Item 405 of
Regulations S-K is not contained herein, and will not be contained, to the
best
of registrant’s knowledge, in any definitive proxy of information statements
incorporated by reference or in any amendment to this Form 10-K. x
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company.
See
definitions of “large accelerated filer,” “accelerated filer,” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
Large
Accelerated Filer o
Accelerated
Filer x
Non-Accelerated
Filer o Smaller
Reporting Company o
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes
o
No
x
The
aggregate market value of the registrant’s Common Stock and Class B Common Stock
held by non-affiliates of the registrant as of the close of business on June
30,
2007 was $196,263,578. This was based on the closing price of $26.93 per share
as reported by NASDAQ on June 29, 2007, the last business day of the
registrant’s most recently completed second fiscal quarter.
As
of
February 19, 2008, there were outstanding 11,503,834 shares of Common
Stock.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions
of the Corporation’s Annual Report to Shareholders for the year ended December
31, 2007, are incorporated by reference in Part II and Part IV of this
report.
Portions
of the Corporation’s Proxy Statement for its Annual Meeting of Shareholders
scheduled for April 29, 2008, are incorporated by reference in Part III of
this
report.
PART
I
| Item 1. |
Business
|
The
Company is a Wisconsin corporation incorporated in the year 1906 as Weyenberg
Shoe Manufacturing Company. Effective April 25, 1990, the name of the
corporation was changed to Weyco Group, Inc.
The
Company and its subsidiaries engage in one line of business, the distribution
of
men’s footwear.
The
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.
-1-
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.
As
of
December 31, 2007, the Company had a backlog of $30 million of confirmed orders
compared with $28 million as of December 31, 2006. This does not include
unconfirmed blanket orders from customers. All orders are expected to be filled
within one year.
As
of
December 31, 2007, the Company employed 414 persons, of which 19 were members
of
collective bargaining units. The Company ratified new contracts covering the
majority of these employees during 2005 and in early 2006. Future wage and
benefit increases under the contracts are not expected to have a significant
impact on the future operations or financial position of the
Company.
Price,
quality, 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.
The
Company makes available, free of charge, copies of its annual report on Form
10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all
amendments to those reports upon written or telephone request. Investors can
also access these reports through the Company’s website, www.weycogroup.com,
as soon
as reasonably practical after we file or furnish those reports to the SEC.
The
information on the Company’s website is not a part of this filing.
-2-
| Item 1A. |
Risk
Factors
|
There
are
many factors that affect the Company’s business, many of which are beyond the
Company’s control. The following is a description of the most significant
factors that might materially and adversely affect the Company’s business,
results of operations and financial condition.
The
Company is subject to risks related to the retail environment that
could
adversely impact the Company’s business.
The
Company is subject to risks associated with doing business in the retail
environment, primarily in the United States. Recently, the U.S. retail industry
has experienced a growing trend toward consolidation of large retailers. The
merger of major retailers could result in the Company losing sales volume or
increasing its concentration of business with a few large accounts, resulting
in
reduced bargaining power on the part of the Company, which could increase
pricing pressures and lower the Company’s margins. The acquisition of one of the
Company’s major customers in 2005 adversely impacted the Company’s sales in
2006, with a smaller residual impact in 2007.
Changes
in consumer preferences could negatively impact the Company.
The
Company’s success is dependent upon its ability to accurately anticipate and
respond to rapidly changing fashion trends and consumer preferences. Failure
to
predict or respond to current trends or preferences could have an adverse impact
on the Company’s sales volume and overall performance.
The
Company relies on independent foreign sources of production
and
the availability of leather and other raw materials which could
have
unfavorable effects on the Company’s business.
The
Company purchases its products entirely from independent foreign manufacturers
primarily in China, India and Brazil. Although the Company has good working
relationships with its manufacturers, the Company does not have long-term
contracts with them. Thus, the Company could experience increases in
manufacturing costs, disruptions in the timely supply of products or
unanticipated reductions in manufacturing capacity, any of which could
negatively impact the Company’s business, results of operations and financial
condition. The Company has the ability to move product to different suppliers;
however, the transition may not occur smoothly and/or quickly and the Company
could miss customer delivery date requirements and, consequently, could lose
orders. Additional risks associated with foreign sourcing that could negatively
impact the Company’s business include adverse changes in foreign economic
conditions, import regulations, restrictions on the transfer of funds, duties,
tariffs, quotas and political or labor interruptions, disruptions at U.S. or
foreign ports or other transportation facilities, foreign currency fluctuations,
expropriation and nationalization.
The
Company’s use of foreign sources of production results in long production and
delivery lead times. Therefore, the Company needs to forecast demand at least
five months in advance. If forecasts are wrong, it could result in the loss
of
sales if there is not enough product, or in reduced margins if there is excess
inventory that needs to be sold at discounted prices.
-3-
Additionally,
the Company’s products depend on the availability of raw materials, especially
leather. Any significant shortages of quantities or increases in the cost of
leather could have a material adverse effect on the Company’s business and
results of operations.
