Exhibit 13
2001 ANNUAL REPORT
WEYCO GROUP, INC.
To Our Shareholders:
2001 was a challenging year for the retail industry. The onset of the recession
shook consumer confidence and left retailers in an unpredictable environment.
While our net sales were negatively affected by the events of the year, we ended
the year on a positive note and were able to maintain our profitability. We were
able to achieve good profit margins in a down year by reducing costs, but with a
continued focus toward investing in our brands and increasing our market share.
Net sales for the year were $131.7 million, down 11% from $148.2 million in
2000. Net earnings were $9.5 million, down 11% from $10.6 million in 2000.
Diluted earnings per share were $2.46, down from $2.59 in 2000. Our net earnings
results reflect cost reductions obtained this year on inbound freight, as well
as savings from efficiencies in our distribution center. These savings, however,
were offset by the fixed component of many of our selling and administrative
expenses, which do not react to changes in shipping volumes. Overall, we were
able to reduce costs in key areas, while forging ahead with our initiatives to
build our brands, increase our market share, and provide superior service to our
customers.
Our wholesale business performance reflected how retailers reacted to the
challenging environment by reducing inventories and making fewer commitments to
large future orders. This caused our backlogs to fall, and made inventory
forecasting more difficult. Managing our inventory became our number one
priority, as we sought to maintain enough inventory to meet our customers' needs
while watching our own inventory costs. We believe that inventory management
will continue to grow in importance in the future, as our retail customers are
likely to continue to emphasize at-once business to reduce their risks in the
marketplace.
We believe that we have a strong portfolio of brands in the men's footwear
market. Each of our brands, Nunn Bush, Nunn Bush NXXT, Stacy Adams, SAO by Stacy
Adams, and Brass Boot, appeal to a different segment of consumers with different
styles and at different price-points. Each of our brands performed well in their
respective categories in 2001, although all players were subject to the
challenging retail environment. Although our overall sales were down, our
sell-through performance at retail remained strong, and we believe that we are
in a good position in the marketplace as the country emerges from its current
recession.
Our licensing activities continued to develop nicely in 2001. Since we began
licensing the Stacy Adams name in 1998, we have seen the brand's sophisticated
urban style develop clarity in the marketplace. Consumers now encounter the
brand name on socks, ties, dress shirts, suits, hats, belts, wallets, and
beginning in 2001, sportswear. We believe that we have now emerged from the
infancy stage in our licensing activities, and we look forward to the
opportunities that lie ahead for promoting and developing the Stacy Adams brand.
To date, royalties from licensing the Stacy Adams name have been reinvested into
promoting the brand by communicating that Stacy Adams has evolved into a
lifestyle brand with multiple apparel products. Our television advertising
campaign was an exciting new endeavor for us this year. The spot was first
televised in Spring of 2001, and features the various Stacy Adams apparel
products together to solidify for viewers the total Stacy Adams image. We look
forward to the opportunity to continue to develop the Stacy Adams image through
the various media available, including television, print, and outdoor
advertising.
We have now operated in our new distribution facility for over two years. Over
this time, we have continuously improved our efficiency and functionality in
processing orders. This year, we implemented incentive programs for our
distribution center employees and are very pleased with the results. Through
these programs, we have attained notable improvements in productivity, which
have led to reductions in operating costs. We have also continued to take on
additional special processing requests for our customers, and have found that
our warehouse management systems provide us the flexibility to be able to meet
our customers' requirements. Overall, we believe that our new facility is an
invaluable tool that will facilitate our future business success.
During 2001, we have continued our program to repurchase our common stock, as we
believe our stock price does not reflect our true value. Purchases have been
made in the open market and in private transactions. In the past four years, the
Company has purchased 1,224,000 shares of its common stock.
We are excited to announce that on March 3, 2002, the Company signed an asset
purchase agreement to purchase Florsheim Group, Inc.'s domestic wholesale
business as well as certain retail stores for approximately $44.8 million.
Pending are separate agreements for the Company to purchase certain Florsheim
foreign subsidiaries for an additional approximately $2.5 million. Concurrently,
Florsheim filed for Chapter 11 bankruptcy, and all of these transactions are
subject to the approval of the Bankruptcy Court.
We are thrilled by this unique opportunity to add a new complementary brand to
our offerings. The Florsheim line will enhance our ability to penetrate the
upper-moderate men's footwear market. We believe that this brand will strengthen
our position in the marketplace, and will be a good with our current operations.
We are also excited about the prospect of developing the potential of the
Florsheim brand, which is an important part of the Florsheim family history.
We believe that we are well positioned for sales growth and improved
profitability as the footwear market rebounds. We appreciate the support of our
shareholders as we continue to build our future.
Thomas W. Florsheim, Jr. John W. Florsheim
President and Chief Executive Officer Executive Vice President and
Chief Operating Officer
SELECTED FINANCIAL DATA
Years Ended December 31
------------------------------------------------------------------------
2001 2000 1999 1998 1997
------------ ------------ ------------ ------------ ------------
Net sales ......................... $131,693,000 $148,155,000 $132,905,000 $126,576,000 $126,409,000
Net earnings ...................... $9,501,000 $10,622,000 $11,058,000 $9,805,000 $9,068,000
Diluted earnings per share ........ $2.46 $2.59 $2.55 $2.07 $1.88
Weighted average diluted shares
outstanding ...................... 3,861,667 4,108,234 4,338,587 4,731,075 4,825,050
Cash dividends per share .......... $.47 $.43 $.39 $.35 $.31
Total assets ...................... $97,954,000 $91,943,000 $95,919,000 $92,782,000 $82,204,000
COMMON STOCK DATA
2001 2000
------------------------------- -------------------------------
Price Range Cash Price Range Cash
----------------- Dividends ----------------- Dividends
Quarter: High Low Declared High Low Declared
------ ------ --------- ------ ------ ---------
First ............ $24.75 $23.88 $.11 $25.63 $22.50 $.10
Second ........... 24.00 22.90 .12 25.63 23.00 .11
Third ............ 25.50 23.25 .12 26.63 25.00 .11
Fourth ........... 26.00 25.25 .12 26.62 23.88 .11
---- ----
$.47 $.43
==== ====
There are 307 holders of record of the Company's common stock and 141 holders of
record of the Company's Class B common stock as of March 4, 2002.
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 12 to the Consolidated Financial Statements
for additional information.
MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITIONS
AND RESULTS OF OPERATIONS
LIQUIDITY & CAPITAL RESOURCES
The Company's primary source of liquidity is its cash and marketable securities,
which aggregated $30,871,000 at December 31, 2001, and $25,874,000 at
December 31, 2000. During 2001, the primary sources of cash were operations and
the maturities of marketable securities, while the primary use of cash was the
repurchase of Company stock. The Company maintains $15,000,000 in lines of
credit, which back the issuance of commercial paper and provide a source to
borrow from as needed. At December 31, 2001, there was $7,510,000 of commercial
paper outstanding and no draws on the line of credit. At December 31, 2000,
there was $5,207,000 of short-term borrowings under this arrangement.
The Company's capital expenditures were $744,000, $1,204,000 and $4,431,000 in
2001, 2000 and 1999, respectively. Capital expenditures in 2001 were primarily
related to the remodeling of two retail stores, and the acquisition of equipment
for the distribution center. Capital expenditures in 1999 and 2000 were
primarily related to the construction of the corporate office and distribution
center, which the Company moved into in third quarter 1999.
In the past several years, the Company has repurchased shares of its Common and
Class B Common Stock under its stock repurchase program and in private
transactions. During 1999, the Company purchased 204,400 shares at a total cost
of $4,895,000 under the program, and 108,000 shares at a total cost of
$2,664,000 in private transactions. In 2000, the Company purchased 187,500
shares at a total cost of $4,575,000 under the program, and 85,600 shares at a
total cost of $2,211,000 in private transactions, and in 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. At December
31, 2001, the Company is authorized to buy an additional 610,600 shares under
the program.
The Company's significant contractual obligations are its operating leases,
commercial paper, deferred compensation agreements, and its unfunded
supplemental pension plan, which are discussed further in the notes to the
financial statements. The commercial paper, deferred compensation and
supplemental pension obligations are recorded on the Company's consolidated
balance sheets. Future obligations under operating leases are disclosed in
Note 11.
On March 3, 2002, the Company entered into an asset purchase agreement with
Florsheim Group, Inc. to purchase Florsheim's domestic wholesale business,
related assets and certain Florsheim retail stores for approximately $44.8
million in cash (subject to certain adjustments) and the assumption of certain
trade and lease liabilities. The agreement contemplates entering into separate
purchase agreements for certain Florsheim foreign subsidiaries. The aggregate
purchase price under all of the various purchase agreements is approximately
$47.3 million in cash (subject to certain adjustments). Concurrently, Florsheim
Group voluntarily filed a petition for relief under Chapter 11 of U.S.
Bankruptcy Code, as well as a motion seeking the Bankruptcy Court's approval of
the Company's purchase agreements. The sale is subject to the approval of the
Bankruptcy Court. The Company intends to finance these purchases with a
combination of cash and bank debt.
The Company believes that available cash and marketable securities, cash
provided from operations and available borrowing facilities will provide
adequate support for the cash needs of the business.
RESULTS OF OPERATIONS
2001 vs. 2000
Net sales in 2001 were $131,693,000 compared with $148,155,000 in 2000. The 11%
decrease in overall net sales is the result of the decrease in wholesale net
sales from $141,967,000 in 2000 to $126,597,000 in 2001 and the decrease in
retail net sales from $6,188,000 in 2000 to $5,096,000 in 2001. In general,
sales volume was down this year due to the difficult retail environment.
Overall gross earnings as a percent of net sales was 28.5% for 2001 as compared
to 27.4% for 2000. Wholesale gross earnings as a percent of net sales was 27.6%
for 2001 and 26.3% for 2000, while retail gross earnings as a percent of net
sales were consistent between years. The improvement in gross earnings as a
percent of net sales is primarily the result of inbound freight cost reductions
achieved during 2001.
Overall selling and administrative expenses as a percent of net sales was 18.4%
in 2001 as compared to 16.6% in 2000. This reflects the increase in wholesale
selling and administrative expenses as a percent of wholesale net sales from
15.3% in 2000 to 17.0% in 2001 and the increase in retail selling and
administrative expenses as a percent of net sales from 46.1% in 2000 to 52.3% in
2001. The increase is primarily the result of the various fixed costs included
in selling and administrative expenses.
Interest income was $1,022,000 in 2001 as compared with $1,106,000 in 2000. This
was due to a decrease in the average balance of marketable securities
outstanding between 2000 and 2001.
Interest expense relates to short-term issuances of commercial paper and
short-term advances. Interest expense was $296,000 in 2001 and $627,000 in 2000.
The decrease in interest expense between years reflects the decrease in the
average balance of short-term debt outstanding from $8,273,000 in 2000 to
$7,049,000 in 2001, as well as a decrease in short-term borrowing rates from
7.5% in 2000 to 4.2% in 2001.
Other income and expense in 2001 includes a $504,000 gain on the sale of other
investments. These investments had been carried at cost and included in Other
Assets on the Consolidated Balance Sheets. See Note 6.
The provision for income taxes was at an effective rate of 35.4% in 2001 vs.
35.5% in 2000.
Net earnings for 2001 were $9,501,000, a decrease of 11% compared to 2000 net
earnings of $10,622,000. Included in 2001 net earnings was the $504,000 gain on
the sale of other investments. Excluding this gain, 2001 net earnings were
$9,175,000, or 7% of 2001 net sales, which is consistent with 2000 net earnings
as a percent of net sales of 7%.
2000 vs. 1999
Net sales in 2000 were $148,155,000 compared with $132,905,000 in 1999. The 11%
increase in overall net sales is the result of an increase in wholesale net
sales from $126,037,000 in 1999 to $141,967,000 in 2000, and a decrease in
retail net sales from $6,868,000 in 1999 to $6,188,000 in 2000. The increase in
wholesale net sales was primarily the result of the success of the new SAO by
Stacy Adams and Nunn Bush NXXT brand extensions that were launched in late 1998.
Pairs shipped in 2000 increased 17%. The net sales increase of 11% as compared
with the 17% increase in pairs shipped reflects a reduction in the average price
per pair due to a change in product mix. Same-store retail net sales decreased
4% between 1999 and 2000 and two retail stores were closed during 2000.
Overall gross earnings as a percent of net sales was 28.0% for 1999 and 27.4%
for 2000. Wholesale gross earnings as a percent of net sales was 26.7% for 1999
and 26.3% for 2000. The decrease in wholesale gross earnings as a percent of net
sales is primarily the result of unfavorable manufacturing variances in 2000 due
to lower utilization of the Beaver Dam, Wisconsin manufacturing plant. Retail
gross earnings as a percent of retail net sales was consistent between 1999 and
2000 at 51%.
