1
TO OUR SHAREHOLDERS:
- --------------------------------------------------------------------------------
1996 was an outstanding year for our Company.
Net sales increased 7% to $129,314,000 from $120,643,000. Net earnings grew 18%
to a record $8,072,000, or $4.97 per share, from $6,807,000, or $3.62 per share.
Our mission is to provide the best value across the various footwear categories
in which we compete. Our commitment to this end has enabled us to strengthen our
position as a key player in men's branded footwear. In 1996, our Nunn Bush,
Stacy Adams and Brass Boot brands all registered significant increases. Overall,
our wholesale business grew 13%, resulting in a fourth straight year of record
wholesale shipments.
Nunn Bush's growth is driven by the brand's success in basic casual and dress
footwear, offering superior quality at moderate price points. Stacy Adams,
meanwhile, continues to benefit from its strong heritage in the fashion segment,
as more retailers target the fashion consumer as an opportunity for incremental
growth.
In 1996, we also made a strategic decision to enhance our penetration into the
better grade market with our Brass Boot brand, which is primarily designed and
manufactured in Italy. We have intensified our efforts around Brass Boot,
expanding the scope of the product line and increasing our investment in
marketing.
As we sharpen our focus on our wholesale business, we continue to reduce our
number of retail units. Our Retail Division now consists of nine Brass Boot
stores and seven other company stores. As a result, overall retail sales
decreased 29%. Same-store sales, however, increased 1%.
With the continuing consolidation of retailers, the current environment presents
unique challenges. We believe that we are taking the necessary steps to keep our
brands relevant and profitable. We look forward to a successful 1997, and we
will strive to make Weyco as responsive as it can be to its customers,
employees, vendors and shareholders.
Thomas W. Florsheim
Thomas W. Florsheim
Chairman of the Board and
Chief Executive Officer
Thomas W. Florsheim, Jr.
Thomas W. Florsheim, Jr.
President and
Chief Operating Officer
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SELECTED FINANCIAL DATA
- --------------------------------------------------------------------------------
Years Ended December 31
------------------------------------------------------------------------
1996 1995 1994 1993 1992
------------ ------------ ------------ ------------ ------------
Net sales................... $129,314,000 $120,643,000 $114,719,000 $122,144,000 $139,462,000
Net earnings before
cumulative effect of
accounting change......... 8,072,000 6,807,000 6,179,000 4,908,000 6,569,000
Cumulative effect of
accounting change......... -- -- -- 880,000 --
------------ ------------ ------------ ------------ ------------
Net earnings................ $ 8,072,000 $ 6,807,000 $ 6,179,000 $ 5,788,000 $ 6,569,000
============ ============ ============ ============ ============
Net earnings per share
before cumulative effect
of accounting change...... $4.97 $3.62 $2.98 $2.32 $3.10
Cumulative effect of
accounting change......... -- -- -- .42 --
------------ ------------ ------------ ------------ ------------
Net earnings per share...... $4.97 $3.62 $2.98 $2.74 $3.10
============ ============ ============ ============ ============
Weighted average shares and
equivalent shares
outstanding............... 1,623,521 1,880,191 2,076,874 2,117,255 2,120,342
Cash dividends per share.... $.87 $.83 $.80 $.78 $.70
Working capital............. $ 33,840,000 $ 45,997,000 $ 52,968,000 $ 55,864,000 $ 51,714,000
Total assets................ $ 73,077,000 $ 79,328,000 $ 72,827,000 $ 74,915,000 $ 71,848,000
COMMON STOCK DATA
- --------------------------------------------------------------------------------
1996 1995
-----------------------------------------------------------------------------------------------------
Price Range Cash Price Range Cash
----------- Dividends ----------- Dividends
High Low Declared High Low Declared
Quarter: -----------------------------------------------------------------------------------------------------
First..................... 41 37 1/2 $.21 37 33 $.20
Second.................... 42 38 .22 37 3/4 34 .21
Third..................... 42 1/2 39 1/2 .22 40 35 1/2 .21
Fourth.................... 43 39 1/2 .22 41 36 1/2 .21
---- ----
$.87 $.83
==== ====
There are approximately 500 holders of record of the Company's common stock as
of March 4, 1997.
The stock prices shown above are the high and low actual trades for the calendar
periods indicated.
The Class B Common Stock is not listed nor does it trade publicly because of its
limited transferability. See Note 11 to the Consolidated Financial Statements
for additional information.
