax benefits $ 2,483,000 $ 2,421,000 Noncurrent deferred income tax liabilities (5,009,000) ( 3,416,000) ---------- ----------- $(2,526,000) $ (995,000) =========== ===========
12. DEFERRED COMPENSATION The Company has deferred compensation agreements with certain former executives. The Company expensed $197,000 in 2003, $184,000 in 2002 and $172,000 in 2001 in connection with these agreements. Amounts owed under these agreements are included in Accrued Wages, Salaries and Commissions on the Consolidated Balance Sheets. 13. OPERATING LEASES The Company operates retail shoe stores under both short-term and long-term leases. Leases provide for a minimum rental plus percentage rentals based upon sales in excess of a specified amount. Total minimum rents were $2,569,000 in 2003, $1,686,000 in 2002, and $600,000 in 2001. Percentage rentals were $16,000 in 2003, $36,000 in 2002, and $42,000 in 2001. 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, 2003, are shown below. Renewal options exist for many long-term leases. 2004 . . . . . . . . . . . . . . . . . . . . . . $ 2,356,000 2005 . . . . . . . . . . . . . . . . . . . . . . 1,971,000 2006 . . . . . . . . . . . . . . . . . . . . . . 1,531,000 2007. . . . . . . . . . . . . . . . . . . . . . . 1,040,000 2008. . . . . . . . . . . . . . . . . . . . . . . 578,000 Thereafter. . . . . . . . . . . . . . . . . . . . . . . 3,074,000 ----------- Total $10,550,000 ===========
14. SHAREHOLDERS' INVESTMENT Each share of Class B common stock has 10 votes, may only be transferred to certain permitted transferees, is convertible to one share of common stock at the holder's option and shares equally with the common stock in cash dividends and liquidation rights. In April 1998, the Company's Board of Directors first authorized a stock repurchase program to purchase shares of its common stock in open market transactions at prevailing prices. The Company also buys back shares of its common stock from time to time in private transactions at prevailing prices. During 2001, the Company purchased 177,500 shares at a total cost of $4,158,000 under the program, and 65,000 shares at a total cost of $1,626,000 in private transactions, and during 2002, the Company purchased 5,000 shares at a total cost of $126,750 under the program, and 2,500 shares at a total cost of $68,697 in private transactions. During 2003, the Company purchased 95,300 shares at a total cost of $2,862,992 under the program, and 14,850 shares at a total cost of $498,302 in private transactions. At December 31, 2003, the Company is authorized to buy an additional 813,100 shares under the program. 15. EARNINGS PER SHARE The following table sets forth the computations of basic and diluted earnings per share:
2003 2002 2001 ---- ---- ---- Numerator: Net earnings ................................... $ 17,134,801 $13,187,918 $ 9,501,242 ============= =========== =========== Denominator: Basic weighted average shares outstanding ...... 5,693,716 5,640,291 5,753,004 Effect of dilutive securities : Employee stock options ....................... 184,571 113,151 39,497 ------------- ----------- ----------- Diluted weighted average shares outstanding .... 5,878,287 5,753,442 5,792,501 ============= =========== =========== Basic earnings per share ......................... $ 3.01 $ 2.34 $ 1.65 ============= =========== =========== Diluted earnings per share ....................... $ 2.91 $ 2.29 $ 1.64 ------------- =========== ===========
Diluted weighted average shares outstanding for 2003 exclude outstanding options to purchase 154,875 shares of common stock at a weighted average price of $33.70 because they are antidilutive. 2002 diluted weighted average shares outstanding exclude outstanding options to purchase 143,850 shares of common stock at a weighted average price of $24.21 because they were antidilutive. 2001 diluted weighted average shares outstanding exclude outstanding options to purchase 234,354 shares of common stock at a weighted average price of $17.10 because they were antidilutive. 16. 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 through more than 10,000 shoe, clothing and department stores. Most sales are to unaffiliated customers in North America, with some distribution in Europe. In 2003, sales to the Company's largest customer were 12% of total sales. There were no customers that accounted for 10% or more of total sales in 2002. In 2001, sales to the Company's largest customer were 10% of total sales. There are no other individually significant customers. In the retail division, the Company currently operates 30 company-owned stores in principal cities in the United States, as well as three stores in Europe. Twenty-three of the domestic retail stores, as well as the three in Europe, were acquired in 2002 as part of the Florsheim acquisition. 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 Significant Accounting Policies. The Company evaluates performance based on earnings from operations before income taxes. Summarized segment data for 2003, 2002 and 2001 are as follows:
