WEYCO
GROUP, INC.
CHANGE
OF CONTROL AGREEMENT
AGREEMENT,
originally made as of the 26th day of January, 1998, between Weyco Group, Inc.,
a Wisconsin corporation, ("Company") and John Wittkowske ("Executive") and now
restated this 22
nd
day of
December, 2008 in order to comply with the requirements of Internal Revenue Code
Section 409A.
WHEREAS,
the Executive is now serving as an executive of the Company in a position of
importance and responsibility; and
WHEREAS,
the Company wishes to continue to receive the benefit of the Executive's
knowledge and experience and, as an inducement for continued service, is willing
to offer the Executive certain payments due to Change of Control as set forth
herein;
NOW,
THEREFORE, the Executive and Company agree as follows:
Section
1.
Definitions
.
(a)
Change of
Control
. For purposes of this Agreement, a "Change of Control"
shall occur:
(1) on
the date any person or more than one person acting as a group (within the
meaning of Regulation Section 1.409A-3(i)(5)(v)(B)), other than the group
consisting of members of the family of Thomas W. Florsheim and their descendants
or trusts for their benefit (the “Florsheim Group”), acquires (or has acquired
during the 12-month period ending on the date of the most recent acquisition by
such person or persons) ownership of the stock of the Employer possessing 30% or
more of the total voting power of the outstanding stock of the
Employer;
(2) on
the date of the sale or transfer of all or substantially all of the
operating assets of the Employer (for purposes of this subparagraph (2), such a
sale or transfer shall not be deemed to have occurred unless it is also a sale
described within the meaning of Regulation Section 1.409A-3(i)(5)(vii);
provided, however, that a sale or transfer of all or substantially all of the
operating assets of the Company shall not be deemed to have occurred merely
because the requirements of that regulation are satisfied); or
(3) on
the date a majority of the Company’s Board of Directors is replaced during any
12-month period by directors whose appointment or election is not endorsed by a
majority of the members of the Company’s Board of Directors before the date of
the appointment or election.
(b) "
Beneficiary
" means
any one or more primary or secondary beneficiaries designated in writing by the
Executive on a form provided by the Company to receive any benefits which may
become payable under this Agreement on or after the Executive's
death. The Executive shall have the right to name, change or revoke
the Executive's designation of a Beneficiary on a form provided by the
Company. The designation on file with the Company at the time of the
Executive's death shall be controlling. Should the Executive fail to
make a valid Beneficiary designation or leave no named Beneficiary surviving,
any benefits due shall be paid to the Executive's spouse, if living or, if not
living, then to the Executive's estate.
(c) "
Code
" means the
Internal Revenue Code of 1986, as amended.
Section
2.
Payments Upon Change of
Control
.
(a) Within
30 days following a Change of Control, a cash payment shall be made to the
Executive in an amount equal to 299% of the "base amount" as that term is
defined in Code Section 280G. The determination of the base amount
shall be made by the Company's independent auditors. For this
purpose, the "base amount" shall be calculated with respect to the 3 taxable
year period ending before the date on which the Change of Control as defined
herein occurs, regardless of whether such Change of Control is an event
described in Code Section 280G (b)(2)(A).
(b) If
the Company reasonably anticipates that payment under paragraph (a) above would
result in disallowance of any portion of the Company's deduction therefor under
Section 162(m) of the Code, the payment called for under paragraph (a) shall be
limited to the amount which is deductible, with the balance to be paid as soon
as deductible by the Company; provided, however that such payment shall be made
on the earliest date on which the Company reasonably anticipates or should
reasonably anticipate that the deduction for the payment of the amount will not
be barred by application of Code Section 162(m). Any amounts which
are so deferred shall earn interest until paid at an annual rate equal to the
prime rate. For interest accruing during any calendar year the "prime
rate" shall be the rate reported as the prime rate in the Wall Street Journal on
the first business day of that year.
Section
3.
Limitation on
Payments
. If the payments under Section 2 in combination
with any other payments which the Executive has the right to receive from the
Company (the "Total Payments") would not be deductible (in whole or in part) as
a result of Section 280G of the Code, the payments under Section 2 shall be
reduced until (i) no portion of the Total Payments is nondeductible as a result
of Section 280G of the Code or (ii) the payments under Section 2 are reduced to
zero. For purposes of this limitation (i) no portion of the Total
Payments, the receipt or enjoyment of which the Executive shall have effectively
waived in writing prior to the date payments commence under Section 2, shall be
taken into account, (ii) no portion of the Total Payments shall be taken into
account which, in the opinion of tax counsel selected by the Company's
independent auditors and acceptable to the Executive, does not constitute a
"parachute payment" within the meaning of Section 280G(b)(2) of the Code, (iii)
the payments under Section 2 shall be reduced only to the extent necessary so
that the Total Payments (other than those referred to in clause (i) or (ii)) in
their entirety constitute reasonable compensation for services actually rendered
within the meaning of Section 280G(b)(4) of the Code, in the opinion of the tax
counsel referred to in clause (ii), and (iv) the value of any non-cash benefit
or any deferred payment or benefit included in the Total Payments shall be
determined by the Company's independent auditors, in accordance with the
principles of Sections 280G(d)(3) and (4) of the Code.
Section
4.
Death After the Executive
has Begun Receiving Payments
. Should the Executive die after a
Change of Control, but before receiving all payments due the Executive
hereunder, any remaining payments due shall be made to the Executive's
Beneficiary.
Section
5.
Miscellaneous
.
(a)
Non-Assignability
. This
Agreement is personal to the Executive and shall not be assignable by the
Executive. This Agreement shall inure to the benefit of and be
binding upon the Company and its successors and assigns and shall also be
enforceable by the Executive's legal representatives.
(b)
Successors
. The
Company shall require any successor (whether direct or indirect, by purchase,
merger, consolidation or otherwise) to all or substantially all of the business
and/or assets of the Company expressly to assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would have
been required to perform it if no such succession had taken place. As
used in this Agreement, "Company" shall mean both the Company as defined above
and any such successor that assumes and agrees to perform this Agreement, by
operation of law or otherwise.
(c)
Governing Law;
409A
. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Wisconsin, without reference to
principles of conflict of laws, to the extent not preempted by federal
law. This Agreement is intended to comply with the provisions of
Internal Revenue Code Section 409A and shall be interpreted
accordingly. If any provision or term of this Agreement would be
prohibited by or inconsistent with the requirements of Section 409A, then such
provision or term shall be deemed to be reformed to comply with Section
409A. The captions of this Agreement are not part of the provisions
hereof and shall have no force or effect.