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MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITIONS
AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
LIQUIDITY
The Company's primary source of liquidity is its cash and marketable securities
which aggregated approximately $31,457,000 at December 31, 1996, and $34,395,000
at December 31, 1995. In addition, the Company maintains a $7,500,000 bank line
of credit and has banker acceptance loan facilities to provide funds on a
short-term basis when necessary. There were no draws on the line of credit
during 1996.
On January 3, 1996, the Company paid $9,938,885 for the purchase of 146,860
shares of Common Stock and 106,360 shares of Class B Common Stock. Also, during
1996 and 1995, payments of $1,175,000 were made under deferred compensation
agreements.
The Company's capital expenditures were $251,000, $195,000 and $1,124,000 in
1996, 1995 and 1994, respectively. The Company currently expects that 1997
capital expenditures will not exceed $1,000,000.
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
1996 VS. 1995
Total net sales of the Company increased 7% from $120,643,000 in 1995 to
$129,314,000 in 1996. Net sales in the wholesale division increased 13% from
$105,149,000 in 1995 to $118,362,000 in 1996. The increase in sales resulted
from an increase of 7% in the number of pairs of shoes shipped, as well as an
increase in the average selling price per pair of 5% from 1995 to 1996. The
increase in the selling price per pair was principally caused by a change in
product mix. Retail net sales decreased 29% in 1996 from $15,494,000 in 1995 to
$10,952,000 in 1996. Retail sales declined due to the closing of 13 leased shoe
departments and 1 retail store during 1996. "Same store" net sales increased 1%
in 1996. Gross earnings as a percent of net sales were flat between 1995 and
1996 at 27%.
Selling and administrative expenses decreased from $23,947,000 in 1995 to
$23,176,000 in 1996. The decrease can be principally attributed to the retail
store closings in 1995 and 1996. Consequently, retail selling and administrative
expenses decreased 31% from $7,754,000 in 1995 to $5,362,000 in 1996. Wholesale
selling and administrative expenses increased 9% from $16,365,000 in 1995 to
$17,814,000 in 1996. As a percentage of wholesale sales, these expenses
decreased from 15.5% in 1995 to 15.0% in 1996.
Interest and other income decreased from $2,208,000 in 1995 to $1,126,000 in
1996, primarily because 1995 included $850,000 of income realized from a lease
assignment. Interest income also decreased in 1996 due to lower marketable
securities balances during the year.
1995 VS. 1994
Total net sales of the Company increased approximately 5% from $114,719,000 in
1994 to $120,643,000 in 1995. Net sales in the wholesale division increased 17%
from $90,235,000 in 1994 to $105,149,000 in 1995. The increase in sales resulted
from an increase of 17% in the number of pairs of shoes shipped, with the
average selling price per pair remaining flat in 1995. Retail net sales
decreased 37% in 1995 from $24,484,000 in 1994 to $15,494,000 in 1995. Retail
sales declined due to the closing of 45 leased shoe departments and 7
company-operated units during 1994, and the close of 10 retail units in 1995.
"Same store" net sales decreased 1% in 1995.
Gross earnings as a percent of net sales was approximately 27% in 1995 compared
with 33.5% in 1994. Inventory reductions in 1994 resulted in the liquidation of
LIFO inventories, which decreased cost of sales $4,505,000 ($2,748,000 after tax
or $1.32 per share). Additionally, the Company incurred a loss of approximately
$375,000 ($.11 per share), primarily due to the sales of inventory from closing
certain leased departments. Excluding the effect of the LIFO liquidation and
closing costs, 1994 gross earnings as a percent of net sales was 30%. The
decrease in overall gross
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4
- --------------------------------------------------------------------------------
earnings as a percent of sales from 1994 to 1995 was due to a mix change to a
higher percentage of wholesale sales as compared with total sales.
The overall decrease in selling and administrative expenses can be principally
attributed to the retail store closings in 1994 and 1995. Additionally, 1994
expenses include one-time charges totalling $1,225,000 ($.36 per share). Retail
expenses, excluding any nonrecurring charges, decreased $4,056,000, principally
due to decreases in store salaries ($1,898,000) and rent and occupancy costs
($1,406,000). Excluding 1994 nonrecurring charges, wholesale selling and
administrative expenses increased 2% from $16,009,000 in 1994 to $16,365,000 in
1995, but as a percent of wholesale sales decreased from 17.7% in 1994 to 15.6%
in 1995.