Wholesale Distribution Retail Total ------------ ------------ ------------ 2003 Product sales $187,327,000 $ 24,858,000 $212,185,000 Licensing revenues 3,576,000 -- 3,576,000 ------------ ------------ ------------ Net sales 190,903,000 24,858,000 215,761,000 Depreciation 1,603,000 720,000 2,323,000 Earnings from operations 23,388,000 3,873,000 27,261,000 Total assets 144,380,000 6,806,000 151,186,000 Capital expenditures 9,241,000 593,000 9,834,000 2002 Product sales $163,644,000 $ 15,885,000 $179,529,000 Licensing revenues 1,671,000 -- 1,671,000 ------------ ------------ ------------ Net sales 165,315,000 15,885,000 181,200,000 Depreciation 1,619,000 486,000 2,105,000 Earnings from operations 19,334,000 2,072,000 21,406,000 Total assets 142,955,000 6,284,000 149,239,000 Capital expenditures 8,113,000 82,000 8,195,000 2001 Product sales $125,839,000 $ 5,096,000 $130,935,000 Licensing revenues 758,000 -- 758,000 ------------ ------------ ------------ Net sales 126,597,000 5,096,000 131,693,000 Depreciation 1,451,000 158,000 1,609,000 Earnings from operations 13,344,000 10,000 13,354,000 Total assets 96,139,000 1,815,000 97,954,000 Capital expenditures 317,000 427,000 744,000
All corporate assets are included in the wholesale distribution segment. Net sales above exclude intersegment sales. Annual Report 17. STOCK-BASED COMPENSATION PLANS The Company has two stock option plans: the 1996 Nonqualified Stock Option Plan and the 1997 Stock Option Plan. Under the plans, options to purchase common stock are granted to officers and key employees at prices not less than the fair market value of the common stock on the date of the grant. All options are fully vested six months after the date of grant, and most expire ten years from the grant date, with the exception of certain incentive stock options, which expire five years from the grant date. No stock-based employee compensation expense has been reflected in net income, as all options granted under those plans had an exercise price equal to or greater than the market value of the underlying common stock on the date of grant. The following table summarizes the stock option activity under the Company's plans for the years ended December 31:
2003 2002 2001 ------------------------- ------------------------- -------------------------- Weighted Weighted Weighted Average Average Average Shares Exercise Price Shares Exercise Price Shares Exercise Price -------- -------------- -------- -------------- -------- -------------- Outstanding at beginning of year 722,481 $ 16.76 650,250 $ 14.90 553,125 $ 14.41 Granted 154,125 33.70 143,850 24.21 124,875 15.81 Exercised (57,756) 17.49 (71,619) 14.86 (27,750) 9.20 Forfeited -- -- -- -- -- -- -------- ----------- -------- -------------- -------- -------------- Outstanding at end of year 818,850 $ 19.91 722,481 $ 16.76 650,250 $ 14.90 ======== ======== ======== Exercisable at end of year 818,850 $ 19.91 578,631 $ 14.91 525,375 $ 14.69 Weighted average fair market value of options granted $ 11.28 $ 7.58 $ 5.19
The following table summarizes information about stock options outstanding at December 31, 2003:
Weighted Weighted Average Average Range of Options Remaining Weighted Average Options Exercise Price of Exercise Price Outstanding Contractual Life Exercise Price Exercisable Exercisable Options - ---------------------------------------- ----------- ---------------- ---------------- ----------- -------------------- $9.06 .................................. 87,750 2.93 $ 9.06 87,750 $ 9.06 $14.50 to $18.70 ....................... 442,125 5.61 15.93 442,125 15.93 $24.08 to $26.48 ....................... 134,100 8.29 24.23 134,100 24.23 $33.58 to $36.94 ....................... 154,875 9.21 33.70 154,875 33.70 --------- --------- -------- --------- ------- $ 9.06 to $36.94 ....................... 818,850 6.13 $ 19.91 818,850 $ 19.91 ========= ========= ======== ========= =======
At December 31, 2003, 45,525 shares of common stock have been reserved for future stock option grants under the plans. The following table illustrates the effect on net income and earnings per share as if the Company had applied the fair value recognition provisions of FASB Statement No. 123, "Accounting for Stock-Based Compensation", as amended by SFAS No. 148, to stock-based employee compensation.