(d)
Notices
. All
notices and other communications under this Agreement shall be in writing and
shall be given by hand delivery to the other party or by registered or certified
mail, return receipt requested, postage prepaid, addressed as
follows:
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If to the Executive
:
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John Wittkowske
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2519 East Shorewood Boulevard
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|
|
Shorewood, WI 53211
|
|
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If to the Company
:
|
Weyco Group, Inc.
|
|
|
P. O. Box 1188
|
|
|
Milwaukee, WI 53201
|
|
|
Attention: Corporate Secretary
|
or to
such other address as either party furnishes to the other in writing in
accordance with this paragraph. Notices and communications shall be
effective when actually received by the addressee.
(e)
Construction
. The
invalidity or unenforceability of any provision of this Agreement shall not
affect the validity or enforceability of any other provision of this
Agreement. If any provision of this Agreement shall be held invalid
or unenforceable in part, the remaining portion of such provision, together with
all other provisions of this Agreement, shall remain valid and enforceable and
continue in full force and effect to the fullest extent consistent with
law.
(f)
No Guarantee of
Employment
. Nothing contained in this Agreement shall give the
Executive the right to be retained in the employment of the Company or affect
the right of the Company to dismiss the Executive.
(g)
Amendment; Entire
Agreement
. This Agreement may not be amended or modified
except by a written agreement executed by the parties hereto or their respective
successors and legal representatives. This Agreement contains the
entire agreement between the parties on the subjects covered and replaces all
prior writings, proposals, specifications or other oral or written materials
relating thereto.
(h)
Impact on Other
Plans
. No amounts paid to the Executive under this Agreement
will be taken into account as "wages", "salary", "base pay" or any other type of
compensation when determining the amount of any payment or allocation, or for
any other purpose, under any other qualified or nonqualified plan or agreement
of the Company, except as otherwise may be specifically provided by such plan or
agreement by making specific reference to payments under this
Agreement.
(i)
Other
Agreements
. This Agreement supersedes any other severance
arrangement between the Company and the Executive. This Agreement
does not confer any payments or benefits other than the payments described in
Section 2 hereof.
(j)
Withholding
. To
the extent required by law, the Company shall withhold any taxes required to be
withheld with respect to this Agreement by the federal, state or local
government from payments made hereunder or from other amounts paid to the
Executive by the Company. If after a Change of Control has occurred
FICA taxes must be withheld in connection with amounts credited hereunder before
payments are otherwise due hereunder and if there are no other wages from which
to withhold them, the Company shall pay such FICA taxes (and taxes under Code
Section 3401 triggered thereby and additional taxes under Section 3401
attributable to pyramiding) but no more and the Executive’s payments hereunder
shall be reduced by an equal amount.
(k)
Inclusion in Income Under
Section 409A
. In the event this Agreement fails to satisfy the
requirements of Code Section 409A and regulations thereunder after a Change of
Control has occurred and before payment pursuant to Section 2, there shall
be distributed to the Executive as promptly as possible after the Company
becomes aware of such fact of noncompliance such portion of the Executive’s
payment otherwise due under Section 2 as is included in income as a result
of the failure to comply, but no more and the Executive’s payment otherwise due
under Section 2 shall be reduced by the amount
distributed.
(l)
Facility of
Payment
. If the Executive or, if applicable, the Executive's
Beneficiary, is under legal disability, the Company may direct that payments be
made to a relative of such person for the benefit of such person, without the
intervention of any legal guardian or conservator, or to any legal
guardian or conservator of such person. Any such distribution shall
constitute a full discharge with respect to the Company and the Company shall
not be required to see to the application of any distribution so
made.
Section
6.
Claims
Procedure
.
(a)
Claim
Review
. If the Executive or the Executive's Beneficiary (a
"Claimant") believes that he or she has been denied all or a portion of a
benefit under this Agreement, he or she may file a written claim for benefits
with the Company. The Company shall review the claim and notify the
Claimant of the Company's decision within 60 days of receipt of such claim,
unless the Claimant receives written notice prior to the end of the 60 day
period stating that special circumstances require an extension of the time for
decision. The Company's decision shall be in writing, sent by mail to
the Claimant's last known address, and if a denial of the claim, must contain
the specific reasons for the denial, reference to pertinent provisions of this
Agreement on which the denial is based, a designation of any additional material
necessary to perfect the claim, and an explanation of the claim review
procedure.
(b)
Appeal Procedure to the
Board
. A Claimant is entitled to request a review of any
denial by the full Board by written request to the Chair of the Board within
60 days of receipt of the denial. Absent a request for review
within the 60-day period, the claim will be deemed to be conclusively
denied. The Board shall afford the Claimant the opportunity to review
all pertinent documents and submit issues and comments in writing and shall
render a review decision in writing, all within 60 days after receipt of a
request for review (provided that, in special circumstances the Board may extend
the time for decision by not more than 60 days upon written notice to the
Claimant.) The Board's review decision shall contain specific reasons
for the decision and reference to the pertinent provisions of this
Agreement.
Section
7.
No
Mitigation
.
The
Executive shall not be required to mitigate the amount of any payment provided
for in this Agreement by seeking other employment or otherwise and no such
payment shall be offset or reduced by the amount of any compensation or benefits
provided to the Executive in any subsequent employment.
Section
8.
Expense
Reimbursement
.
In the
event that any dispute arises between the Executive and the Company as to the
terms or interpretation of this Agreement, whether instituted by formal legal
proceedings or otherwise, including any action that the Executive takes to
enforce the terms of this Agreement or to defend against any action taken by the
Company, the Executive shall be reimbursed for all costs and expenses, including
reasonable attorneys' fees, arising from such dispute, proceedings or actions,
provided that the Executive shall obtain a final judgment by a court of
competent jurisdiction in favor of the Executive. Such reimbursement
shall be paid within thirty (30) days after the Executive furnishes to the
Company written evidence, which may be in the form, among other things, of a
canceled check or receipt, of any costs or expenses incurred by
Executive.
IN
WITNESS WHEREOF, the Executive has signed this Agreement and, pursuant to the
authorization of the Board, the Company has caused this Agreement to be signed,
all as of the date first set forth above.
|
/s/ John Wittkowske
|
|
|
Executive
–
John
Wittkowske
|
|
|
WEYCO
GROUP, INC.