Interest income from fixed rate short-term investments, principally federal
tax-exempt municipal securities, comprised the majority of interest and other
income during each of the years 1995, 1994 and 1993. The increase in 1995 is due
principally to increased interest income of $451,000 and $850,000 realized from
a lease assignment.
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.
Previously, the Company had been identified as a potentially responsible party
("PRP") in two separate actions in connection with an alleged hazardous
substance discharge in the State of Wisconsin. During 1996, these actions were
settled. The Company paid a cash settlement, which was not material in relation
to the Consolidated Financial Statements.
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5
CONSOLIDATED
STATEMENTS OF EARNINGS
For the years ended December 31, 1996, 1995 and 1994
- --------------------------------------------------------------------------------
Years Ended December 31
--------------------------------------------
1996 1995 1994
------------ ------------ ------------
NET SALES............................................ $129,314,045 $120,642,617 $114,718,526
COST OF SALES........................................ 94,474,268 88,093,991 76,282,844
------------ ------------ ------------
Gross earnings..................................... 34,839,777 32,548,626 38,435,682
SELLING AND ADMINISTRATIVE EXPENSES.................. 23,175,555 23,946,940 29,043,678
------------ ------------ ------------
Earnings from operations........................... 11,664,222 8,601,686 9,392,004
INTEREST AND OTHER INCOME, net....................... 1,126,199 2,208,305 674,482
------------ ------------ ------------
Earnings before provision for income taxes......... 12,790,421 10,809,991 10,066,486
PROVISION FOR INCOME TAXES........................... 4,718,000 4,003,000 3,887,000
------------ ------------ ------------
Net earnings....................................... $ 8,072,421 $ 6,806,991 $ 6,179,486
============ ============ ============
NET EARNINGS PER SHARE............................... $4.97 $3.62 $2.98
============ ============ ============
The accompanying notes to consolidated financial statements are an integral part
of these statements.
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6
CONSOLIDATED BALANCE SHEETS
December 31, 1996 and 1995
- --------------------------------------------------------------------------------
1996 1995
----------- -----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 6,837,765 $11,247,137
Marketable securities, at amortized cost.................. 8,179,263 12,677,712
Accounts receivable, less reserves of $2,292,180 and
$2,049,180, respectively............................... 18,235,404 18,867,506
Inventories............................................... 12,399,444 14,945,707
Deferred income tax benefits.............................. 2,161,000 1,746,000
Prepaid expenses and other current assets................. -- 10,211
----------- -----------
Total current assets................................. 47,812,876 59,494,273
----------- -----------
MARKETABLE SECURITIES, AT AMORTIZED COST.................... 16,440,201 10,470,262
DEFERRED INCOME TAX BENEFITS................................ 33,000 519,000
OTHER ASSETS................................................ 6,138,205 5,331,314
PLANT AND EQUIPMENT, NET.................................... 2,652,873 3,513,437
----------- -----------
$73,077,155 $79,328,286
=========== ===========
The accompanying notes to consolidated financial statements are an integral part
of these balance sheets.
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7
- --------------------------------------------------------------------------------
1996 1995
----------- -----------
LIABILITIES AND SHAREHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Accounts payable.......................................... $ 6,793,555 $ 9,181,933
Dividend payable.......................................... 349,354 397,113
Accrued liabilities -
Wages, salaries and commissions........................ 2,689,200 2,170,647
Taxes other than income taxes.......................... 122,788 181,608
Other.................................................. 3,025,765 1,475,858
Accrued income taxes...................................... 992,241 90,366
----------- -----------
Total current liabilities............................ 13,972,903 13,497,525
----------- -----------
DEFERRED COMPENSATION....................................... -- 1,747,764
SHAREHOLDERS' INVESTMENT:
Common Stock, $1.00 par value, authorized 4,000,000
shares, issued and outstanding 1,259,053 shares in 1996
and 1,442,787 shares in 1995........................... 1,259,053 1,442,787
Class B Common Stock, $1.00 par value, authorized
2,000,000 shares, issued and outstanding 328,422 shares
in 1996 and 441,228 shares in 1995..................... 328,422 441,228
Capital in excess of par value............................ 1,666,065 2,772,530
Reinvested earnings....................................... 55,850,712 59,426,452
----------- -----------
Total shareholders' investment....................... 59,104,252 64,082,997
----------- -----------
$73,077,155 $79,328,286
=========== ===========
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8
CONSOLIDATED STATEMENTS
OF SHAREHOLDERS' INVESTMENT
For the years ended December 31, 1996, 1995 and 1994
- --------------------------------------------------------------------------------
Class B Capital in