2003 2002 2001 -------------- -------------- -------------- Net earnings, as reported $ 17,134,801 $ 13,187,918 $ 9,501,242 Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects 1,141,734 721,857 418,352 -------------- -------------- -------------- Pro forma net income ..................... $ 15,993,067 $ 12,466,061 $ 9,082,890 ============== ============== ============== Earnings per share Basic - as reported .................. $ 3.01 $ 2.34 $ 1.65 Basic - pro forma .................... $ 2.81 $ 2.21 $ 1.58 Diluted - as reported ................ $ 2.91 $ 2.29 $ 1.64 Diluted - pro forma .................. $ 2.72 $ 2.17 $ 1.57
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:
2003 2002 2001 ----------- ----------- ---------- Risk-free interest rate ..................... 4.06% 3.69% 5.39% Expected dividend yields .................... 1.30% 1.45% 1.75% Expected remaining life ..................... 8.8 yrs. 8.8 yrs. 8.6 yrs. Expected volatility ......................... 25.0% 25.0% 23.0%
18. QUARTERLY FINANCIAL DATA (UNAUDITED)
2003 First Quarter(1) Second Quarter(1) Third Quarter(1) Fourth Quarter(1) Year(1) ---- ---------------- ----------------- ---------------- ----------------- ------------- Net sales $60,379,924 $51,000,284 $49,817,256 $54,563,067 $ 215,760,531 Gross earnings $20,184,824 $17,613,896 $17,042,947 $21,603,366 $ 76,445,033 Net earnings $ 4,671,194 $ 3,593,444 $ 3,508,974 $ 5,361,189 $ 17,134,801 Net earnings per share - Basic $ .82 $ .63 $ .62 $ .94 $ 3.01 - Diluted $ .80 $ .61 $ .59 $ .91 $ 2.91
2002 First Quarter Second Quarter(1) Third Quarter(1) Fourth Quarter(1) Year(1) ---- ------------- ----------------- ---------------- ----------------- ------------ Net sales $35,722,349 $32,532,514 $58,762,489 $54,182,766 $181,200,118 Gross earnings $ 9,477,071 $10,088,474 $18,763,722 $20,808,613 $ 59,137,880 Net earnings $ 2,273,032 $ 1,648,988 $ 4,532,443 $ 4,733,455 $ 13,187,918 Net earnings per share - - Basic $ .41 $ .29 $ .80 $ .84 $ 2.34 - - Diluted $ .40 $ .29 $ .78 $ .82 $ 2.29
(1)Includes the operating results of the acquired Florsheim business since the dates of acquisition as discussed in Note 3. REPORT OF INDEPENDENT AUDITORS To the Shareholders and Board of Directors of Weyco Group, Inc.: We have audited the accompanying consolidated balance sheets of Weyco Group, Inc. and subsidiaries (the "Company") as of December 31, 2003 and 2002, and the related consolidated statements of earnings, shareholders' investment and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the 2003 and 2002 financial statements based on our audits. The financial statements for the year ended December 31, 2001, before the stock dividend adjustments discussed in Note 2 to the financial statements, were audited by other auditors who have ceased operations. Those auditors expressed an unqualified opinion on those financial statements in their report dated February 14, 2002, except for Note 15, as to which the date is March 3, 2002. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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, such 2003 and 2002 consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2003 and 2002, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. As discussed above, the financial statements of the Company for the year ended December 31, 2001 were audited by other auditors who have ceased operations. As described in Note 2, those financial statements have been revised to give effect to the stock dividend on October 1, 2003, discussed in Note 2. We audited the adjustments described in Note 2 that were applied to revise the 2001 financial statements for such stock dividend. Our audit procedures included (1) comparing the amounts shown in the share and earnings per share disclosures for 2001 to the Company's underlying accounting analysis obtained from management, (2) comparing the previously reported shares outstanding and statement of earnings amounts per the Company's accounting