Overall selling and administrative expenses as a percent of net sales was 16.5%
in 1999 and 16.6% in 2000. This reflects a slight increase in wholesale selling
and administrative expenses as a percent of wholesale net sales from 15.0% in
1999 to 15.3% in 2000. The primary reason for the increase in selling and
administrative expenses in 2000 is due to increased marketing and advertising
costs. Retail selling and administrative expenses as a percent of net sales
increased from 43.8% in 1999 to 46.1% in 2000.
Interest income decreased from $1,370,000 in 1999 to $1,106,000 in 2000 due to a
decrease in the average balance of marketable securities outstanding between
1999 and 2000.
Interest expense relates to short-term issuances of commercial paper and
short-term advances. The increase in interest expense from $539,000 in 1999 to
$627,000 in 2000 reflects the increase in average short-term borrowing rates
between years.
Other income and expense in 1999 includes $800,000 from the gain on the sales of
the Company's former warehouse facilities.
The provision for income taxes was at an effective rate of 35.5% in 2000 vs.
34.8% in 1999.
Net earnings for 2000 were $10,622,000, a decrease of 4% compared to 1999 net
earnings of $11,058,000. Included in 1999 net earnings is $496,000 from the gain
on the sales of the warehouse facilities. Excluding this gain, 1999 net earnings
were $10,562,000 or 8% of 1999 net sales, compared to 2000 net earnings of
$10,622,000 or 7% of 2000 net sales. The decrease in net earnings as a percent
of net sales in 2000 is primarily the result of unfavorable manufacturing
variances and increased marketing expenses that were incurred in 2000 to promote
brands.
Overall Analysis
The Company continues to purchase finished shoes and components from outside
suppliers around the world. The majority of these foreign-sourced purchases are
denominated in U. S. dollars. The Company presently operates one shoe
manufacturing plant in Wisconsin. Production in this factory has changed little
during the past three years. There have been few inflationary pressures in the
shoe industry in recent years and leather and other component prices have been
stable. It is anticipated that, when necessary, selling price increases could be
initiated to offset periodic increases in costs of purchased shoes, components,
materials, labor and other expenses.
In recent years, management has focused on the wholesale portion of the
business, and has closed the less profitable retail units upon the expiration of
their leases. Management intends to continue to evaluate the seven remaining
retail units from a profitability standpoint, and may close more retail stores
in the future if they are deemed unprofitable.
OTHER
Critical Accounting Policies
The Company's accounting policies are more fully described in footnote 1 of the
Notes to Consolidated Financial Statements. As disclosed in footnote 1, the
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
about future events that affect the amounts reported in the financial statements
and accompanying footnotes. Future events and their affects 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
customer discounts, taxation, and pension benefits. Various assumptions and
other factors underlie the determination of these significant estimates. The
process of determining significant estimates is fact specific and takes into
account factors such as historical experience, current and expected economic
conditions, product mix, and in some cases, actuarial techniques. The Company
re-evaluates these significant factors as facts and circumstances dictate.
Historically, actual results have not differed significantly from those
determined using the estimates described above.
Forward-Looking Statements
This report contains certain forward-looking statements with respect to the
Company's outlook for the future. These statements represent the Company's
reasonable judgment with respect to future events and are subject to risks and
uncertainties that could cause actual results to differ materially. These
factors could include significant adverse changes in the economic conditions
affecting overseas suppliers or the men's footwear markets served by the
Company.
Quantitative and Qualitative Disclosures about Market Risk
The Company is exposed to market risk from changes in foreign exchange and
interest rates. To reduce the risk from changes in foreign exchange rates, the
Company selectively uses financial instruments. The Company does not hold or
issue financial instruments for trading purposes.
Foreign Currency
The Company's earnings are affected by fluctuations in the value of the U.S.
dollar against foreign currencies, primarily as a result of purchasing inventory
from Italian suppliers and the sale of product to Canadian customers. Forward
exchange contracts are used to partially hedge against the earnings effects of
such fluctuations.
At December 31, 2001, the Company has forward exchange contracts outstanding to
purchase 1,594,000 euro at a total price of $1,380,000. Based on December 31,
2001 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, 2001, there would be a loss on
forward exchange contracts of $111,000.
Interest Rates
The Company is exposed to interest rate fluctuations on its borrowings. During
2001, the Company issued fixed-rate commercial paper with maturities of 30 to 90
days and took back-up advances on its revolving line of credit at times when the
commercial paper was not sold. As of December 31, 2001, $7,510,000 of commercial
paper was outstanding at an average interest rate of 2.25%. Total related
interest expense for 2001 was $296,000. Assuming a 10% increase in the Company's
weighted average interest rate on short-term borrowings, interest expense in
2001 would have increased by $28,000.
CONSOLIDATED
STATEMENTS OF EARNINGS
For the years ended December 31, 2001, 2000 and 1999
2001 2000 1999
------------- ------------- -------------
NET SALES ................................ $ 131,692,896 $ 148,155,044 $ 132,904,841
COST OF SALES ............................ 94,107,329 107,597,357 95,737,375
------------- ------------- -------------
Gross earnings ......................... 37,585,567 40,557,687 37,167,466
SELLING AND ADMINISTRATIVE EXPENSES ...... 24,231,452 24,585,638 21,944,150
------------- ------------- -------------
Earnings from operations ............... 13,354,115 15,972,049 15,223,316
INTEREST INCOME .......................... 1,021,687 1,106,211 1,369,965
INTEREST EXPENSE ......................... (296,178) (626,956) (539,244)
OTHER INCOME AND EXPENSE, net ............ 621,618 21,029 904,245
------------- ------------- -------------
Earnings before provision for
income taxes ......................... 14,701,242 16,472,333 16,958,282
PROVISION FOR INCOME TAXES ............... 5,200,000 5,850,000 5,900,000
------------- ------------- -------------
Net earnings ........................... $ 9,501,242 $ 10,622,333 $ 11,058,282
============= ============= =============
BASIC EARNINGS PER SHARE ................. $ 2.48 $ 2.61 $ 2.58
DILUTED EARNINGS PER SHARE ............... $ 2.46 $ 2.59 $ 2.55
The accompanying notes to consolidated financial statements are an integral part
of these statements.