Common Common Excess of Reinvested
Stock Stock Par Value Earnings
---------- -------- ---------- -----------
Balance, December 31, 1993...................... $1,658,072 $473,533 $1,707,188 $58,495,835
Add (Deduct) -
Net earnings............................... -- -- -- 6,179,486
Cash dividends declared ($.80 per share)... -- -- -- (1,658,986)
Conversions of Class B Common Stock to
Common Stock............................. 9,208 (9,208) -- --
Stock options exercised.................... 27,600 -- 655,300 --
Income tax benefit from stock options
exercised................................ -- -- 77,849 --
Shares purchased and retired............... (253,078) (12,114) (770,600) (7,152,622)
---------- -------- ---------- -----------
Balance, December 31, 1994...................... 1,441,802 452,211 1,669,737 55,863,713
Add (Deduct) -
Net earnings............................... -- -- -- 6,806,991
Cash dividends declared ($.83 per share)... -- -- -- (1,562,808)
Conversions of Class B Common Stock to
Common Stock............................. 5,733 (5,733) -- --
Stock options exercised.................... 41,500 -- 1,081,500 --
Income tax benefit from stock options
exercised................................ -- -- 156,293 --
Shares purchased and retired............... (46,248) (5,250) (135,000) (1,681,444)
---------- -------- ---------- -----------
Balance, December 31, 1995...................... 1,442,787 441,228 2,772,530 59,426,452
Add (Deduct) -
Net earnings............................... -- -- -- 8,072,421
Cash dividends declared ($.87 per share)... -- -- -- (1,394,930)
Conversions of Class B Common Stock to
Common Stock............................. 6,446 (6,446) -- --
Stock options exercised.................... 2,500 -- 77,031 --
Shares purchased and retired............... (192,680) (106,360) (1,183,496) (10,253,231)
---------- -------- ---------- -----------
Balance, December 31, 1996...................... $1,259,053 $328,422 $1,666,065 $55,850,712
========== ======== ========== ===========
The accompanying notes to consolidated financial statements are an integral part
of these statements.
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9
CONSOLIDATED STATEMENTS
OF CASH FLOWS
For the years ended December 31, 1996, 1995 and 1994
- --------------------------------------------------------------------------------
1996 1995 1994
------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings........................................ $ 8,072,421 $ 6,806,991 $ 6,179,486
Adjustments to reconcile net earnings to net cash
provided by operating activities -
Depreciation..................................... 1,044,559 1,133,921 1,226,237
Deferred income taxes............................ 71,000 177,000 (417,000)
Deferred compensation............................ 130,185 183,760 465,960
Pension income................................... (361,173) (77,241) (217,133)
Loss on retirement of assets..................... 62,468 121,789 48,518
Changes in operating assets and liabilities -
Accounts receivable............................. 632,102 (1,316,160) 2,182,007
Inventories..................................... 2,546,263 (4,208,240) 6,312,844
Prepaids and other current assets............... 10,211 54,378 491,724
Accounts payable................................ (2,388,378) 3,935,179 (696,852)
Accrued liabilities............................. 1,306,691 139,556 (56,795)
Accrued income taxes............................ 901,875 (1,098,704) 1,231,405
------------ ------------ ------------
Net cash provided by operating activities...... 12,028,224 5,852,229 16,750,401
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities................... (15,192,006) (33,521,343) (65,076,331)
Proceeds from sales of marketable securities........ 13,720,516 39,339,872 53,418,324
Purchase of plant and equipment..................... (250,893) (195,427) (1,123,799)
Investment in officers' life insurance.............. (445,718) (410,695) (393,064)
Proceeds from sales of plant and equipment.......... 4,430 -- 135,119
------------ ------------ ------------
Net cash provided by (used for) investing
activities.................................. (2,163,671) 5,212,407 (13,039,751)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of deferred compensation.................... (1,175,000) (1,175,000) --
Proceeds from issuance of debt...................... -- -- 3,500,000
Payments of notes payable........................... -- -- (3,500,000)
Cash dividends paid................................. (1,442,689) (1,545,918) (1,704,884)
Shares purchased and retired........................ (11,735,767) (1,867,942) (8,188,414)
Proceeds from stock options exercised............... 79,531 1,123,000 682,900
------------ ------------ ------------
Net cash used for financing activities......... (14,273,925) (3,465,860) (9,210,398)
------------ ------------ ------------
Net increase (decrease) in cash and cash
equivalents...................................... (4,409,372) 7,598,776 (5,499,748)
CASH AND CASH EQUIVALENTS, at beginning of year....... 11,247,137 3,648,361 9,148,109
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, at end of year............. $ 6,837,765 $ 11,247,137 $ 3,648,361
============ ============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Income taxes paid................................... $ 3,744,349 $ 4,942,309 $ 2,672,304
Interest paid....................................... $ -- $ -- $ 30,000
The accompanying notes to consolidated financial statements are an integral part
of these statements.