analysis to the previously issued financial statements, and (3) recalculating the additional shares to give effect to the stock dividend and testing the mathematical accuracy of the underlying analysis. In our opinion, such adjustments have been properly applied. However, we were not engaged to audit, review or apply any procedures to the 2001 financial statements of the Company other than with respect to such stock dividend adjustments and, accordingly, we do not express an opinion or other form of assurance on the 2001 financial statements taken as a whole. DELOITTE & TOUCHE LLP Milwaukee, Wisconsin February 20, 2004 THIS REPORT SET FORTH BELOW IS A COPY OF A REPORT PREVIOUSLY ISSUED BY ARTHUR ANDERSEN LLP IN CONNECTION WITH THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2001. THIS REPORT HAS NOT BEEN REISSUED BY ARTHUR ANDERSEN LLP. 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, 2001 and 2000, and the related consolidated statements of earnings, shareholders' investment and cash flows for each of the three years in the period ended December 31, 2001. 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, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States. ARTHUR ANDERSEN LLP Milwaukee, Wisconsin February 14, 2002, except for Note 15, as to which the date is March 3, 2002 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 accounting principles generally accepted in the United States of America 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 2003 financial statements have been audited by Deloitte & Touche LLP, independent auditors, whose report thereon appears above. Management has made available to Deloitte & Touche 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 of the financial statements of the Company. 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, Deloitte & Touche LLP has full and free access to the Audit Committee to discuss the results of their audits, the adequacy of the Company's internal controls, and the quality of the Company's financial reporting. DIRECTORS Thomas W. Florsheim Chairman Emeritus Thomas W. Florsheim, Jr. Chairman and Chief Executive Officer John W. Florsheim 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 Frederick P. Stratton, Jr. Chairman Emeritus Briggs & Stratton Corporation, Manufacturer of Gasoline Engines OFFICERS Thomas W. Florsheim, Jr. Chairman and Chief Executive Officer John W. Florsheim President and Chief Operating Officer James F. Gorman Senior Vice President Peter S. Grossman Senior Vice President John F. Wittkowske Senior Vice President, Chief Financial Officer and Secretary SUPPLEMENTAL INFORMATION ANNUAL MEETING Shareholders are invited to attend Weyco Group, Inc.'s 2004 Annual Meeting at 10:00 a.m. on April 27, 2004, 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 59 Maiden Lane New York, New York 10038 COMPANY HEADQUARTERS Weyco Group, Inc. 333 W. Estabrook Boulevard Glendale, WI 53212 414-908-1600 www.weycogroup.com OTHER INFORMATION COPIES OF THE COMPANY'S ANNUAL REPORT TO THE SECURITIES AND EXCHANGE COMMISSION (FORM 10-K), ITS QUARTERLY REPORTS TO THE SECURITIES AND EXCHANGE COMMISSION (FORM 10-Q'S), OR ITS CODE OF BUSINESS ETHICS WILL BE FURNISHED WITHOUT CHARGE TO ANY SHAREHOLDER (INCLUDING BENEFICIAL OWNERS) UPON WRITTEN OR TELEPHONE REQUEST. Written requests should be sent to Investor Relations, Weyco Group, Inc., P. O. Box 1188, Milwaukee, Wisconsin 53201 or e-mailed to Investor.Relations@weycogroup.com. Telephone inquires should be made to (414) 908-1600. EX-21 6 c83596exv21.txt SUBSIDIARIES OF THE REGISTRANT . . . EXHIBIT 21 WEYCO GROUP, INC. SUBSIDIARIES OF THE REGISTRANT
Incorporated Name of Company In Subsidiary Of --------------- -- ------------- Weyco Investments, Inc. Nevada Weyco Group, Inc. Weyco Merger, Inc. Wisconsin Weyco Group, Inc. Weyco Retail Corp. Wisconsin Weyco Group, Inc. Florsheim Shoes Europe S.r.l. Milan, Italy Weyco Group, Inc. Weyco France SARL Paris, France Weyco Group, Inc.