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|
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|
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By:
|
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|
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|
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|
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Its:
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|
WEYCO
GROUP, INC.
CHANGE
OF CONTROL AGREEMENT
AGREEMENT,
originally made as of the 26th day of January, 1998, between Weyco Group, Inc.,
a Wisconsin corporation, ("Company") and Peter S. Grossman ("Executive") and now
restated this 22
nd
day of
December, 2008 in order to comply with the requirements of Internal Revenue Code
Section 409A.
WHEREAS,
the Executive is now serving as an executive of the Company in a position of
importance and responsibility; and
WHEREAS,
the Company wishes to continue to receive the benefit of the Executive's
knowledge and experience and, as an inducement for continued service, is willing
to offer the Executive certain payments due to Change of Control as set forth
herein;
NOW,
THEREFORE, the Executive and Company agree as follows:
Section
1.
Definitions
.
(a)
Change of
Control
. For purposes of this Agreement, a "Change of Control"
shall occur:
(1) on
the date any person or more than one person acting as a group (within the
meaning of Regulation Section 1.409A-3(i)(5)(v)(B)), other than the group
consisting of members of the family of Thomas W. Florsheim and their descendants
or trusts for their benefit (the “Florsheim Group”), acquires (or has acquired
during the 12-month period ending on the date of the most recent acquisition by
such person or persons) ownership of the stock of the Employer possessing 30% or
more of the total voting power of the outstanding stock of the
Employer;
(2) on
the date of the sale or transfer of all or substantially all of the
operating assets of the Employer (for purposes of this subparagraph (2), such a
sale or transfer shall not be deemed to have occurred unless it is also a sale
described within the meaning of Regulation Section 1.409A-3(i)(5)(vii);
provided, however, that a sale or transfer of all or substantially all of the
operating assets of the Company shall not be deemed to have occurred merely
because the requirements of that regulation are satisfied); or
(3) on
the date a majority of the Company’s Board of Directors is replaced during any
12-month period by directors whose appointment or election is not endorsed by a
majority of the members of the Company’s Board of Directors before the date of
the appointment or election.
(b) "
Beneficiary
" means
any one or more primary or secondary beneficiaries designated in writing by the
Executive on a form provided by the Company to receive any benefits which may
become payable under this Agreement on or after the Executive's
death. The Executive shall have the right to name, change or revoke
the Executive's designation of a Beneficiary on a form provided by the
Company. The designation on file with the Company at the time of the
Executive's death shall be controlling. Should the Executive fail to
make a valid Beneficiary designation or leave no named Beneficiary surviving,
any benefits due shall be paid to the Executive's spouse, if living or, if not
living, then to the Executive's estate.
(c) "
Code
" means the
Internal Revenue Code of 1986, as amended.
Section
2.
Payments Upon Change of
Control
.
(a) Within
30 days following a Change of Control, a cash payment shall be made to the
Executive in an amount equal to 299% of the "base amount" as that term is
defined in Code Section 280G. The determination of the base amount
shall be made by the Company's independent auditors. For this
purpose, the "base amount" shall be calculated with respect to the 3 taxable
year period ending before the date on which the Change of Control as defined
herein occurs, regardless of whether such Change of Control is an event
described in Code Section 280G (b)(2)(A).
(b) If
the Company reasonably anticipates that payment under paragraph (a) above would
result in disallowance of any portion of the Company's deduction therefor under
Section 162(m) of the Code, the payment called for under paragraph (a) shall be
limited to the amount which is deductible, with the balance to be paid as soon
as deductible by the Company; provided, however that such payment shall be made
on the earliest date on which the Company reasonably anticipates or should
reasonably anticipate that the deduction for the payment of the amount will not
be barred by application of Code Section 162(m). Any amounts which
are so deferred shall earn interest until paid at an annual rate equal to the
prime rate. For interest accruing during any calendar year the "prime
rate" shall be the rate reported as the prime rate in the Wall Street Journal on
the first business day of that year.
Section
3.
Limitation on
Payments
. If the payments under Section 2 in combination
with any other payments which the Executive has the right to receive from the
Company (the "Total Payments") would not be deductible (in whole or in part) as
a result of Section 280G of the Code, the payments under Section 2 shall be
reduced until (i) no portion of the Total Payments is nondeductible as a result
of Section 280G of the Code or (ii) the payments under Section 2 are reduced to
zero. For purposes of this limitation (i) no portion of the Total
Payments, the receipt or enjoyment of which the Executive shall have effectively
waived in writing prior to the date payments commence under Section 2, shall be
taken into account, (ii) no portion of the Total Payments shall be taken into
account which, in the opinion of tax counsel selected by the Company's
independent auditors and acceptable to the Executive, does not constitute a
"parachute payment" within the meaning of Section 280G(b)(2) of the Code, (iii)
the payments under Section 2 shall be reduced only to the extent necessary so
that the Total Payments (other than those referred to in clause (i) or (ii)) in
their entirety constitute reasonable compensation for services actually rendered
within the meaning of Section 280G(b)(4) of the Code, in the opinion of the tax
counsel referred to in clause (ii), and (iv) the value of any non-cash benefit
or any deferred payment or benefit included in the Total Payments shall be
determined by the Company's independent auditors, in accordance with the
principles of Sections 280G(d)(3) and (4) of the Code.
Section
4.
Death After the Executive
has Begun Receiving Payments
. Should the Executive die after a
Change of Control, but before receiving all payments due the Executive
hereunder, any remaining payments due shall be made to the Executive's
Beneficiary.
Section
5.
Miscellaneous
.
(a)
Non-Assignability
. This
Agreement is personal to the Executive and shall not be assignable by the
Executive. This Agreement shall inure to the benefit of and be
binding upon the Company and its successors and assigns and shall also be
enforceable by the Executive's legal representatives.
(b)
Successors
. The
Company shall require any successor (whether direct or indirect, by purchase,
merger, consolidation or otherwise) to all or substantially all of the business
and/or assets of the Company expressly to assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would have
been required to perform it if no such succession had taken place. As
used in this Agreement, "Company" shall mean both the Company as defined above
and any such successor that assumes and agrees to perform this Agreement, by
operation of law or otherwise.