9
10
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
- --------------------------------------------------------------------------------
1. SUMMARY OF ACCOUNTING POLICIES
Principles of Consolidation - The consolidated financial statements include the
accounts of Weyco Group, Inc. and all subsidiaries ("The Company"). All
significant intercompany items are eliminated in the consolidated financial
statements.
Revenue Recognition - Sales to independent dealers are recorded at the time of
shipment to those dealers. Sales through company-owned retail outlets are
recorded at the time of delivery to retail customers.
Inventories - Inventories are valued at cost, which is not in excess of market,
determined on a last-in, first-out (LIFO) basis. Inventory costs include
material, labor and factory overhead.
Plant and Equipment and Depreciation - Plant and equipment are stated at cost
and depreciated over their estimated useful lives using primarily the
straight-line method. Fully depreciated machinery and equipment are eliminated
from the accounts. Expenditures for lasts, dies and patterns are charged to
earnings as incurred.
Income Taxes - Deferred income taxes are provided on temporary differences
arising from differences in the basis of assets and liabilities for tax and
financial reporting purposes. See Note 8.
Earnings Per Share - Earnings per share are computed based upon the weighted
average number of common and common equivalent shares outstanding. Common
equivalent shares consist of stock options which have a dilutive effect when
applying the treasury stock method and are considered when material.
Cash and Cash Equivalents - For purposes of the Consolidated Statements of Cash
Flows, the Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents.
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.
Long-Lived Assets - In March 1995, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of."
The adoption of this statement in 1996 had no material effect on the
Consolidated Financial Statements.
Advertising Costs - Advertising costs are expensed as incurred. Advertising
costs were $2,951,000, $2,757,000 and $2,720,000 in 1996, 1995 and 1994,
respectively.
2. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of all financial instruments, except marketable securities,
approximate fair value due to the short-term nature of those instruments. The
fair value of marketable securities is estimated based upon quoted market rates.
See Note 4.
3. INVENTORIES
At December 31, 1996 and 1995, inventories consist of:
1996 1995
----------- -----------
Finished shoes........................................ $11,984,639 $14,188,733
Shoes in Process...................................... 331,718 618,671
Raw materials......................................... 83,087 138,303
----------- -----------
Total inventories..................................... $12,399,444 $14,945,707
The excess of current cost over LIFO cost of inventories as of December 31, 1996
and 1995 was $16,597,000 and $15,549,000, respectively. During 1994, inventory
reductions resulted in liquidations of LIFO inventory quantities carried at
lower costs prevailing in prior years compared
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with the current cost of purchases, the effect of which increased net earnings
by $4,505,000 or $1.32 per share.
4. INVESTMENTS
All of the Company's investments are classified as held-to-maturity securities
and reported at amortized cost pursuant to SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities," as the Company has the intent and
ability to hold all security investments to maturity.
