1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-K (Mark One) X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE - --- ACT OF 1934 (FEE REQUIRED) For the fiscal year ended December 31, 1997. OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) For transition period from to ------------------ ------------------ Commission file number 0-9068 Weyco Group, Inc. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Wisconsin 39-0702200 - -------------------------------- -------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 234 E. Reservoir Avenue, P.O. Box 1188, Milwaukee, WI 53201 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, include area code (414) 263-8800 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange on Title of each class which registered None - --------------------------------------- ----------------------------------- - --------------------------------------- ----------------------------------- Securities registered pursuant to Section 12(g) of the Act: Common Stock - $1.00 par value per share - -------------------------------------------------------------------------------- (Title of Class) - -------------------------------------------------------------------------------- (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulations S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in any definitive proxy of information statements incorporated by reference or in any amendment to this Form 10-K. (X) As of March 3, 1998, there were outstanding 3,833,931 shares of Common Stock and 965,494 shares of Class B Common Stock. At the same date, the aggregate market value (based upon the average of the high and low trades for that day) of all common stock held by non-affiliates was approximately $69,883,000. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Corporation's Annual Report to Shareholders for the year ended December 31, 1997, are incorporated by reference in Parts I, II and IV of this report. Portions of the Corporation's Proxy Statement, dated March 30, 1998, prepared for the Annual Meeting of Shareholders scheduled for April 28, 1998, are incorporated by reference in Part III of this report. Exhibit Index Pages 9-10
2 PART I Item 1. Business The Company is a Wisconsin corporation incorporated in the year 1906 as Weyenberg Shoe Manufacturing Company. Effective April 25, 1990, the name of the corporation was changed to Weyco Group, Inc. The Company and its subsidiaries engage in one line of business, the manufacture, purchase and distribution of men's footwear. The Company does not sell women's or children's shoes because these markets differ significantly from the men's market. The principal brands of shoes sold are "Nunn Bush," "Brass Boot," "Stacy Adams," and "Weyenberg" and trademarks maintained by the Company on these names are important to the business. The Company's products consist of both mid-priced quality leather dress shoes which would be worn as a part of more formal and traditional attire and lower priced quality casual footwear of man-made materials or leather which would be appropriate for leisure or less formal occasions. The Company's footwear, and that of the industry in general, is available in a broad range of sizes and widths, primarily produced or purchased to meet the needs and desires of the American male population. The Company assembles footwear at one manufacturing plant in Wisconsin. Shoe components, referred to as "uppers," are purchased from outside sources, generally foreign, and turned into complete shoes by attaching the sole, either leather or man-made, applying appropriate "finishes" and packing the shoes into individual cartons, ready for sale. The Company purchases raw materials and shoe components from many suppliers and is not dependent on any one of them. The supply of these items is generally plentiful and there are no long-term purchase commitments. Over the past five years, production at the Company's plant has accounted for approximately 15% of the value of the Company's wholesale footwear sales. In addition to the production of footwear at the Company's own manufacturing plant, complete shoes are purchased from many sources worldwide, generally in U.S. dollars. These purchases account for the balance of the Company's wholesale footwear sales. In recent years, domestic production of men's shoes by the Company and the industry has declined, while imports to the United States have increased. The Company's business is separated into two divisions - wholesale and retail. Wholesale sales constituted approximately 93% of total sales in 1997, 92% in 1996, and 87% in 1995. At wholesale, shoes are marketed nationwide through more than 8,000 shoe, clothing and department stores. All sales are to unaffiliated customers in North America. Sales to the Company's largest customer, J C Penney, were 13%, 13% and 15% of total sales for 1997, 1996 and 1995, respectively. Sales to another customer, Brown Shoe Group, were 10% of total sales for 1996. There are no other individually significant customers. The Company employs traveling salesmen who sell the Company's products to the retail outlets. Shoes are shipped to these retailers primarily from warehouses maintained in Milwaukee and Beaver Dam, Wisconsin. Although there is no clearly identifiable seasonality in the men's footwear business, new styles are historically developed and shown twice each year, in spring and fall. In accordance with the industry practices, the Company is required to carry significant amounts of inventory to meet customer delivery requirements and periodically provides extended payment terms to customers. -1-