(c)
Governing Law;
409A
. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Wisconsin, without reference to
principles of conflict of laws, to the extent not preempted by federal
law. This Agreement is intended to comply with the provisions of
Internal Revenue Code Section 409A and shall be interpreted
accordingly. If any provision or term of this Agreement would be
prohibited by or inconsistent with the requirements of Section 409A, then such
provision or term shall be deemed to be reformed to comply with Section
409A. The captions of this Agreement are not part of the provisions
hereof and shall have no force or effect.
(d)
Notices
. All
notices and other communications under this Agreement shall be in writing and
shall be given by hand delivery to the other party or by registered or certified
mail, return receipt requested, postage prepaid, addressed as
follows:
|
If to the Executive
:
|
Peter S. Grossman
|
|
|
1453 E.Goodrich Lane
|
|
|
Milwaukee, WI 53217
|
|
|
|
|
If to the Company
:
|
Weyco Group, Inc.
|
|
|
P. O. Box 1188
|
|
|
|
|
|
Attention: Corporate Secretary
|
or to
such other address as either party furnishes to the other in writing in
accordance with this paragraph. Notices and communications shall be
effective when actually received by the addressee.
(e)
Construction
. The
invalidity or unenforceability of any provision of this Agreement shall not
affect the validity or enforceability of any other provision of this
Agreement. If any provision of this Agreement shall be held invalid
or unenforceable in part, the remaining portion of such provision, together with
all other provisions of this Agreement, shall remain valid and enforceable and
continue in full force and effect to the fullest extent consistent with
law.
(f)
No
Guarantee of Employment
. Nothing contained in this Agreement
shall give the Executive the right to be retained in the employment of the
Company or affect the right of the Company to dismiss the
Executive.
(g)
Amendment; Entire
Agreement
. This Agreement may not be amended or modified
except by a written agreement executed by the parties hereto or their respective
successors and legal representatives. This Agreement contains the
entire agreement between the parties on the subjects covered and replaces all
prior writings, proposals, specifications or other oral or written materials
relating thereto.
(h)
Impact on Other
Plans
. No amounts paid to the Executive under this Agreement
will be taken into account as "wages", "salary", "base pay" or any other type of
compensation when determining the amount of any payment or allocation, or for
any other purpose, under any other qualified or nonqualified plan or agreement
of the Company, except as otherwise may be specifically provided by such plan or
agreement by making specific reference to payments under this
Agreement.
(i)
Other
Agreements
. This Agreement supersedes any other severance
arrangement between the Company and the Executive. This Agreement
does not confer any payments or benefits other than the payments described in
Section 2 hereof.
(j)
Withholding
. To
the extent required by law, the Company shall withhold any taxes required to be
withheld with respect to this Agreement by the federal, state or local
government from payments made hereunder or from other amounts paid to the
Executive by the Company. If after a Change of Control has occurred
FICA taxes must be withheld in connection with amounts credited hereunder before
payments are otherwise due hereunder and if there are no other wages from which
to withhold them, the Company shall pay such FICA taxes (and taxes under Code
Section 3401 triggered thereby and additional taxes under Section 3401
attributable to pyramiding) but no more and the Executive’s payments hereunder
shall be reduced by an equal amount.
(k)
Inclusion in Income Under
Section 409A
. In the event this Agreement fails to satisfy the
requirements of Code Section 409A and regulations thereunder after a Change of
Control has occurred and before payment pursuant to Section 2, there shall
be distributed to the Executive as promptly as possible after the Company
becomes aware of such fact of noncompliance such portion of the Executive’s
payment otherwise due under Section 2 as is included in income as a result
of the failure to comply, but no more and the Executive’s payment otherwise due
under Section 2 shall be reduced by the amount
distributed.
(l)
Facility of
Payment
. If the Executive or, if applicable, the Executive's
Beneficiary, is under legal disability, the Company may direct that payments be
made to a relative of such person for the benefit of such person, without the
intervention of any legal guardian or conservator, or to any legal
guardian or conservator of such person. Any such distribution shall
constitute a full discharge with respect to the Company and the Company shall
not be required to see to the application of any distribution so
made.
Section
6.
Claims
Procedure
.
(a)
Claim
Review
. If the Executive or the Executive's Beneficiary (a
"Claimant") believes that he or she has been denied all or a portion of a
benefit under this Agreement, he or she may file a written claim for benefits
with the Company. The Company shall review the claim and notify the
Claimant of the Company's decision within 60 days of receipt of such claim,
unless the Claimant receives written notice prior to the end of the 60 day
period stating that special circumstances require an extension of the time for
decision. The Company's decision shall be in writing, sent by mail to
the Claimant's last known address, and if a denial of the claim, must contain
the specific reasons for the denial, reference to pertinent provisions of this
Agreement on which the denial is based, a designation of any additional material
necessary to perfect the claim, and an explanation of the claim review
procedure.
(b)
Appeal Procedure to the
Board
. A Claimant is entitled to request a review of any
denial by the full Board by written request to the Chair of the Board within
60 days of receipt of the denial. Absent a request for review
within the 60-day period, the claim will be deemed to be conclusively
denied. The Board shall afford the Claimant the opportunity to review
all pertinent documents and submit issues and comments in writing and shall
render a review decision in writing, all within 60 days after receipt of a
request for review (provided that, in special circumstances the Board may extend
the time for decision by not more than 60 days upon written notice to the
Claimant.) The Board's review decision shall contain specific reasons
for the decision and reference to the pertinent provisions of this
Agreement.
Section
7.
No
Mitigation
.
The
Executive shall not be required to mitigate the amount of any payment provided
for in this Agreement by seeking other employment or otherwise and no such
payment shall be offset or reduced by the amount of any compensation or benefits
provided to the Executive in any subsequent employment.
Section
8.
Expense
Reimbursement
.
In the
event that any dispute arises between the Executive and the Company as to the
terms or interpretation of this Agreement, whether instituted by formal legal
proceedings or otherwise, including any action that the Executive takes to
enforce the terms of this Agreement or to defend against any action taken by the
Company, the Executive shall be reimbursed for all costs and expenses, including
reasonable attorneys' fees, arising from such dispute, proceedings or actions,
provided that the Executive shall obtain a final judgment by a court of
competent jurisdiction in favor of the Executive. Such reimbursement
shall be paid within thirty (30) days after the Executive furnishes to the
Company written evidence, which may be in the form, among other things, of a
canceled check or receipt, of any costs or expenses incurred by
Executive.