A summary of the amortized cost and estimated market values of investment
securities at December 31, 1996 and 1995 are as follows:
1996 1995
-------------------------- --------------------------
Amortized Amortized
Cost Market Value Cost Market Value
----------- ------------ ----------- ------------
Municipality and revenue bonds............ $24,619,464 $24,713,354 $23,147,974 $23,234,971
Less: Current marketable securities....... 8,179,263 8,184,516 12,677,712 12,690,832
----------- ----------- ----------- -----------
Marketable securities due from one
through five years.................. $16,440,201 $16,528,838 $10,470,262 $10,544,139
=========== =========== =========== ===========
The unrealized gains and losses on investment securities at December 31 are:
1996 1995 1994
----------------------- ----------------------- -----------------------
Unrealized Unrealized Unrealized Unrealized Unrealized Unrealized
Gains Losses Gains Losses Gains Losses
---------- ---------- ---------- ---------- ---------- ----------
Municipality and revenue bonds...... $127,490 $ 33,600 $ 98,574 $ 11,577 $ 38,321 $165,985
U. S. government securities......... -- -- -- -- -- 44,299
-------- -------- -------- -------- -------- --------
Total............................ $127,490 $ 33,600 $ 98,574 $ 11,577 $ 38,321 $210,284
5. PLANT AND EQUIPMENT
At December 31, 1996 and 1995, plant and equipment consists of:
1996 1995
---------- ----------
Land........................................................ $ 210,821 $ 210,821
Buildings................................................... 1,858,423 1,905,759
Machinery and equipment..................................... 3,956,620 3,948,309
Retail fixtures and leasehold improvements.................. 2,653,653 2,717,917
---------- ----------
Plant and equipment...................................... $8,679,517 $8,782,806
Less: Accumulated depreciation.............................. 6,026,644 5,269,369
---------- ----------
Plant and equipment, net................................. $2,652,873 $3,513,437
6. BANK LINES OF CREDIT
The Company has a short-term line of credit of $7,500,000 with a domestic bank
and has banker acceptance loan facilities. There were no borrowings outstanding
at December 31, 1996 and 1995 and no bank balances are required in support of
these lines of credit.
During 1994, the Company borrowed $3,500,000 under the line at an interest rate
of 6% for a period of 60 days. The average amount outstanding was $3,000,000.
7. EMPLOYEE RETIREMENT PLANS
The Company has defined benefit retirement plans covering substantially all
employees. Retirement benefits are provided based on employees' years of
credited service and average earnings or stated amounts for years of service.
Normal retirement age is 65 with provisions for earlier retirement. The plans
also have provisions for disability and death benefits. The Company's funding
policy is to make contributions to the plans such that all employees' benefits
will be fully
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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 summarizes the Company's pension income under the defined benefit
plans:
1996 1995 1994
----------- ----------- -----------
Benefits earned during the period.......................... $ 349,000 $ 327,000 $ 383,000
Interest cost on projected benefit obligation.............. 1,025,000 1,031,000 958,000
Actual loss (return) on plan assets........................ (1,663,000) (3,202,000) 500,000
Net amortization and deferral.............................. (72,000) 1,767,000 (2,058,000)
----------- ----------- -----------
Net pension income...................................... $ (361,000) $ (77,000) $ (217,000)
=========== =========== ===========
The funded status of the Company's defined benefit retirement plans at December
31, is as follows:
Plan for Which Assets Exceed Plans for Which Accumulated
Accumulated Benefits Benefits Exceed Assets
---------------------------- ----------------------------
1996 1995 1996 1995
------------------------------------------------------------
Actuarial present value of benefit
obligations:
Vested.................................... $10,966,000 $10,750,000 $ 2,105,000 $ 1,887,000
Nonvested................................. 203,000 134,000 6,000 18,000
----------- ----------- ----------- -----------
Accumulated benefit obligation............. 11,169,000 10,884,000 2,111,000 1,905,000
Effect of projected future salary
increases.................................. 1,588,000 1,385,000 427,000 285,000
----------- ----------- ----------- -----------
Projected benefit obligation.............. 12,757,000 12,269,000 2,538,000 2,190,000
Plan assets at market value.................. 18,805,000 17,924,000 -- --
----------- ----------- ----------- -----------
Plan assets in excess of (less than)
projected benefit obligation........... 6,048,000 5,655,000 (2,538,000) (2,190,000)
Unrecognized prior service cost (benefit).... (530,000) (591,000) 552,000 651,000
Unrecognized net (gain) loss................. (331,000) (259,000) 195,000 16,000
Unrecognized net transition asset............ (1,039,000) (1,258,000) -- --
Additional minimum liability................. -- -- (320,000) (382,000)
----------- ----------- ----------- -----------
Net recorded pension asset (liability)
included in other assets............... $ 4,148,000 $ 3,547,000 $(2,111,000) $(1,905,000)
=========== =========== =========== ===========
The actuarial assumptions used as of December 31, 1996 and 1995 for determining
the present value of the projected benefit obligation were as follows:
Discount rate............................................... 7%
Rate of compensation increase............................... 5%
Long-term rate of return on plan assets..................... 8.5%
On January 1, 1995, the Company started a defined contribution plan covering
substantially all employees not covered by a collective bargaining agreement.