3 Retail sales constituted approximately 7% of total sales in 1997, 8% in 1996 and 13% in 1995. In the retail division, there are currently 13 company-operated stores in principal cities of the United States. The decrease in retail sales in recent years is a result of the termination of leased departments and company-operated stores. In 1997, 4 company-operated stores were closed. In 1996, 1 company-operated store and 13 leased departments were closed. In 1995, 10 company-operated stores were closed. These stores were closed primarily due to unprofitable operations or unattractive lease renewal terms. Management intends to continue to closely monitor retail operations and may close other retail units in the future if they are deemed unprofitable. Sales in retail outlets are made directly to the consumer by Company employees. In addition to the sale of the Company's brands of footwear in these retail outlets, other branded footwear and accessories are also sold in order to provide the consumer with as complete a selection as practically possible. In dollar sales, management estimates that the Company is about eighth largest among approximately 900 domestic men's shoe distributors. During 1997 it sold approximately 3% of the total men's non-rubber dress and casual shoes sold in the United States. As of December 31, 1997, the Company employed approximately 410 persons. Of those 410 employees, approximately 180 were members of the United Food and Commercial Works Local 651 Union. The Company ratified a new contract with the Union during 1997, which will expire in March 2003. Future wage and benefit increases under the new contract are not expected to have a significant impact on the future operations or financial position of the Company. Price, quality and service are all important competitive factors in the shoe industry and the Company has been recognized as a leader in all of them. Although the Company engages in no specific research and development activities, new products and new processes are continually being tested by the Company and used where appropriate, in order to produce the best value for the consumer, consistent with reasonable price. Compliance with environmental regulations historically has not had, and is not expected to have, a material adverse effect on the Company's results of operations or cash flows. Item 2. Properties The following facilities are operated by the Company and its subsidiaries: <TABLE> <CAPTION> Location Character Owned/Leased <S> <C> <C> <C> Milwaukee, Wisconsin Multistory office Owned and warehouse Milwaukee, Wisconsin Multistory warehouse Owned Beaver Dam, Wisconsin Multistory warehouse Owned Beaver Dam, Wisconsin Multistory factory Leased (1) </TABLE> (1) Not a material lease. The manufacturing facilities noted above are adequately equipped, well maintained and suitable for foreseeable needs. If all available manufacturing space were utilized and significant additional shoe making equipment were acquired, production could be increased about 25%. -2-
4 In December 1997 the Company broke ground on a new 346,000 square foot office and distribution center. Management estimates that the building will be completed in the fall of 1998 with installation of equipment and systems to follow. Operations are expected to begin in the new facility in the second quarter of 1999. Management believes that this facility, coupled with system improvements, will greatly enhance the distribution process enabling the Company to better serve customers and continue to grow. The entire project is expected to cost $12 million. In addition to the above-described manufacturing and warehouse facilities, the Company operates 13 retail stores throughout the United States under various rental agreements. See Note 10 to Consolidated Financial Statements and Item 1. Business above. Item 3. Legal Proceedings Not Applicable Item 4. Submission of Matters to a Vote of Security Holders Not Applicable -3-
