Weyco Group - 10-K annual report

The Company is a Wisconsin corporation incorporated in the year 1906 as Weyenberg Shoe Manufacturing Company. Effective April 25, 1990, the name of the corporation was changed to Weyco Group, Inc.

The Company and its subsidiaries engage in one line of business, the distribution of men’s footwear.

The principal brands of shoes sold by the Company are “ Florsheim,” “Nunn Bush,” and “Stacy Adams.” The Company also has other brands, including “Brass Boot” and “Nunn Bush NXXT,” which are included within Nunn Bush sales figures, and “SAO by Stacy Adams,” which is included within Stacy Adams sales. Trademarks maintained by the Company on these names are important to the business. The Company’s products consist of both mid-priced quality leather dress shoes which would be worn as a part of more formal and traditional attire and quality casual footwear of man-made materials or leather which would be appropriate for leisure or less formal occasions. The Company’s footwear, and that of the industry in general, is available in a broad range of sizes and widths, primarily purchased to meet the needs and desires of the American male population.

The Company purchases finished shoes from outside suppliers, primarily located in China, India and Brazil. Almost all of these foreign-sourced purchases are denominated in U. S. dollars. Historically, there have been few inflationary pressures in the shoe industry and leather and other component prices have been stable. However, since the latter part of 2006, there has been some upward movement in leather prices. This, along with the decline of the U.S. dollar, has caused some inflationary pressure in the cost of the Company’s products. In certain circumstances, the Company is able to increase prices to offset the effect of these increases in costs. The Company previously assembled a small portion of its footwear at one plant in Beaver Dam, Wisconsin. In December 2003, the Company ceased its manufacturing operations. All inventory is now purchased from foreign suppliers. Through the first half of 2007, the Beaver Dam facility still operated as the Company’s reconditioning and rework department and processed some returned goods. The Company’s lease for its Beaver Dam, Wisconsin facility expired on June 30, 2007, and it was not renewed. Some functions are now outsourced, and the remaining operations were moved to the Company’s main distribution center in Glendale, Wisconsin.

The Company’s business is separated into two segments - wholesale distribution and retail sales of men’s footwear. Wholesale distribution sales, which include both wholesale sales and licensing revenues, constituted approximately 87% of total sales in 2007, 2006 and 2005. At wholesale, shoes are marketed nationwide through more than 10,000 shoe, clothing and department stores. Sales are to unaffiliated customers, primarily in North America, with some distribution in Europe. In 2007 and 2006, sales to the Company’s largest customer, JCPenney, were 12% and 10%, respectively, of total sales. There were no customers with sales above 10% in 2005. Net sales to foreign customers were $18.1 million, $12.8 million and $11.8 million in 2007, 2006 and 2005, respectively. The Company employs traveling salespeople who sell the Company’s products to retail outlets. Shoes are shipped to these retailers primarily from the Company’s distribution center in Glendale, Wisconsin. Although there is no clearly identifiable seasonality in the men’s footwear business, new styles are historically developed and shown twice each year, in spring and fall. In accordance with industry practices, the Company is required to carry significant amounts of inventory to meet customer delivery requirements and periodically provides extended payment terms to customers. The Company has licensing agreements with third parties who sell its branded shoes overseas, as well as licensing agreements with apparel and accessory manufacturers in the United States. Licensing revenues were approximately 2% of total net sales in 2007, 2006 and 2005.

Retail sales constituted approximately 13% of total sales in 2007, 2006 and 2005. In the retail division at December 31, 2007, there were 39 company-operated stores in the United States, two retail stores in major cities in Europe and an Internet business. Sales in retail stores are made directly to the consumer by Company employees. In addition to the sale of the Company’s brands of footwear in these retail stores, other branded footwear and accessories are also sold in order to provide the consumer with as complete a selection as practically possible.

Price, quality, service and brand recognition are all important competitive factors in the shoe industry and the Company has been recognized as a leader in all of them. The Company does not engage in any specific research and development activities. However, the Company does have a design department that is continually reviewing and updating product designs. 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.

(1) Not material leases.

In addition to the above-described office, distribution and warehouse facilities, the Company operates 39 retail stores throughout the United States and two in Europe under various rental agreements. All of these facilities are suitable and adequate for the Company’s current operations. See Note 11 to Consolidated Financial Statements and Item 1. Business above.

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.

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Thomas W. Florsheim, Jr., John W. Florsheim, and John Wittkowske, and each of them, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this report, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their substitutes, may lawfully do or cause to be done by virtue thereof.