IN
WITNESS WHEREOF, the Executive has signed this Agreement and, pursuant to the
authorization of the Board, the Company has caused this Agreement to be signed,
all as of the date first set forth above.
|
/s/
Peter S. Grossman
|
|
|
Executive
–
Peter S.
Grossman
|
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WEYCO
GROUP, INC.
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By:
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Its:
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Exhibit
13
2008
ANNUAL REPORT
WEYCO
Group, Inc.
To Our
Shareholders,
Net sales
for 2008 were $221 million, down 5% from $233 million last year. Net
earnings were $17 million, as compared with $23 million last
year. Diluted earnings per share for 2008 were $1.45, as compared
with $1.91 last year.
The
declining economy and challenging retail environment in 2008, particularly in
the fourth quarter of the year, significantly impacted our overall annual
results. While our sales volumes held up through the third quarter,
our retail and wholesale businesses suffered significant volume losses in the
fourth quarter, pulling our annual results down.
Our
wholesale net sales volume was down 5% for the year, with our Florsheim and
Stacy Adams brands down 12% and 3%, respectively, and our Nunn Bush brand up 1%
for the year.
Among our
brands, Florsheim suffered the most in this declining economy, as it generally
sells at the higher end of the pricing matrix in many of the mid-tier stores
where it competes. As consumers trade down, the higher- priced brands
are hurt the most. While we expect these difficulties to continue in
the short term, we remain committed to our long term objective of developing a
younger, more casual consumer base for this brand, and we believe that Florsheim
will be well-positioned for growth when economic conditions
improve.
Our Stacy
Adams brand is a moderate-priced fashion brand. While its reasonable
pricing often keeps it in play in a more difficult economy, it relies more than
our other brands on sales to smaller independent shoe and apparel retailers, and
this trade class has been hit the hardest as the economy has
declined. Over the past several years, however, we have grown our
Stacy Adams distribution in department stores and chain stores, and the brand
continues to do well in these trade channels.
Nunn Bush
was our best performer this year. With its blend of innovation and
relevant styling offered at a moderate price, Nunn Bush has historically been a
brand that retailers count on for reliable sell-throughs in difficult
times. We believe that our Nunn Bush brand will continue its solid
performance in 2009, as consumers are searching for value in these tough
economic times, and Nunn Bush delivers just that.
Licensing
revenues for the year were $4.3 million as compared with $4.1 million last
year. Licensee sales of Stacy Adams branded products were down for
the year, as independent shoe and apparel retailers who sell these products have
struggled in the current retail environment. However, Stacy Adams
licensing revenues increased for the year because at the beginning of 2008, we
terminated our agreement with our licensing agent, to whom we previously paid a
portion of licensing revenues. Licensing revenues from the sales of
Florsheim branded products in the United States and its footwear overseas were
flat.
Sales in
our retail division were $29 million in 2008 as compared with $31 million last
year, with same store sales down 8% for the year. The decline can be
attributed to the overall downturn in the economy.
Our 2008
earnings from operations were down $9.6 million, of which $7 million was
attributable to the wholesale business and $2.8 million was from the retail
division, offset slightly by the $200,000 increase in licensing
revenues. The decrease in operating earnings in the wholesale
division was due to lower sales volumes and lower gross margins. The
lower wholesale gross margins resulted primarily from higher product
costs. In the retail division, operating earnings were down due to
lower volumes coupled with higher selling and administrative costs, principally
rent and occupancy costs.
Our
balance sheet remains strong, with cash and marketable securities of $57.6
million and $1.25 million of debt as of December 31, 2008. Our excess
of cash and marketable securities over borrowings of $56.3 million is similar to
the $56.2 million as of December 31, 2007. Our strong financial
position allows us to continue to make the necessary long-term investments in
our brands and to take advantage of opportunities that may develop in this
market.
We
continue to evaluate ways to best utilize our cash, including continued
repurchases of our common stock, increased dividends, and potential
acquisitions. Our Board of Directors recently authorized the
repurchase of an additional one million shares of our common stock under our
stock repurchase program, bringing the total available to purchase to
approximately 1.5 million shares.
In
January 2009, we bought a majority interest in a company that subsequently
acquired the Florsheim businesses in Australia, Asia Pacific and South Africa,
which were formerly licensed to a third party. Our total cash outlay
was approximately $9.8 million. This acquisition provides us the
opportunity to have more control over our brand, grow our business in these
regions, and increase the overall profitability of our Company over the long
term.
In 2009,
we are proceeding with caution and watching our costs, and at the same time,
keeping our focus firmly on building our brands and our business for long term
success. We thank you for your interest in and support of our
Company.
|
Thomas W. Florsheim, Jr.
|
|
John W. Florsheim
|
|
Chairman and
|
|
President and
|
|
Chief Executive Officer
|
|
Chief Operating Officer
|
SELECTED
FINANCIAL DATA
|
|
|
Years
Ended December 31,
|
|
|
|
|
(in
thousands, except per share amounts)
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Net
Sales
|
|
$
|
221,432
|
|
|
$
|
232,616
|
|
|
$
|
221,047
|
|
|
$
|
209,469
|
|
|
$
|
223,013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Earnings
|
|
$
|
17,025
|
|
|
$
|
22,901
|
|
|
$
|
21,856
|
|
|
$
|
19,401
|
|
|
$
|
20,278
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
earnings per share
|
|
$
|
1.45
|
|
|
$
|
1.91
|
|
|
$
|
1.81
|
|
|
$
|
1.62
|
*
|
|
$
|
1.72
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average diluted shares outstanding
|
|
|
11,757
|
|
|
|
12,013
|
|
|
|
12,094
|
|
|
|
11,966
|
*
|
|
|
11,762
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
dividends per share
|
|
$
|
0.53
|
|
|
$
|
0.42
|
|
|
$
|
0.34
|
|
|
$
|
.26
1/2
|
*
|
|
$
|
.
21 1/2
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
190,640
|
|
|
$
|
190,152
|
|
|
$
|
189,623
|
|
|
$
|
175,498
|
|
|
$
|
156,356
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank
borrowings
|
|
$
|
1,250
|
|
|
$
|
550
|
|
|
$
|
10,958
|
|
|
$
|
9,553
|
|
|
$
|
11,360
|
|
*Share
and per share amounts have been adjusted to reflect the two-for-one stock split
distributed to shareholders on April 1, 2005.