CONSOLIDATED BALANCE SHEETS
December 31, 2001 and 2000
2001 2000
----------- -----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ............................ $16,850,998 $ 3,519,190
Marketable securities, at amortized cost ............. 3,266,846 7,690,551
Accounts receivable, less reserves of $2,949,000 and
$2,799,000, respectively ........................... 20,867,106 23,864,339
Inventories .......................................... 17,501,656 13,713,216
Deferred income tax benefits ......................... 3,068,000 2,697,000
Prepaid expenses and other current assets ............ 165,531 185,342
----------- -----------
Total current assets ................................. 61,720,137 51,669,638
MARKETABLE SECURITIES, at amortized cost ............... 10,753,542 14,664,474
OTHER ASSETS ........................................... 10,143,249 9,336,800
PLANT AND EQUIPMENT, net ............................... 15,337,383 16,272,197
----------- -----------
$97,954,311 $91,943,109
=========== ===========
The accompanying notes to consolidated financial statements are an integral part
of these balance sheets.
2001 2000
----------- -----------
LIABILITIES AND SHAREHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Short-term borrowings ................................................ $ 7,509,904 $ 5,206,948
Accounts payable ..................................................... 5,317,817 5,955,873
Dividend payable ..................................................... 451,598 445,836
Accrued liabilities -
Wages, salaries and commissions ................................... 3,566,298 3,404,393
Taxes other than income taxes ..................................... 395,785 364,248
Other ............................................................. 2,059,155 1,874,750
Accrued income taxes ................................................. 1,609,991 505,792
----------- -----------
Total current liabilities ......................................... 20,910,548 17,757,840
----------- -----------
DEFERRED INCOME TAX LIABILITIES ........................................ 3,452,000 2,840,000
SHAREHOLDERS' INVESTMENT:
Common Stock, $1.00 par value, authorized 4,000,000 shares, issued and
outstanding 2,839,787 shares in 2001 and 3,053,895 shares in 2000 .. 2,839,787 3,053,895
Class B Common Stock, $1.00 par value, authorized 2,000,000 shares,
issued and outstanding 909,031 shares in 2001 and
918,955 shares in 2000 ............................................. 909,031 918,955
Capital in excess of par value ....................................... 3,889,388 3,780,797
Reinvested earnings .................................................. 65,953,557 63,591,622
----------- -----------
Total shareholders' investment .................................... 73,591,763 71,345,269
----------- -----------
$97,954,311 $91,943,109
=========== ===========
CONSOLIDATED STATEMENTS
OF SHAREHOLDERS' INVESTMENT
For the years ended December 31, 2001, 2000 and 1999
Class B Capital
Common Common in Excess of Reinvested
Stock Stock Par Value Earnings
------------- -------------- ------------ ------------
Balance, December 31, 1998 ....................... $ 3,469,358 $ 954,567 $ 2,615,295 $ 58,108,657
Add (Deduct) -
Net earnings ........................... -- -- -- 11,058,282
Cash dividends declared ($.39 per share) -- -- -- (1,670,872)
Conversions of Class B Common Stock to
Common Stock ...................... 9,024 (9,024) -- --
Stock options exercised ................ 49,500 -- 524,125 --
Income tax benefit from stock
options exercised ................. -- -- 200,485 --
Shares purchased and retired ........... (312,439) -- (263,513) (6,982,944)
------------- -------------- ------------ ------------
Balance, December 31, 1999 ....................... 3,215,443 945,543 3,076,392 60,513,123
Add (Deduct) -
Net earnings ........................... -- -- -- 10,622,333
Cash dividends declared ($.43 per share) -- -- -- (1,755,896)
Conversions of Class B Common Stock to
Common Stock ...................... 26,588 (26,588) -- --
Stock options exercised ................ 85,000 -- 1,045,415 --
Income tax benefit from stock
options exercised ................. -- -- 384,209 --
Shares purchased and retired ........... (273,136) -- (725,219) (5,787,938)
------------- -------------- ------------ ------------
Balance, December 31, 2000 ....................... 3,053,895 918,955 3,780,797 63,591,622
Add (Deduct) -
Net earnings ........................... -- -- -- 9,501,242
Cash dividends declared ($.47 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
============= ============== ============ ============
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, 2001, 2000 and 1999
2001 2000 1999
------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings ...................................................... $ 9,501,242 $ 10,622,333 $ 11,058,282
Adjustments to reconcile net earnings to net cash
provided by operating activities -
Depreciation ................................................. 1,608,525 1,489,511 1,241,958
Deferred income taxes ........................................ 295,000 1,110,000 1,332,000
Deferred compensation ........................................ 172,307 161,041 150,504
Pension income ............................................... (241,850) (318,385) (438,422)
(Gain) loss on sale of assets ................................ (95,350) 6,677 (854,025)
Gain on sale of other investments ............................ (504,427) -- --
Increase in cash surrender value of life insurance ........... (493,376) (417,791) (320,219)
Changes in operating assets and liabilities -
Accounts receivable ..................................... 2,997,233 (1,960,932) (2,305,428)
Inventories ............................................. (3,788,440) 5,826,515 (7,753,401)
Prepaids and other current assets ....................... 19,811 (119,805) (65,537)
Accounts payable ........................................ (638,056) (3,448,024) 2,014,217
Accrued liabilities ..................................... 34,937 (983,096) (1,401,796)
Accrued income taxes .................................... 1,121,040 (317,620) (1,584)
------------ ------------ ------------
Net cash provided by operating activities .......... 9,988,596 11,650,424 2,656,549
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities ................................. -- (5,565,951) (1,962,456)
Proceeds from maturities of marketable securities ................. 8,334,637 5,745,678 11,448,839
Proceeds from sales of other investments .......................... 603,807 -- --
Purchase of plant and equipment ................................... (743,956) (1,204,363) (4,431,437)
Proceeds from sales of plant and equipment ........................ 165,595 29,754 1,250,938
------------ ------------ ------------
Net cash provided by (used for) investing activities 8,360,083 (994,882) 6,305,884
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash dividends paid ............................................... (1,790,792) (1,731,337) (1,652,693)
Shares purchased and retired ...................................... (5,784,410) (6,786,293) (7,558,896)
Proceeds from stock options exercised ............................. 255,375 1,130,415 573,625
Short-term borrowings (repayments) ................................ 2,302,956 (3,593,052) (721,545)
------------ ------------ ------------
Net cash used for financing activities ............. (5,016,871) (10,980,267) (9,359,509)
------------ ------------ ------------
Net increase(decrease) in cash and cash equivalents ............... 13,331,808 (324,725) (397,076)
CASH AND CASH EQUIVALENTS, at beginning of year ........................ $ 3,519,190 $ 3,843,915 $ 4,240,991
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, at end of year .............................. $ 16,850,998 $ 3,519,190 $ 3,843,915
============ ============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Income taxes paid, net of refunds ................................. $ 3,787,203 $ 4,699,673 $ 4,675,062
Interest paid ..................................................... $ 321,574 $ 633,089 $ 576,527
The accompanying notes to consolidated financial statements are an integral part
of these statements.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
1. SUMMARY OF ACCOUNTING POLICIES
Principles of Consolidation - The consolidated financial statements include the
accounts of Weyco Group, Inc. and all subsidiaries ("The Company"). All
significant intercompany items are eliminated in the consolidated financial
statements.