EX-23.1 7 c83596exv23w1.txt INDEPENDENT AUDITORS' CONSENT DATED MARCH 11, 2004 EXHIBIT 23.1 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statement Nos. 333-03025 and 333-56035 on Form S-8 of Weyco Group, Inc. of our reports dated February 20, 2004, relating to the consolidated financial statements of Weyco Group, Inc. and subsidiaries as of and for the years ended December 31, 2003 and 2002 (which report expresses an unqualified opinion and includes an explanatory paragraph relating to the application of procedures relating to certain disclosures and reclassifications of financial statement amounts related to the 2001 financial statements that were audited by other auditors who have ceased operations and for which we have expressed no opinion or other form of assurance other than with respect to such disclosures and reclassifications) appearing in and incorporated by reference in this Annual Report on Form 10-K of Weyco Group, Inc. for the year ended December 31, 2003. DELOITTE & TOUCHE LLP Milwaukee, Wisconsin March 11, 2004 EX-31.1 8 c83596exv31w1.txt CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER EXHIBIT 31.1 CERTIFICATION I, Thomas W. Florsheim, Jr., certify that: 1. I have reviewed this annual report on Form 10-K of Weyco Group, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures or caused such disclosure controls to be designed under our supervision to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures based as of the end of the period covered by this report based on such evaluation; and c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: March 12, 2004 /s/ Thomas W. Florsheim, Jr. ---------------------------- Thomas W. Florsheim, Jr. Chairman and CEO EX-31.2 9 c83596exv31w2.txt CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER EXHIBIT 31.2 CERTIFICATION I, John Wittkowske, certify that: 1. I have reviewed this annual report on Form 10-K of Weyco Group, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures or caused such disclosure controls to be designed under our supervision to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures based as of the end of the period covered by this report based on such evaluation; and c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: March 12, 2004 /s/ John Wittkowske --------------------------- John Wittkowske Senior Vice President/CFO EX-32.1 10 c83596exv32w1.txt 906 CERTIFICATION OF CHIEF EXECUTIVE OFFICER EXHIBIT 32.1 CERTIFICATE PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of Weyco Group, Inc. (the "Company") on Form 10-K for the year ended December 31, 2003 as filed with the Securities & Exchange Commission on the date hereof (the "Report"), I, Thomas W. Florsheim, Jr., Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Thomas W. Florsheim, Jr. - -------------------------------------------- Thomas W. Florsheim, Jr. Chief Executive Officer March 12, 2004 A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in type form within the electronic version of this written statement required by Section 906, has been provided to Weyco Group, Inc. and will be retained by Weyco Group, Inc. and furnished to the Securities and Exchange Commission or its staff upon request. EX-32.2 11 c83596exv32w2.txt 906 CERTIFICATION OF CHIEF FINANCIAL OFFICER EXHIBIT 32.2 CERTIFICATE PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of Weyco Group, Inc. (the "Company") on Form 10-K for the year ended December 31, 2003 as filed with the Securities & Exchange Commission on the date hereof (the "Report"), I, John F. Wittkowske., Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ John F. Wittkowske - ------------------------------- John F. Wittkowske Chief Financial Officer March 12, 2004 A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in type form within the electronic version of this written statement required by Section 906, has been provided to Weyco Group, Inc. and will be retained by Weyco Group, Inc. and furnished to the Securities and Exchange Commission or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----