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
|
|
|
|
|
|
|
Cash
|
|
|
|
|
Price
Range
|
|
|
Dividends
|
|
|
Price
Range
|
|
|
Dividends
|
|
|
Quarter:
|
|
High
|
|
|
Low
|
|
|
Declared
|
|
|
High
|
|
|
Low
|
|
|
Declared
|
|
|
First
|
|
$
|
33.68
|
|
|
$
|
25.00
|
|
|
$
|
0.11
|
|
|
$
|
27.08
|
|
|
$
|
22.69
|
|
|
$
|
0.09
|
|
|
Second
|
|
$
|
31.28
|
|
|
$
|
24.14
|
|
|
|
0.14
|
|
|
$
|
28.09
|
|
|
$
|
23.84
|
|
|
|
0.11
|
|
|
Third
|
|
$
|
41.99
|
|
|
$
|
25.81
|
|
|
|
0.14
|
|
|
$
|
34.31
|
|
|
$
|
23.70
|
|
|
|
0.11
|
|
|
Fourth
|
|
$
|
34.70
|
|
|
$
|
23.82
|
|
|
|
0.14
|
|
|
$
|
33.46
|
|
|
$
|
24.66
|
|
|
|
0.11
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.53
|
|
|
|
|
|
|
|
|
|
|
$
|
0.42
|
|
There are
243 holders of record of the Company's common stock as of March 2,
2009.
The stock
prices shown above are the high and low actual trades on the NASDAQ
Stock
Market for the calendar periods indicated.
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF
FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Forward-Looking
Statements
This
report contains certain forward-looking statements with respect to the Company’s
outlook for the future. These statements represent the Company's
reasonable judgment with respect to future events and are subject to risks and
uncertainties that could cause actual results to differ materially.
The reader is cautioned
that these forward-looking statements are subject to a number of risks,
uncertainties, or other factors that may cause (and in some cases have caused)
actual results to differ materially from those described in the forward-looking
statements. These risks and uncertainties include, but are not limited to, the
risk factors described under Item 1A, “Risk Factors,” of the Company’s
Form 10-K.
OVERVIEW
The
Company is a distributor of men’s casual, dress and fashion
shoes. The principal brands of shoes sold by the Company are
“Florsheim,” “Nunn Bush,” and “Stacy Adams.” Inventory is purchased from
third-party overseas manufacturers. The majority of foreign-sourced
purchases are denominated in U.S. dollars. In the wholesale division, the
Company’s products are sold to shoe specialty stores, department stores and
clothing retailers primarily in North America, with some distribution in
Europe. The Company also has a retail division consisting of
36 Company-owned retail stores in the United States, two in Europe, and an
Internet business. Sales in retail outlets are made directly to
consumers by Company employees. The Company also has licensing
agreements with third parties that sell its branded shoes overseas, as well as
licensing agreements with apparel and accessory manufacturers in the United
States. As such, the Company’s results are primarily affected by the economic
conditions and the retail environment in the United States.
Consolidated
net sales were $221.4 million for 2008, compared with $232.6 million and $221.0
million in 2007 and 2006, respectively. Net earnings were $17.0
million in 2008, compared with $22.9 million and $21.9 million in 2007 and 2006,
respectively. Diluted earnings per share were $1.45 for 2008,
compared with $1.91 and $1.81 in 2007 and 2006, respectively.
The lower
results in 2008 reflect lower sales volumes and lower gross margins, which
primarily resulted from the downturn in the economy and the unfavorable retail
environment in the fourth quarter of 2008. Consolidated net sales through the
third quarter of 2008 were up slightly, with wholesale sales up 1% and retail
sales down 2%. However, in the fourth quarter of 2008, the Company
experienced sales volume losses across all of its brands and in its retail
business, as consumer spending declined and retailers reduced their inventory
positions. Additionally, credit issues in the retail industry became
more pronounced, causing the Company to reduce, or in some cases, cease its
shipments to a number of retailers.
The sales
growth in 2007, as compared with 2006, was largely due to the addition of the
Florsheim wholesale business in Canada at the beginning of
2007. Prior to January 1, 2007, Florsheim footwear was distributed in
Canada by a third party licensee. That license arrangement terminated
December 31, 2006, and since then the Company has been operating its own
Florsheim wholesale business in Canada, consolidating it with its Nunn Bush
Canadian business.
The
Company’s balance sheet remains strong. Cash and marketable
securities were $57.6 million at the end of 2008 compared with $56.8 million at
the end of 2007. Borrowings under the Company’s revolving line of
credit were $1.25 million at December 31, 2008, compared with $550,000 at
December 31, 2007. The Company’s excess of cash and marketable
securities over borrowings was $56.3 million at December 31, 2008 as compared
with $56.2 million at December 31, 2007.
In
January 2009, the Company bought a majority interest in a company that
subsequently acquired the Florsheim wholesale and retail businesses in
Australia, Asia Pacific and South Africa, which were formerly licensed to a
third party. The Company’s equity investment and loans to the
acquiring company totaled approximately $9.8 million. The Company’s
2008 licensing revenue from this licensee was approximately $1.1
million. Management believes this acquisition provides the
opportunity to further develop the Florsheim business, present a more unified
brand image worldwide, and increase the overall profitability of the Company
over the long term. See Note 17 of the Notes to Consolidated Financial
Statements.
RESULTS
OF OPERATIONS
2008 vs.