The
Company operates in a highly competitive environment, which
may
result in lower prices and reduce its profits.
The
men’s
footwear market is extremely competitive. The Company competes with
manufacturers, distributors and retailers of men’s shoes, certain of which are
larger and have substantially greater resources than the Company has. The
Company competes with these companies primarily on the basis of price, quality,
service and brand recognition, all of which are important competitive factors
in
the shoe industry. The Company’s ability to maintain its competitive edge
depends upon these factors, as well as its ability to deliver new products
at
the best value for the consumer, maintain positive brand recognition, and obtain
sufficient retail floor space and effective product presentation at retail.
If
the Company does not remain competitive, the Company’s future results of
operations and financial condition could decline.
Changes
in the U.S. economy may adversely affect the Company.
Spending
patterns in the footwear market, and particularly in the moderate market in
which a good portion of the Company’s products compete, have historically been
impacted by consumers’ disposable income. As a result, the success of the
Company is impacted by changes in the general economic conditions of the U.S.
Factors affecting discretionary
income for the moderate consumer include, among others, general business
conditions, gas and energy costs, employment, consumer confidence, interest
rates and taxation.
The
Company’s business is dependent on information and communication systems, and
significant interruptions could disrupt
its business.
The
Company accepts and fills the majority of its larger customers’ orders through
the use of Electronic Data Interchange (EDI). It relies on its warehouse
management system to efficiently process orders. The corporate office relies
on
computer systems to efficiently process and record transactions. Significant
interruptions in its information and communication systems from power loss,
telecommunications failure or computer system failure could significantly
disrupt the Company’s business and operations.
The
Company may not be able to successfully integrate new brands
and
businesses.
The
Company intends to continue to look for new acquisition opportunities. That
search could be unsuccessful and costs could be incurred in failed search
efforts. If an acquisition does occur, the Company cannot guarantee that it
would be able to successfully integrate the brand into its current operations,
or that any acquired brand would achieve results in line with the Company’s
historical performance or its specific expectations for the brand.
-4-
Loss
of the services of the Company’s top executives could adversely affect the
business.
Thomas
W.
Florsheim, Jr., the Company’s Chairman and Chief Executive Officer, and John W.
Florsheim, the Company’s President and Chief Operating Officer, have a strong
heritage within the Company and the footwear industry. They possess knowledge,
relationships and reputations based on their lifetime exposure to and experience
in the Company and the industry. The loss of either one or both of the Company’s
top executives could have an adverse impact on the Company’s
performance.
The
limited public float and trading volume for the Company’s stock may have an
adverse impact on the stock price or make it difficult to liquidate.
The
Company’s common stock is held by a relatively small number of shareholders. The
Florsheim family owns over 30% of the stock and one other institutional
shareholder holds a significant block. Other officers, directors, and members
of
management own stock or have the potential to own stock through previously
granted stock options. Consequently, the Company has a small float and low
average daily trading volume. Future sales of substantial amounts of the
Company’s common stock in the public market, or the perception that these sales
could occur, may adversely impact the market price of the stock and the stock
could be difficult to liquidate.
| Item 1B. |
Unresolved
Staff Comments
|
None
| Item 2. |
Properties
|
The
following facilities are operated by the Company and its
subsidiaries:
|
Location
|
Character
|
|
Owned/Leased
|
|
Square
Footage
|
|
%
Utilized
|
||||||
|
Glendale,
Wisconsin
|
One
story office and distribution center
|
Owned
|
780,000
|
|
%
|
||||||||
|
Montreal,
Canada
|
Multistory
office and distribution center
|
Leased
(1)
|
|
42,400
|
|
%
|
|||||||
|
Florence,
Italy
|
One
story office, warehouse and distribution facility
|
Leased
(1)
|
|
15,000
|
|
%
|
|||||||
(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.
-5-
| Item 3. |
Legal
Proceedings
|
Not
Applicable
| Item 4. |
Submission
of Matters to a Vote of Security
Holders
|
Not
Applicable
Executive
Officers of the Registrant
|
Officer
|
Age
|
Office(s)
|
Served
Since
|
Business
Experience
|
||||
|
Thomas
W. Florsheim, Jr.
|
|
Chairman
and Chief
Executive
Officer
|
|
Chairman
and Chief Executive Officer of the Company - 2002 to present;
President
and Chief Executive Officer of the Company - 1999 to 2002; President
and
Chief Operating Officer of the Company - 1996 to 1999; Vice President
of
the Company - 1988 to 1996
|
||||
|
John
W. Florsheim
|
|
President,
Chief Operating Officer and Assistant Secretary
|
|
President,
Chief Operating Officer and Assistant Secretary of the Company
– 2002 to
present; Executive Vice President, Chief Operating Officer and
Assistant
Secretary of the Company – 1999 to 2002; Executive Vice President of the
Company –-1996 to 1999; Vice President of the Company – 1994 to
1996
|
||||
|
Peter
S. Grossman
|
|
Senior
Vice President President, Nunn Bush Brand and Retail
Division
|
|
Senior
Vice President of the Company - 2002 to present; Vice President
of the
Company – 1971 to 2002
|
||||
|
John
F. Wittkowske
|
|
Senior
Vice President, Chief Financial Officer and Secretary
|
|
Senior
Vice President, Chief Financial Officer and Secretary of the Company
-
2002 to present; Vice President, Chief Financial Officer and Secretary
of
the Company – 1995 to 2002; Secretary/Treasurer of the Company – 1993 to
1995
|
Thomas
W.