During both 1996 and 1995 the Company contributed $85,000 to the Plan.
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8. INCOME TAXES
The provision for income taxes includes the following components:
1996 1995 1994
---------- ---------- ----------
Current -
Federal................................................... $3,854,000 $2,939,000 $3,310,000
State..................................................... 793,000 887,000 994,000
---------- ---------- ----------
Total.................................................. 4,647,000 3,826,000 4,304,000
Deferred.................................................... 71,000 177,000 (417,000)
---------- ---------- ----------
Total provision........................................ $4,718,000 $4,003,000 $3,887,000
========== ========== ==========
Effective tax rate.......................................... 36.9% 37.0% 38.6%
========== ========== ==========
The difference between the effective tax rate and the Federal income tax rate of
34% is due to state income taxes, net of Federal tax benefit of 4.2% in 1996,
4.3% in 1995 and 5.3% in 1994, the effect of municipal bond interest, and other
miscellaneous items.
The components of the net deferred tax asset as of December 31, 1996 and 1995,
are as follows:
1996 1995
----------- -----------
Deferred tax assets:
Accounts receivable and inventory reserves................ $ 1,104,000 $ 983,000
Deferred compensation..................................... 732,000 1,140,000
Depreciation.............................................. 572,000 441,000
Other..................................................... 1,088,000 792,000
----------- -----------
3,496,000 3,356,000
----------- -----------
Deferred tax liabilities:
Prepaid pension........................................... (930,000) (789,000)
Unrepatriated foreign earnings............................ -- (15,000)
Cash value of life insurance.............................. (372,000) (287,000)
----------- -----------
(1,302,000) (1,091,000)
----------- -----------
Net deferred tax asset................................. $ 2,194,000 $ 2,265,000
=========== ===========
The net deferred tax asset is classified in the Consolidated Balance Sheets as
follows:
1996 1995
----------- -----------
Current deferred income tax benefits........................ $ 2,161,000 $ 1,746,000
Noncurrent deferred income tax benefits..................... 33,000 519,000
----------- -----------
$ 2,194,000 $ 2,265,000
=========== ===========
9. DEFERRED COMPENSATION
The Company has deferred compensation agreements with one current and one former
executive. The Company expensed $130,000 in 1996, $184,000 in 1995 and $466,000
in 1994 in connection with these agreements. On December 1, 1995, the Company
amended each of these agreements to allow for the acceleration of payments under
such agreements, regardless of whether the executive has retired, remains in the
Company's employ or otherwise terminates his employment. Accordingly, the
Company paid $1,175,000 under these amended agreements in 1995 and in 1996. The
remaining amounts owed under the agreements as of December 31, 1996 are
available to be paid in 1997 and are included in accrued wages, salaries and
commissions on the Consolidated Balance Sheets.
10. OPERATING LEASES
The Company operates retail shoe stores and departments under both short-term
and long-term leases. Some leases provide for a minimum rental plus percentage
rentals based upon sales in excess of a specified amount, and other leases
provide for rentals based solely on a percentage
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of sales. Total minimum rents were $1,160,000 in 1996, $1,181,000 in 1995 and
$1,240,000 in 1994. Percentage rentals were $401,000 in 1996, $865,000 in 1995
and $1,910,000 in 1994.
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, 1996, are shown below. Renewal options exist for many long-term
leases.
1997........................................................ $1,025,000
1998........................................................ 832,000
1999........................................................ 538,000
2000........................................................ 403,000
2001........................................................ 259,000
2002 and thereafter......................................... 225,000
----------
Total....................................................... $3,282,000
==========
11. SHAREHOLDERS' INVESTMENT
The Class B Common Stock has 10 votes per share, may only be transferred to
certain permitted transferees, is convertible to Common Stock and shares equally
with the Common Stock in cash dividends and liquidation rights.
12. STOCK BASED COMPENSATION PLANS
The Company has two stock option plans, the 1992 Nonqualified Stock Option Plan
and the 1996 Nonqualified Stock Option Plan.
The Company accounts for these plans under APB Opinion No. 25, under which no
compensation cost has been recognized. Had compensation cost for these plans
been determined consistent with FASB Statement No. 123, the Company's net
earnings and net earnings per share would have been reduced to the following pro
forma amounts:
1996 1995
---------- ----------
Net Earnings:
As Reported........................................ $8,072,421 $6,806,991
Pro Forma.......................................... $7,845,795 $6,663,729
Net Earnings Per Share:
As Reported........................................ $4.97 $3.62
Pro Forma.......................................... $4.83 $3.54
Because the Statement No. 123 method of accounting has not been applied to
options prior to January 1, 1995, the resulting pro forma compensation cost may
not be representative of that to be expected in future years.