2007
Wholesale
Division Net Sales
Net sales
in the Company’s wholesale division for the years ended December 31, 2008 and
2007 were as follows:
|
|
|
Wholesale
Division Net Sales
|
|
|
|
|
Years
ended December 31,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
%
Change
|
|
|
|
|
(Dollars
in thousands)
|
|
|
|
|
|
North
American Sales
|
|
|
|
|
|
|
|
|
|
|
Stacy
Adams
|
|
$
|
55,470
|
|
|
$
|
57,444
|
|
|
|
-3
|
%
|
|
Nunn
Bush
|
|
|
69,367
|
|
|
|
68,644
|
|
|
|
1
|
%
|
|
Florsheim
|
|
|
58,043
|
|
|
|
66,232
|
|
|
|
-12
|
%
|
|
Foreign
Sales
|
|
|
5,355
|
|
|
|
5,062
|
|
|
|
6
|
%
|
|
Total
Wholesale
|
|
$
|
188,235
|
|
|
$
|
197,382
|
|
|
|
-5
|
%
|
|
Licensing
|
|
|
4,284
|
|
|
|
4,087
|
|
|
|
5
|
%
|
|
Total
Wholesale Division
|
|
$
|
192,519
|
|
|
$
|
201,469
|
|
|
|
-4
|
%
|
During
the fourth quarter of 2008, all three of the Company’s brands suffered sales
volume losses due to the downturn in the economy, which had a significant impact
on the annual performance of each brand. In addition, the current
year decrease in Stacy Adams’ net sales reflects lower sales throughout the year
to independent shoe and apparel retailers. Stacy Adams relies on
sales to smaller independent shoe and apparel retailers more than the Company’s
other brands, and this trade class has struggled in the retail environment over
the past several years. In response to this trend, the Company has
grown its Stacy Adams distribution with department stores and chain stores,
which offsets a portion of the loss in volume with the independent
retailers. Nunn Bush outperformed the Company’s other two brands this
year from a sales volume standpoint, primarily due to its strong position in the
mid-tier market, which benefited from consumers moving away from higher-priced
products. The Company’s Florsheim brand experienced the
opposite impact of this consumer behavior, and its net sales decreased, as it is
priced at the higher end of the pricing matrix in many of the mid-tier
stores.
Overall
licensing revenues increased in 2008. Licensing revenues result from
licensee sales of Stacy Adams and Florsheim branded products in the United
States, and Florsheim footwear overseas. Licensee sales of Stacy
Adams branded products decreased in 2008, as independent footwear and apparel
retailers, who are an important trade class for Stacy Adams branded products,
have struggled in the retail environment over the past several
years. However, Stacy Adams licensing revenues increased in 2008, as
the Company terminated its agreement with its licensing agent, to whom it had
previously paid a portion of the licensing revenues. The services
performed by the licensing agent are now handled in-house and the related costs
are included in selling and administrative expenses and offset a portion of the
licensing revenues. Licensing revenues from the sale of Florsheim
branded products and footwear were flat in 2008 compared with 2007.
Retail
Division Net Sales
In 2008,
retail net sales were $28.9 million, down 7% from $31.1 million in
2007. The decrease results from the general pullback in consumer
spending during the poor economic climate in the latter part of
2008. During 2008, the Company closed two stores in the United States
and closed another store in the first week of January 2009. These
three stores generated approximately $2.6 million in sales in 2008. In 2007, the
Company opened five new stores and closed one store in the United States, and
closed two stores in Europe. Same store sales in 2008 decreased 8%
compared with 2007. Stores are included in same store sales beginning
in the store’s 13
th
month
of operations after its grand opening.
Gross
Earnings and Cost of Sales
Overall
gross earnings as a percent of net sales were 36.6% in 2008 and 38.4% in 2007.
Wholesale gross earnings as a percent of net sales were 30.7% in 2008 compared
with 32.8% in 2007. The decrease was principally due to higher
product costs. Retail gross earnings as a percent of net sales were
65.7%, down 70 basis points from 66.4% in 2007, primarily due to the challenging
retail environment in 2008.
The
Company’s cost of sales does not include distribution costs (e.g., receiving,
inspection or warehousing costs). The Company’s distribution costs
for the years ended December 31, 2008 and 2007 were $7.8 million and $7.3
million, respectively. These costs were included in selling and administrative
expenses. Therefore, the Company’s gross earnings may not be
comparable to other companies, as some companies may include distribution costs
in cost of sales.
Selling
and Administrative Expenses
The
Company’s selling and administrative expenses include, and are primarily related
to, distribution costs, salaries and commissions, advertising costs, employee
benefit costs, rent and depreciation. In 2008, the Company’s overall
selling and administrative expenses were 25.6% of net sales compared with 23.8%
in 2007. Wholesale selling and administrative expenses were up
$200,000 in 2008 compared with 2007. While bad debt expense was up
$680,000 in 2008 due to the bankruptcy filings of several of the Company’s
accounts, salary expense and wholesale salesmen’s commissions were down in
2008. Wholesale selling and administrative expenses as a percent of
net wholesale sales were 20.9% in 2008 compared with 19.9% in 2007, which
reflects the fixed nature of the majority of the Company’s wholesale
expenses. Retail selling and administrative expenses were 59.6% of
net sales in 2008 compared with 51.7% in 2007. This increase was due
partially to higher operating expenses, particularly rent and occupancy
costs. Also, the reduced volume in 2008 did not cause a corresponding
decrease in retail operating costs, as many of these costs are
fixed.
Interest
and Taxes
The
majority of the Company’s interest income is from its investments in marketable
securities. Interest income for 2008 was down $143,000 compared with
2007. In 2008, interest expense was down $291,000 compared with 2007
due to lower average borrowings in 2008.
The
effective tax rate for 2008 was 35.6% compared with 36.3% in
2007. The 2008 decrease primarily resulted from higher interest
income earned on municipal bonds relative to taxable income in
2008.
2007 vs.
2006
Wholesale
Division Net Sales
Net sales
in the Company’s wholesale division for the years ended December 31, 2007 and
2006 were as follows:
|
|
|
Wholesale
Division Net Sales
|
|
|
|
|
Years
ended December 31,
|
|
|
|
|
2007
|
|
|
2006
|
|
|
%
Change
|
|
|
|
|
(Dollars
in thousands)
|
|
|
|
|
|
North
American Sales
|
|
|
|
|
|
|
|
|
|
|
Stacy
Adams
|
|
$
|
57,444
|
|
|
$
|
54,540
|
|
|
|
5
|
%
|
|
Nunn
Bush
|
|
|
68,644
|
|
|
|
70,148
|
|
|
|
-2
|
%
|
|
Florsheim
|
|
|
66,232
|
|
|
|
58,017
|
|
|
|
14
|
%
|
|
Foreign
Sales
|
|
|
5,062
|
|
|
|
4,444
|
|
|
|
14
|
%
|
|
Total
Wholesale
|
|
$
|
197,382
|
|
|
$
|
187,149
|
|
|
|
5
|
%
|
|
Licensing
|
|
|
4,087
|
|
|
|
4,135
|
|
|
|
-1
|
%
|
|
Total
Wholesale Division
|
|
$
|
201,469
|
|
|
$
|
191,284
|
|
|
|
5
|
%
|
The
increase in the Stacy Adams brand in 2007 was attributable to good performance
in the national shoe chain and department store sectors. The decrease
in the Nunn Bush brand net sales was due to soft sales in Canada. Net
sales in the United States were flat in 2007, despite the residual impact of the
loss of business with one of the Company’s significant customers following its
acquisition by another retailer. The Company was able to replace that
business through increased sales to other department stores. Net
sales of the Florsheim brand in 2007 included $5.7 million of Florsheim sales in
Canada. As discussed above, the Company began to operate its own
wholesale business in Canada on January 1, 2007. In the United
States, Florsheim net sales were up 4% in 2007 compared to 2006.