Revenue Recognition - Sales to independent dealers are recorded at the time of
shipment to those dealers. Sales through company-owned retail outlets are
recorded at the time of delivery to retail customers. All sales are recorded net
of estimated allowances for returns and discounts.
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial Statements." SAB
101 provides additional guidance in applying generally accepted accounting
principles to revenue recognition in financial statements. The revenue
recognition criteria prescribed by SAB 101 became effective for the Company in
the fourth quarter of 2000. The adoption of SAB 101 did not have an impact on
the Company's financial position or results of operations.
Inventories - Inventories are valued at cost, which is not in excess of market,
determined on a last-in, first-out (LIFO) basis. Inventory costs include
material, labor and factory overhead.
Plant and Equipment and Depreciation - Plant and equipment are stated at cost
and depreciated using primarily the straight-line method over their estimated
useful lives as follows: buildings and improvements, 10 to 39 years; machinery
and equipment, 5 to 10 years; furniture and fixtures, 5 to 7 years. Fully
depreciated machinery and equipment are eliminated from the accounts.
Expenditures for lasts, dies and patterns are charged to earnings as incurred.
Income Taxes - Deferred income taxes are provided on temporary differences
arising from differences in the basis of assets and liabilities for tax and
financial reporting purposes. See Note 9.
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.
Cash and Cash Equivalents - The Company considers all highly liquid investments
with original maturities of three months or less to be cash equivalents.
Financial Instruments - In June 1998, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards No. 133, "Accounting
for Derivative Instruments and Hedging Activities." This standard, as amended,
requires that entities recognize derivatives as either assets or liabilities in
the balance sheet and measure those instruments at fair value. The Company
adopted this standard on January 1, 2001. The adoption of this standard did not
have a material effect on the Company's balance sheet or statement of earnings.
The Company has entered into forward exchange contracts for the purpose of
hedging firmly committed inventory purchases with outside vendors. These forward
contracts are effective hedges under SFAS 133. Accordingly, gains and losses are
recorded in inventory when inventory is purchased and recognized through
earnings when inventory is sold. At December 31, 2001, the Company has financial
contracts outstanding to purchase 1,594,000 euro at a total price of $1,380,000.
Based upon current exchange rates, there are no significant gains or losses on
outstanding contracts.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reported
periods. Actual results could differ from those estimates.
Shipping and Handling Fees - In accordance with the Emerging Issues Task Force
("EITF") Issue 00-10, "Accounting for Shipping and Handling Fees and Costs," 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 $774,000, $1,014,000 and $835,000 for 2001,
2000 and 1999, respectively.
Advertising Costs - Advertising costs are expensed as incurred. Advertising
costs were $4,961,000, $4,826,000 and $3,588,000 in 2001, 2000 and 1999,
respectively. All advertising expenses are included in selling and
administrative expenses with the exception of co-op advertising expenses which
are a reduction of net sales.
Co-op Advertising Expenses - In accordance with EITF Issue 00-25, "Vendor Income
Statement Characterization of Consideration from a Vendor to a Retailer"
relating to co-op advertising expenses, the Company classifies co-op advertising
expenses as a reduction of net sales in the Consolidated Statements of Earnings.
Co-op advertising expenses reduced net sales by $1,949,000, $1,842,000 and
$1,484,000 for 2001, 2000 and 1999, respectively.
New Accounting Pronouncements - In July 2001, the FASB issued SFAS 141,
"Business Combinations," and SFAS 142, "Goodwill and Other Intangible Assets."
SFAS 141 requires that all business combinations be accounted for using the
purchase method. Use of the pooling-of-interests method is no longer allowed.
The provisions of SFAS 141 are effective for all business combinations initiated
after June 30, 2001 and all business combinations accounted for using the
purchase method for which the date of acquisition is July 1, 2001 or later. SFAS
142 addresses the method of accounting for acquired goodwill and other
intangible assets upon, and subsequent to, the date of acquisition. Among other
provisions, SFAS 142 eliminates the amortization of goodwill and replaces it
with periodic assessments of the realization of the recorded goodwill and
indefinitely-lived intangibles. SFAS 142 is effective as of January 1, 2002 and
for business combinations initiated after July 1, 2001. The adoption of these
statements did not impact the Company's results of operations or financial
position because there are no goodwill or intangible assets recorded on the
Company's Consolidated Balance Sheets.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets" (SFAS 144). SFAS 144 establishes a single
accounting model for long-lived assets to be disposed of by sale and provides
additional implementation guidance for assets to be held and used and assets to
be disposed of other than by sale. The statement supersedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of" and amends the accounting and reporting provisions of Accounting
Principles Board Opinion No. 30 related to the disposal of a segment of a
business. The statement is effective for fiscal years beginning after December
15, 2001. The adoption of this statement on January 1, 2002 did not have an
impact on the Company's financial position or results of operations.
2. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of all financial instruments, except marketable securities,
approximate fair value due to the short-term nature of those instruments.
Marketable securities are carried at amortized cost. The fair value of
marketable securities is estimated based upon quoted market rates. See Note 3.
3. INVESTMENTS
All of the Company's investments are classified as held-to-maturity securities
and reported at amortized cost pursuant to SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities," as the Company has the intent and
ability to hold all security investments to maturity.