The following table summarizes the stock option activity under the Company's
plans for the years ended December 31:
1996 1995 1994
------------------- ------------------- -------------------
Wtd. Avg. Wtd. Avg. Wtd. Avg.
Shares Ex. Price Shares Ex. Price Shares Ex. Price
------- --------- ------- --------- ------- ---------
Outstanding at beginning of year...... 73,400 $34.96 85,900 $29.67 89,500 $26.79
Granted............................... 30,000 40.75 29,500 39.25 24,500 34.63
Exercised............................. (2,500) 31.25 (41,500) 27.06 (27,600) 24.74
Forfeited............................. -- -- -- -- -- --
Expired............................... -- -- (500) 34.63 (500) 29.00
------- ------ ------- ------ ------- ------
Outstanding at end of year............ 100,900 $36.77 73,400 $34.96 85,900 $29.67
Exercisable at end of year............ 70,900 $35.09 43,900 $32.08 61,400 $27.69
Weighted average fair market value of
options granted..................... $12.38 $8.39
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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:
1996 1995
-------- --------
Risk-free interest rate.................................... 6.05% 5.33%
Expected dividend yields................................... 2.2% 2.2%
Expected remaining life.................................... 9.0 yrs. 4.5 yrs.
Expected volatility........................................ 20% 20%
The range of exercise prices for the 100,900 options outstanding at December 31,
1996 is $29.00 to $40.75. The weighted average remaining contractual life for
these shares is 5 years as of December 31, 1996.
At December 31, 1996, 70,000 shares of stock have been reserved for future
issuance under the plans.
13. INDUSTRY SEGMENT INFORMATION
The Company engages in one line of business - the manufacture, purchase and
distribution of men's footwear. All sales are to unaffiliated customers from
North America. Sales to the Company's largest customer were 13%, 15% and 11% of
total sales for 1996, 1995, and 1994, respectively. Sales to another customer
were 10% of total sales in 1996. There are no other individually significant
customers.
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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Weyco Group, Inc.:
We have audited the accompanying consolidated balance sheets of Weyco Group,
Inc. (a Wisconsin corporation) and subsidiaries as of December 31, 1996 and
1995, and the related consolidated statements of earnings, shareholders'
investment and cash flows for each of the three years in the period ended
December 31, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Weyco Group, Inc. and
subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin
February 17, 1997
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.
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DIRECTORS
Robert Feitler
Chairman, Executive Committee
John W. Florsheim
Executive Vice President
Thomas W. Florsheim
Chairman and Chief Executive Officer
Thomas W. Florsheim, Jr.
President and Chief Operating Officer
Leonard J. Goldstein
Retired,
Former Chairman, President and Chief Executive Officer,
Miller Brewing Company
Frank W. Norris
Director
Associated Bank Milwaukee
Frederick P. Stratton, Jr.
Chairman and Chief Executive Officer,
Briggs & Stratton Corporation,
Manufacturer of Gasoline Engines
OFFICERS
Thomas W. Florsheim
Chairman and Chief Executive Officer
Thomas W. Florsheim, Jr.
President and Chief Operating Officer
John W. Florsheim
Executive Vice President
David N. Couper
Vice President
James F. Gorman
Vice President
Peter S. Grossman
Vice President
John F. Wittkowske
Vice President - Finance and Secretary
SUPPLEMENTAL INFORMATION
STOCK EXCHANGE
The Company's Common Stock (symbol WEYS) is listed on the NASDAQ Market System
(NMS).
TRANSFER AGENT AND REGISTRAR
American Stock Transfer & Trust Company
40 Wall Street
New York, New York 10005
OTHER INFORMATION
A copy of the Company's Annual Report to the Securities and Exchange Commission
(Form 10-K) will be furnished without charge to any stockholder upon written
request.
A copy of the Company's Quarterly Reports will be furnished without charge to
any stockholder upon written or telephone request.
All written requests should be sent to Investor Relations, Weyco Group, Inc., P.
O. Box 1188, Milwaukee, Wisconsin 53201. Telephone requests should be made to
(414) 263-8800.
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