5 Executive Officers of the Registrant <TABLE> <CAPTION> Served Officer Age Office(s) Since Business Experience ------- --- -------- ------ ------------------- <S> <C> <C> <C> <C> Thomas W. Florsheim 67 Chairman of the Board and 1968 Chairman of the Company -- Chief Executive Officer 1968 to present Thomas W. Florsheim, Jr. 40 President and Chief 1995 President of the Company -- Operating Officer & Director 1995 to present; Vice President of the Company -- 1988 to 1995 John W. Florsheim 34 Executive Vice President & 1995 Executive Vice President of the Director Company --1995 to present; Vice President of the Company -- 1994 to 1995; Brand Manager, M & M/Mars, Inc. 1990 to 1994 David N. Couper 49 Vice President 1981 Vice President of the Company -- 1981 to present James F. Gorman 54 Vice President 1975 Vice President of the Company -- 1975 to present Peter S. Grossman 54 Vice President 1971 Vice President of the Company -- 1971 to present John F. Wittkowske 38 Vice President-Finance & 1993 Vice President-Finance of the Company Secretary 1995 to present; Secretary/Treasurer of the company --1993 to 1995; Audit Manager, Arthur Andersen LLP, Independent Public Accountants -- 1986 to 1993 </TABLE> Thomas W. Florsheim is the father of John W. Florsheim and Thomas W. Florsheim, Jr. -4-
6 PART II Item 5. Market for Registrant's Common Equity and Related Shareholder Matters Information required by this Item is set forth on pages 2 and 17 of the Annual Report to Shareholders for the year ended December 31, 1997, and is incorporated herein by reference. Item 6. Selected Financial Data Information required by this Item is set forth on page 2 of the Annual Report to Shareholders for the year ended December 31, 1997, and is incorporated herein by reference. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Information required by this Item is set forth on pages 3 and 4 of the Annual Report to Shareholders for the year ended December 31, 1997, and is incorporated herein by reference. Item 8. Financial Statements and Supplementary Data Information required by this Item is set forth on pages 5 through 15 of the Annual Report to Shareholders for the year ended December 31, 1997, and is incorporated herein by reference. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures Not applicable. -5-
7 PART III Item 10. Directors and Executive Officers of the Registrant Information required by this Item is set forth on pages 1 through 3 of the Company's proxy statement for the Annual Meeting of Shareholders to be held on April 28, 1998, and is incorporated herein by reference. Item 11. Executive Compensation Information required by this Item is set forth on pages 4 through 7 of the Company's proxy statement for the Annual Meeting of Shareholders to be held on April 28, 1998, and is incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners of Management Information required by this Item is set forth on pages 1 and 2 of the Company's proxy statement for the Annual Meeting of Shareholders to be held on April 28, 1998, and is incorporated herein by reference. Item 13. Certain Relationships and Related Transactions Information required by this Item is set forth on pages 6 through 7 of the Company's proxy statement for the Annual Meeting of Shareholders to be held on April 28, 1998, and is incorporated herein by reference. -6-
8 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (a) The following documents are filed as a part of this report: <TABLE> <CAPTION> Page Reference to Annual Report <S> <C> <C> 1. Financial Statements - Consolidated Statements of Earnings for the years ended December 31, 1997, 1996 and 1995 5 Consolidated Balance Sheets - December 31, 1997 and 1996 6-7 Consolidated Statements of Shareholders' Investment for the years ended December 31, 1997, 1996 and 1995 8 Consolidated Statements of Cash Flows for the years ended December 31, 1997, 1996 and 1995 9 Notes to Consolidated Financial Statements - December 31, 1997, 1996 and 1995 10-15 Report of Independent Public Accountants 16 </TABLE> -7-
9 Item 14. Exhibits, Financial Statement Schedules, and Report on Form 8-K (Continued) <TABLE> <CAPTION> Page Reference to Form 10-K <S> <C> <C> 2. Financial Statement Schedules for the years ended December 31, 1997, 1996 and 1995 - Schedule II - Valuation and Qualifying 11 Accounts All other schedules have been omitted because of the absence of the conditions under which they are required. </TABLE> REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS We have audited in accordance with generally accepted auditing standards, the consolidated financial statements included in Weyco Group, Inc.'s Annual Report to Shareholders incorporated by reference in this Form 10-K, and have issued our report thereon dated February 13, 1998. Our audit was made for the purpose of forming an opinion on those statements taken as a whole. The schedule listed in the index at item 14(a)(2) is the responsibility of the company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN LLP Milwaukee, Wisconsin, February 13, 1998. -8-