A summary of the amortized cost and estimated market values of investment
securities at December 31, 2001 and 2000 are as follows:
2001 2000
--------------------------- ---------------------------
Amortized Market Amortized Market
Cost Value Cost Value
----------- ----------- ----------- -----------
Municipality and revenue bonds :
Current $ 3,266,846 $ 3,297,767 $ 7,690,551 $ 7,701,968
Due from one through five years 7,178,686 7,377,321 10,581,239 10,661,636
Due from five through ten years 3,414,410 3,494,159 3,548,313 3,613,666
Due from ten through twenty years 59,364 56,224 430,427 428,336
Due from twenty through thirty years 101,082 100,000 104,495 104,940
----------- ----------- ----------- -----------
Total $14,020,388 $14,325,471 $22,355,025 $22,510,546
=========== =========== =========== ===========
The unrealized gains and losses on investment securities at December 31 are:
2001 2000 1999
----------------------- ------------------------ --------------------------
Unrealized Unrealized Unrealized Unrealized Unrealized Unrealized
Gains Losses Gains Losses Gains Losses
---------- ---------- ---------- ---------- ---------- ----------
Municipality and
revenue bonds .. $ 309,305 $ 4,222 $ 167,282 $ 11,761 $ 58,722 $ 200,086
4. INVENTORIES
At December 31, 2001 and 2000, inventories consist of:
2001 2000
----------- -----------
Finished shoes $17,006,221 $13,406,933
Shoes in process 162,833 165,918
Raw materials 332,602 140,365
----------- -----------
Total inventories $17,501,656 $13,713,216
The excess of current cost over LIFO cost of inventories as of December 31, 2001
and 2000 was $16,472,000 and $16,740,000, respectively.
5. PLANT AND EQUIPMENT
At December 31, 2001 and 2000, plant and equipment consists of:
2001 2000
----------- -----------
Land $ 471,814 $ 519,854
Buildings 9,521,619 9,520,385
Machinery and equipment 10,881,944 10,470,059
Retail fixtures and leasehold improvements 1,722,494 1,616,059
Construction in progress -- 133,217
----------- -----------
Plant and equipment 22,597,871 22,259,574
Less: accumulated depreciation 7,260,488 5,987,377
----------- -----------
Plant and equipment, net $15,337,383 $16,272,197
=========== ===========
6. OTHER ASSETS
Other Assets include the following amounts at December 31:
2001 2000
----------- -----------
Prepaid pension (See Note 8) $ 4,421,726 $ 4,009,273
Cash surrender value of life insurance 5,688,192 5,194,816
Other investments 33,331 132,711
----------- -----------
$10,143,249 $ 9,336,800
=========== ===========
7. SHORT-TERM BORROWINGS AND BANK LINES OF CREDIT
The Company issues commercial paper with 30 to 90 day maturities. The commercial
paper is backed by a three-year $15,000,000 revolving credit agreement, which
the Company takes overnight advances on when the bank is unable to sell the
commercial paper. At December 31, 2001 there was $7,510,000 of commercial paper
outstanding at an average interest rate of 2.25%, and no advances on the
revolving credit agreement. At December 31, 2000 there was $1,007,000 of
commercial paper outstanding at an average interest rate of 6.75%, and
$4,200,000 of advances on the revolving credit agreement at a 6.7% interest
rate. Total interest expense on commercial paper and advances for 2001 was
$296,000. Total related interest expense for 2000 and 1999 was $622,000 and
$539,000, respectively. Average borrowings for 2001, 2000, and 1999 were
$7,049,000, $8,273,000 and $10,435,000, at average interest rates of 4.2%, 7.5%
and 5.2%, respectively.
8. EMPLOYEE RETIREMENT PLANS
The Company has two defined benefit retirement plans covering substantially all
employees, 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 is to make
contributions to the plans such that all employees' benefits will be fully
provided by the time they retire. Plan assets are stated at market value and
consist primarily of U. S. government securities, corporate obligations and
corporate equities.
The following is a reconciliation of the change in benefit obligation and plan
assets for the years ended December 31, 2001 and 2000:
CHANGE IN BENEFIT OBLIGATION
2001 2000
------------ ------------
Benefit obligation, beginning of year ........ $ 18,059,000 $ 15,782,000
Service cost ................................. 393,000 352,000
Interest cost ................................ 1,310,000 1,275,000
Actuarial loss ............................... 602,000 1,629,000
Benefits paid ................................ (1,241,000) (979,000)
------------ ------------
Benefit obligation, end of year .............. $ 19,123,000 $ 18,059,000
============ ============
CHANGE IN PLAN ASSETS
Fair value of plan assets, beginning of year . $ 21,940,000 $ 22,002,000
Actual return on plan assets ................. 150,000 886,000
Expenses ..................................... -- (12,000)
Contributions ................................ 171,000 43,000
Benefits paid ................................ (1,241,000) (979,000)
------------ ------------
Fair value of plan assets, end of year ....... $ 21,020,000 $ 21,940,000
============ ============
Funded status of plan ........................ $ 1,897,000 $ 3,881,000
Unrecognized net actuarial loss .............. 2,282,000 9,000
Unrecognized prior service cost .............. 384,000 401,000
Unrecognized net transition asset ............ (141,000) (282,000)
------------ ------------
Prepaid benefit cost, recorded in Other Assets $ 4,422,000 $ 4,009,000
============ ============
Assumptions used in determining the funded status for 2001 and 2000 are:
2001 2000
---- ----
Discount rate ......................... 7.25% 7.5%
Rate of compensation increase ......... 5.0% 5.0%
Long-term rate of return on plan assets 8.5% 8.5%
The components of net periodic pension cost for the years ended December 31,
2001, 2000 and 1999, are:
2001 2000 1999
------------ ------------- -------------
Benefits earned during the period ........... $ 393,000 $ 352,000 $ 340,000
Interest cost on projected benefit obligation 1,310,000 1,275,000 1,116,000
Expected return on plan assets .............. (1,822,000) (1,823,000) (1,780,000)
Net amortization and deferral ............... (123,000) (122,000) (114,000)
------------ ------------- -------------
Net pension income .......................... $ (242,000) $ (318,000) $ (438,000)
============ ============= =============
The projected benefit obligation, accumulated benefit obligation, fair value of
plan assets, and the accrued benefit liability for the pension plan with
accumulated benefit obligations in excess of plan assets were $2,824,000,
$1,878,000, $0 and $2,899,000, respectively, as of December 31, 2001, and
$2,937,000, $2,319,000, $0 and $2,808,000, respectively, as of December 31,
2000.
The Company also has a defined contribution plan covering substantially all
employees not covered by a collective bargaining agreement. During 2001, 2000
and 1999 the Company contributed $90,000, $93,000 and $87,000, respectively, to
the plan.
9. INCOME TAXES
The provision for income taxes includes the following components:
2001 2000 1999
---------- ---------- ----------
Current -
Federal ............. $3,766,000 $3,773,000 $3,645,000
State ............... 860,000 765,000 846,000
Foreign ............. 279,000 202,000 77,000
---------- ---------- ----------
Total ............ 4,905,000 4,740,000 4,568,000
Deferred .............. 295,000 1,110,000 1,332,000
---------- ---------- ----------
Total provision... $5,200,000 $5,850,000 $5,900,000
========== ========== ==========
Effective tax rate..... 35.4% 35.5% 34.8%
========== ========== ==========
The difference between the effective tax rate and the Federal income tax rate of
34% is due to state income taxes, net of the Federal tax benefit, of 3.8% in
2001, 3.2% in 2000 and 3.0% in 1999, the effect of non-taxable municipal bond
interest of (2.2%) in 2001, (2.1%) in 2000 and (2.6%) in 1999, and other
miscellaneous items.