Florsheim, Jr. and John W. Florsheim are brothers, and
Chairman
Emeritus Thomas W. Florsheim is their father.
-6-
PART
II
| Item 5. |
Market
for Registrant’s Common Equity and Related Stockholder
Matters
|
Information
required by this Item is set forth on pages 1, 30 and 39 of the Annual
Report to Shareholders for the year ended December 31, 2007, and
is
incorporated herein by reference.
Stock
Performance
The
following line graph compares the cumulative total shareholder return
on the
Company’s common stock during the five years ended December
31, 2007
with
the cumulative return on the NASDAQ Non-Financial Stock Index
and
the Russell 3000-Shoes Index. The comparison assumes $100 was
invested on December 31, 2002 in the Company’s common stock
and
in each
of the foregoing indices and assumes reinvestment of dividends.
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Weyco
Group, Inc.
|
|
|
|
|
|
|
|||||||||||||
|
NASDAQ
Non-Financial Stock Index
|
|
|
|
|
|
|
|||||||||||||
|
Russell
3000 - Shoes Index
|
|
|
|
|
|
|
|||||||||||||
In
April
1998, the Company first authorized a stock repurchase program to
purchase 1,500,000 shares of its common stock in open market transactions
at prevailing prices. In April 2000 and again in May 2001, the
Company’s Board of Directors
extended the stock repurchase program
to cover the repurchase of 1,500,000 additional shares. Therefore,
4,500,000 shares have been authorized for repurchase since the
program began. The table below presents information pursuant
to Item
703(a) of Regulation S-K regarding the repurchase of the Company’s Common
Stock by the Company in the three-month period ended December 31,
2007.
-7-
|
Period
|
Total
Number of Shares Purchased
|
|
Average
Price Paid Per Share
|
|
Total
Number of Shares Purchased as Part of the Publicly Announced
Program
|
|
Maximum
Number of Shares that May Yet Be Purchased Under the
Program
|
||||||
|
10/01/07
- 10/31/07
|
|
$
|
32.07
|
|
956,948
|
||||||||
|
11/01/07
- 11/30/07
|
26,266
|
$
|
26.75
|
26,266
|
956,448
|
||||||||
|
12/01/07
- 12/31/07
|
13,275
|
$
|
26.28
|
13,275
|
930,182
|
||||||||
|
Total
|
40,041
|
$
|
26.66
|
40,041
|
916,907
|
||||||||
| Item 6. |
Selected
Financial Data
|
Information
required by this Item is set forth on page 1 of the Annual Report
to
Shareholders for the year ended December 31, 2007, 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 13 through 18 of the Annual
Report to Shareholders for the year ended December 31, 2007 and
is
incorporated herein by reference.
| Item 7A. |
Quantitative
and Qualitative Disclosures
about Market Risk
|
Information
required by this Item is set forth on page 18 of the Annual Report
to
Shareholders for the year ended December 31, 2007 and is
incorporated herein by reference.
| Item 8. |
Financial
Statements and Supplementary
Data
|
Information
required by this Item is set forth on pages 19 through 35 of
the
Annual Report to Shareholders for the year ended December 31,
2007
and is incorporated herein by reference.
| Item 9. |
Changes
in and Disagreements with Accountants on
Accounting and Financial Disclosures
|
None
-8-
| Item 9A. |
Controls
and Procedures
|
Evaluation
of Disclosure Controls and Procedures - The
Company maintains disclosure controls and procedures designed to ensure that
the
information the Company must disclose in its filings with the Securities
and
Exchange Commission is recorded, processed, summarized and reported on a
timely
basis. The Company’s principal executive officer and principal financial officer
have reviewed and evaluated the Company’s disclosure controls and procedures as
defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act
of
1934, as amended (the “Exchange Act”) as of the end of the period covered by
this report (the “Evaluation Date”). Based on such evaluation, such officers
have concluded that, as of the Evaluation Date, the Company’s disclosure
controls and procedures are effective in bringing to their attention on a
timely
basis material information relating to the Company required to be included
in
the Company’s periodic filings under the Exchange Act.
Management’s
Report on Internal Control Over Financial Reporting -The
Company’s Management Report on Internal Control Over Financial Reporting is set
forth on page 38 of the Annual Report to Shareholders for the year ended
December 31, 2007 and is incorporated herein by reference.
Changes
in Internal Control Over Financial Re