10 Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K (Continued) 3. Exhibits <TABLE> <CAPTION> Incorporated Herein Exhibit Description By Reference To - ------- ----------- ------------------- <S> <C> <C> 3.1 Articles of Incorporation as Restated Exhibit 3.1 to Form August 29, 1961, and Last Amended 10-K for Year Ended April 25, 1990 December 31, 1990 3.2 Bylaws as Revised January 21, 1991 Exhibit 3.2 to Form and Amended November 3, 1992 10-K for Year Ended December 31, 1992 10.1* Employment Agreement - Thomas W. Exhibit 10.1 to Form Florsheim, dated January 1, 1997 10-K for Year Ended December 31, 1996 10.2* Employment Agreement - Thomas W. Exhibit 10.2 to Form Florsheim, Jr., dated January 1, 1997 10-K for Year Ended December 31, 1996 10.3* Employment Agreement - John W. Exhibit 10.3 to Form Florsheim, dated January 1, 1997 10-K for Year Ended December 31, 1996 10.4* Restated and Amended Deferred Exhibit 10.3 to Form Compensation Agreement - Thomas W. 10-K for Year Ended Florsheim, dated December 1, 1995 December 31, 1995 10.5* Restated and Amended Deferred Exhibit 10.4 to Form Compensation Agreement - Robert 10-K for Year Ended Feitler, dated December 1, 1995 December 31, 1995 10.6* Excess Benefits Plan - Restated Effective Exhibit 10.6 to Form as of January 1, 1989 10-K for Year Ended December 31, 1991 10.7* Pension Plan - Amended and Restated Exhibit 10.7 to Form Effective January 1, 1989 10-K for Year Ended December 31, 1991 10.8* Deferred Compensation Plan - Effective Exhibit 10.8 to Form as of January 1, 1989 10-K for Year Ended December 31, 1991 10.9* 1992 Nonqualified Stock Option Plan Exhibit 10.9 to Form 10-K for Year Ended December 31, 1991 </TABLE> -9-
11 Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (Continued) 3. Exhibits (Continued) <TABLE> <CAPTION> Incorporated Herein Exhibit Description By Reference To - ------- ----------- ------------------- <S> <C> <C> 10.10* Death Benefit Plan Agreement - Exhibit 10.10 to Form Thomas W. Florsheim, dated 10-K for Year Ended November 8, 1993 December 31, 1993 10.12* 1996 Nonqualified Stock Option Plan Exhibit 10.12 to Form 10-K for Year Ended December 31, 1995 10.13* 1997 Stock Option Plan 10.14* Change of Control Agreement John Wittkowske, dated January 26, 1998 10.15* Change of Control Agreement Peter S. Grossman, dated January 26, 1998 10.16* Change of Control Agreement James F. Gorman, dated January 26, 1998 10.17* Change of Control Agreement David N. Couper, dated January 26, 1998 21 Subsidiaries of the Registrant 23.1 Consent of Independent Public Accountants Dated March 27, 1998 *Management contract or compensatory plan or arrangement (b) Reports on Form 8-K None </TABLE> -10-
12 SCHEDULE II WEYCO GROUP, INC. VALUATION AND QUALIFYING ACCOUNTS <TABLE> <CAPTION> Deducted from Assets ---------------------------------------------------------- Doubtful Cash Returns and Accounts Discounts Allowances Total -------- --------- ----------- --------- <S> <C> <C> <C> <C> BALANCE, DECEMBER 31, 1994 898,180 55,000 720,000 1,673,180 Add - Additions charged to earnings 486,549 275,694 4,692,992 5,455,235 Deduct - Charges for purposes for which reserves were established (361,549) (264,694) (4,452,992) (5,079,235) ----------- --------- ---------- ---------- BALANCE, DECEMBER 31, 1995 1,023,180 66,000 960,000 2,049,180 Add - Additions charged to earnings 438,938 454,241 4,314,617 5,207,796 Deduct - Charges for purposes for which reserves were established (313,938) (456,241) (4,194,617) (4,964,796) ----------- --------- ---------- ---------- BALANCE, DECEMBER 31, 1996 1,148,180 64,000 1,080,000 2,292,180 Add - Additions charged to earnings 434,599 491,925 4,086,561 5,013,085 Deduct - Charges for purposes for which reserves were established (234,599) (513,925) (4,086,561) (4,835,085) ----------- --------- ---------- ---------- BALANCE, DECEMBER 31, 1997 $ 1,348,180 $ 42,000 $1,080,000 $2,470,180 =========== ========= ========== ========== </TABLE> -11-
13 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. WEYCO GROUP, INC. (Registrant) By /s/ John Wittkowske March 30, 1998 --------------------------------- John Wittkowske, Vice President-Finance ----------------- Power of Attorney KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Thomas W. Florsheim, Sr., Thomas W. Florsheim, Jr., and John Wittkowske, and each of them, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this report, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their substitutes, may lawfully do or cause to be done by virtue thereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signatures and Titles Date --------------------- ---- /s/ Thomas W.Florsheim March 30, 1998 - ------------------------------------------- Thomas W. Florsheim, Chairman of the Board and Chief Executive Officer (Principal Executive Officer) /s/ Thomas W. Florsheim, Jr. March 30, 1998 - ------------------------------------------- Thomas W. Florsheim, Jr., President and Chief Operating Officer and Director /s/ John W. Florsheim March 30, 1998 - ------------------------------------------- John W. Florsheim, Executive Vice President and Director /s/ John Wittkowske March 30, 1998 - ------------------------------------------- John Wittkowske, Vice President-Finance (Principal Accounting Officer) /s/ Robert Feitler March 30, 1998 - ------------------------------------------- Robert Feitler, Director /s/ Leonard J. Goldstein March 30, 1998 - ------------------------------------------- Leonard J. Goldstein, Director /s/ Frank W. Norris March 30, 1998 - ------------------------------------------- Frank W. Norris, Director /s/ Frederick P. Stratton, Jr. March 30, 1998 - ------------------------------------------- Frederick P. Stratton, Jr., Director -12-