The foreign component of pretax net earnings was $699,000, $491,000 and $269,000
for 2001, 2000 and 1999, respectively.
The components of deferred taxes as of December 31, 2001 and 2000, are as
follows:
2001 2000
---------------- ----------------
Deferred tax assets:
Accounts receivable
and inventory reserves......................................................... $1,317,000 $ 1,246,000
Deferred compensation ........................................................... 1,027,000 960,000
Other ........................................................................... 722,000 465,000
----------- -----------
3,066,000 2,671,000
----------- -----------
Deferred tax liabilities:
Prepaid pension ................................................................. (1,724,000) (1,564,000)
Cash value of life insurance .................................................... (1,069,000) (937,000)
Depreciation .................................................................... (657,000) (313,000)
----------- -----------
(3,450,000) (2,814,000)
----------- -----------
Net deferred tax asset..................................................... $ (384,000) $ (143,000)
=========== ============
The net deferred tax asset is classified in the Consolidated Balance Sheets as
follows:
2001 2000
------------ ------------
Current deferred income tax benefits....................................... $ 3,068,000 $ 2,697,000
Noncurrent deferred income tax liabilities................................. (3,452,000) (2,840,000)
------------ ------------
$ (384,000) $ (143,000)
============= ============
10. DEFERRED COMPENSATION
The Company has deferred compensation agreements with former executives. The
Company expensed $172,000 in 2001, $161,000 in 2000, and $151,000 in 1999 in
connection with these agreements. Amounts owed under these agreements are
included in Accrued Wages, Salaries and Commissions on the Consolidated Balance
Sheets.
11. 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 $600,000 in
2001, $724,000 in 2000 and $804,000 in 1999. Percentage rentals were $42,000 in
2001, $39,000 in 2000 and $35,000 in 1999.
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, 2001, are shown below. Renewal options exist for many long-term
leases.
2002............................................. $424,000
2003............................................. 433,000
2004............................................. 304,000
2005............................................. 205,000
2006............................................. 155,000
Thereafter............................................. 247,000
-----------
Total $1,768,000
===========
12. SHAREHOLDERS' INVESTMENT
The Class B Common Stock has 10 votes per share, may only be transferred to
certain permitted transferees, is convertible to Common Stock and shares equally
with the Common Stock in cash dividends and liquidation rights.
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 in private transactions at prevailing prices. During 1999, the
Company purchased 204,400 shares at a total cost of $4,895,000 under the
program, and 108,000 shares at a total cost of $2,664,000 in private
transactions. During 2000, the Company purchased 187,500 shares at a total cost
of $4,575,000 under the program, and 85,600 shares at a total cost of $2,211,000
in private transactions, and 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. At December 31, 2001, the Company is
authorized to buy an additional 610,600 shares under the program.
13. EARNINGS PER SHARE
The following table sets forth the computation of net earnings per share and
diluted net earnings per share:
2001 2000 1999
------ ------- ------
Numerator:
Net earnings .............................................................. $ 9,501,242 $10,622,333 $11,058,282
=========== =========== ===========
Denominator:
Basic weighted average shares outstanding ................................. 3,835,336 4,076,024 4,292,230
Effect of dilutive securities :
Employee stock options .................................................. 26,331 32,210 46,357
----------- ----------- -----------
Diluted weighted average shares outstanding ............................... 3,861,667 4,108,234 4,338,587
=========== =========== ===========
Basic earnings per share .................................................... $2.48 $2.61 $2.58
===== ===== =====
Diluted earnings per share................................................... $2.46 $2.59 $2.55
===== ===== =====
Diluted weighted average shares outstanding for 2001 exclude outstanding options
to purchase 156,236 shares of common stock at a weighted-average price of $25.65
because they are antidilutive. 2000 diluted weighted average shares outstanding
exclude outstanding options to purchase 148,500 shares of common stock at a
weighted-average price of $25.64 because they are antidilutive. There were no
material antidilutive options outstanding in 1999.
14. SEGMENT INFORMATION
The Company determines its operating segments based on the information utilized
by the Chief Executive Officer to allocate resources and assess performance.
Based upon this criteria, the Company has determined that it operates in two
business segments: wholesale distribution and retail sales of men's footwear.
Wholesale shoes are marketed nationwide through more than 8,000 shoe, clothing
and department stores. All sales are to unaffiliated customers in North America.
Sales to the Company's largest customer were 10% of total sales for 2001, 10% of
total sales for 2000 and 12% of total sales for 1999. In addition, at December
31, 2001, another customer's accounts receivable balance was 11% of the
Company's total outstanding accounts receivable. There are no other individually
significant customers.
In the retail division, the Company currently operates seven company-owned
stores in principal cities in the United States. The decrease in retail sales in
recent years is a result of closing company-operated stores. Two stores were
closed in January 2002, no stores were closed in 2001, two in 2000, and none in
1999. These stores were closed primarily due to unprofitable operations or
unattractive lease renewal terms. Management intends to continue to closely
monitor retail operations and may close other retail units in the future if they
are deemed unprofitable. Sales in retail outlets are made directly to the
consumer by Company employees. In addition to the sale of the Company's brands
of footwear in these retail outlets, other branded footwear and accessories are
also sold in order to provide the consumer with as complete a selection as
practically possible.
The accounting policies of the segments are the same as those described in the
Summary of Accounting Policies. The Company evaluates performance based on
earnings from operations before income taxes. Summarized segment data for 2001,
2000 and 1999 are as follows:
Wholesale
2001 Distribution Retail Total
- ---- ------------ ------ -----
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
2000
- ----
Net sales $141,967,000 $6,188,000 $148,155,000
Depreciation 1,370,000 120,000 1,490,000
Earnings from operations 15,646,000 326,000 15,972,000
Total assets 90,122,000 1,821,000 91,943,000
Capital expenditures 920,000 284,000 1,204,000
1999
- ----
Net sales $126,037,000 $6,868,000 $132,905,000
Depreciation 1,103,000 139,000 1,242,000
Earnings from operations 14,724,000 499,000 15,223,000
Total assets 93,865,000 2,054,000 95,919,000
Capital expenditures 4,429,000 2,000 4,431,000
Net sales above exclude intersegment sales, which are not material.
15. SUBSEQUENT EVENT
On March 3, 2002, the Company entered into an asset purchase agreement with
Florsheim Group, Inc. to purchase Florsheim's domestic wholesale business,
related assets and certain Florsheim retail stores for approximately $44.8
million in cash (subject to certain adjustments) and the assumption of certain
trade and lease liabilities. The agreement contemplates entering into separate
purchase agreements for certain Florsheim foreign subsidiaries. The aggregate
purchase price under all of the various purchase agreements is approximately
$47.3 million in cash (subject to certain adjustments). Concurrently, Florsheim
Group voluntarily filed a petition for relief under Chapter 11 of U.S.
Bankruptcy Code, as well as a motion seeking the Bankruptcy Court's approval of
the Company's purchase agreements. The sale is subject to the approval of the
Bankruptcy Court. The Company intends to finance these purchases with a
combination of cash and bank debt.
16. 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. At December 31, 2001, 229,000 shares of common
stock have been reserved for future stock option grants under the plans.
The Company accounts for these plans under APB Opinion No. 25, under which no
compensation cost has been recognized, as options are granted with exercise
prices equal to or exceeding the fair market value on the date of grant. Had
compensation cost for these plans been determined consistent with FASB Statement
No. 123, the Company's net earnings and net earnings per share would have been
reduced to the following pro forma amounts:
2001 2000 1999
--------- -------- ------
Net earnings
As reported .............................. $9,501,242 $10,622,333 $11,058,282
Pro forma ................................ $9,082,890 $10,182,696 $10,697,021
Basic earnings per share
As reported .............................. $2.48 $2.61 $2.58
Pro forma ................................ $2.37 $2.50 $2.49
Diluted earnings per share
As reported .............................. $2.46 $2.59 $2.55
Pro forma ................................ $2.35 $2.48 $2.47
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:
2001 2000 1999
------- -------- ---------
Risk-free interest rate ............................................. 5.39% 5.18% 6.60%
Expected dividend yields ............................................ 1.75% 1.75% 1.75%
Expected remaining life ............................................. 8.6 yrs. 8.6 yrs. 8.2 yrs.
Expected volatility ................................................. 23.0% 24.0% 23.0%
The following table summarizes the stock option activity under the Company's
plans for the years ended December 31:
2001 2000 1999
--------------------- -------------------- ---------------------
Wtd. Avg. Wtd. Avg Wtd. Avg.
Shares Ex. Price Shares Ex. Price Shares Ex. Price
------- --------- ------- --------- ------ ---------
Outstanding at beginning of year ..................... 368,750 $21.62 374,250 $18.85 352,500 $17.17
Granted ............................................... 83,250 23.72 80,500 25.76 71,250 22.14
Exercised ............................................ (18,500) 13.80 (85,000) 13.30 (49,500) 11.59
Forfeited ............................................. -- -- (1,000) 25.13 -- --
------- ------ ------- ------ ------- ------
Outstanding at end of year ............................ 433,500 22.35 368,750 21.62 374,250 18.85
Exercisable at end of year ........................... 350,250 22.03 288,250 20.47 292,146 17.72
Weighted average fair market
value of options granted ............................. $7.78 $8.47 $7.78
Of the options outstanding at December 31, 2001, 67,500 are exercisable at
$13.58, with a remaining contractual life of five years. The remaining 366,000
are exercisable at prices ranging from $21.75 to $28.05, and have a weighted
average remaining contractual life of seven years.
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
generally accepted accounting principles and necessarily include amounts based
on judgments and estimates by management giving due consideration to
materiality. The Company maintains internal control systems designed to provide
reasonable assurance that the Company's financial records reflect the
transactions of the Company and that its assets are protected from loss or
unauthorized use.
The Company's financial statements have been audited by Arthur Andersen LLP,
independent public accountants, whose report thereon appears above. Management
has made available to Arthur Andersen LLP the Company's financial records and
related data to allow them to evaluate the Company's system of accounting
controls and provide an independent assessment as to the financial statements.
The Audit Committee of the Board of Directors is responsible for reviewing and
evaluating the overall performance of the Company's financial reporting and
accounting practices. To ensure independence, Arthur Andersen LLP has full and
free access to the Audit Committee to discuss the results of their audits, their
opinions on the adequacy of internal controls, and the quality of financial
reporting.
DIRECTORS
Thomas W. Florsheim
Chairman
Thomas W. Florsheim, Jr.
President and Chief Executive Officer
John W. Florsheim
Executive Vice President and Chief Operating Officer
Virgis W. Colbert
Executive Vice President
Miller Brewing Company
Robert Feitler
Chairman, Executive Committee
Leonard J. Goldstein
Retired,
Former Chairman, President and Chief Executive Officer,
Miller Brewing Company
Frederick P. Stratton, Jr.
Chairman
Briggs & Stratton Corporation,
Manufacturer of Gasoline Engines
OFFICERS
Thomas W. Florsheim, Jr.
President and Chief Executive Officer
John W. Florsheim
Executive Vice President and Chief Operating Officer
David N. Couper
Vice President
James F. Gorman
Vice President
Peter S. Grossman
Vice President
John F. Wittkowske
Vice President, Chief Financial Officer and Secretary
SUPPLEMENTAL INFORMATION
ANNUAL MEETING
Shareholders are invited to attend Weyco Group, Inc.'s 2002 Annual Meeting at
10:00 a.m. on April 23, 2002, at the general offices of the Company, 333 W.
Estabrook Boulevard, Glendale, Wisconsin.
STOCK EXCHANGE
The Company's Common Stock (symbol WEYS) is listed on the NASDAQ Market System
(NMS).
TRANSFER AGENT AND REGISTRAR
American Stock Transfer & Trust Company
40 Wall Street
New York, New York 10005
COMPANY HEADQUARTERS
Weyco Group, Inc.
333 W. Estabrook Boulevard
Glendale, WI 53212
414-908-1600
OTHER INFORMATION
A copy of the Company's Annual Report to the Securities and Exchange Commission
(Form 10-K) will be furnished without charge to any shareholder upon written
request.
A copy of the Company's Quarterly Reports will be furnished without charge to
any shareholder upon written or telephone request.
All written requests should be sent to Investor Relations, Weyco Group, Inc., P.
O. Box 1188, Milwaukee, Wisconsin 53201. Telephone requests should be made to
(414) 908-1600.