Licensing
revenues for Stacy Adams apparel and accessories were down for 2007 as
independent clothing retailers that sell these products
struggled. Licensing revenues for Florsheim footwear and accessories
were negatively impacted by the absence in 2007 of Canadian royalties due to the
previously mentioned change in distribution in Canada. Those
decreases were offset, however, by increases in licensing revenues from other
Florsheim licensees.
Retail
Division Net Sales
Retail
net sales in 2007 climbed 5% to $31.1 million from $29.8 million in 2006. The
increase was primarily attributable to five new stores in 2007 and four that
were opened in the second half of 2006. The Company closed one store
in the United States and two in Europe in 2007 and none in 2006. In
2007, same store sales increased 1.5% over 2006. Stores are included
in same store sales beginning in the store’s 13
th
month
of operations after its grand opening.
Gross
Earnings and Cost of Sales
Overall
gross earnings as a percent of net sales were 38.4% in 2007 and 38.6% in 2006.
Wholesale gross earnings as a percent of net sales in 2007 were down 20 basis
points compared with 2006 while retail margins were flat between
years.
The
Company’s cost of sales does not include distribution costs (e.g., receiving,
inspection or warehousing costs). The Company’s distribution costs
for the years ended December 31, 2007 and 2006 were $7.3 million and $7.0
million, respectively. These costs were included in selling and administrative
expenses. Therefore, the Company’s gross earnings may not be
comparable to other companies, as some companies may include distribution costs
in cost of sales.
Selling
and Administrative Expenses
The
Company’s selling and administrative expenses include, and are primarily related
to, distribution costs, salaries and commissions, advertising costs, employee
benefit costs, rent and depreciation. In 2007, the Company’s overall
selling and administrative expenses were 23.8% of net sales compared with 23.5%
in 2006. Wholesale selling and administrative expenses as a percent
of net wholesale sales were flat in comparison to 2006 at
19.9%. Retail selling and administrative expenses were 51.7% of net
sales in 2007 compared with 49.2% in 2006. The increase in retail
expenses as a percent of sales was caused by higher expenses in relation to
sales in new stores and increased costs associated with lease renewals at
existing stores.
Interest
and Taxes
Interest
income in 2007 was up $218,000 from 2006 due to increased investments in
marketable securities and higher interest rates. Interest expense was
down $256,000 in 2007 compared with 2006. The decrease was the
result of lower short-term borrowings in 2007 compared with 2006.
The
effective tax rate for 2007 was 36.3% compared with 37.2% in
2006. The lower rate in 2007 resulted from higher interest income
earned on municipal bonds and lower state taxes, which decreased the Company’s
effective tax rate.
LIQUIDITY
& CAPITAL RESOURCES
The
Company’s primary source of liquidity is its cash and short-term marketable
securities, which aggregated $18.1 million at December 31, 2008 and $13.5
million at December 31, 2007. During 2008, the Company’s primary
source of cash was from operations, as well as the net proceeds from maturities
of marketable securities while its primary uses of cash were the purchases of
the Company’s common stock and dividend payments.
The
Company generated $15.7 million in cash from operating activities in 2008,
compared with $24.2 million and $9.6 million in 2007 and 2006,
respectively. Fluctuations in net cash from operating activities have
resulted mainly from changes in net earnings and operating assets and
liabilities, specifically yearend accounts receivable and inventory
balances. The changes in accounts receivable balances reflect
fluctuations in sales volume. Yearend inventory balances fluctuate as the
Company’s inventory requirements and projections change. The
Company’s capital expenditures were $2.2 million, $2.7 million and $3.2 million
in 2008, 2007 and 2006, respectively. Capital expenditures are
expected to be approximately $1.0 million in 2009.
Cash
dividends paid were $5.7 million, $4.7 million and $3.7 million in 2008, 2007
and 2006, respectively, as the Company’s Board of Directors has consistently
increased dividends per share each year.
The
Company continues to repurchase its common stock under its share repurchase
program when the Company believes market conditions are favorable. In
2008, the Company repurchased 413,325 shares for a total cost of $11.5
million. In February 2009, the Company’s Board of Directors
authorized the repurchase of an additional 1.0 million shares of its common
stock under its repurchase program, bringing the total available to purchase to
approximately 1.5 million shares.
As of
December 31, 2008, the Company had a total of $50 million available under its
revolving line of credit, of which total borrowings were only $1.25
million. This facility includes a minimum net worth covenant, with
which the Company was in compliance at December 31,
2008. The facility expires April 30, 2009, and the Company intends to
extend it an additional year at that time.
On July
1, 2007, all of the Company’s Class B common stock converted, one-for-one, into
the Company’s common stock. As a result, the Company currently does
not have any Class B common stock outstanding.
The
Company believes that available cash and marketable securities, cash provided by
operations, and available borrowing facilities will provide adequate support for
the cash needs of the business in 2009.
Off-Balance Sheet
Arrangements
The
Company does not utilize any special purpose entities or other off-balance sheet
arrangements.
Commitments
The
Company’s significant contractual obligations are its bank borrowings, its
supplemental pension plan, and its operating leases, which are discussed further
in the Notes to Consolidated Financial Statements. The Company also
has significant obligations to purchase inventory. The bank
borrowings and pension obligations are recorded on the Company’s Consolidated
Balance Sheets. Future obligations under operating leases are
disclosed in Note 11 of the Notes to Consolidated Financial
Statements. The table below provides summary information about these
obligations as of December 31, 2008.
|
|
|
Payments
Due by Period (in 000's)
|
|
|
|
|
|
|
|
Less
Than
|
|
|
|
|
|
|
|
|
More
Than
|
|
|
|
|
Total
|
|
|
a
Year
|
|
|
1 -
3 Years
|
|
|
3 -
5 Years
|
|
|
5
Years
|
|
|
Bank
borrowings
|
|
$
|
1,250
|
|
|
$
|
1,250
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Pension
obligations
|
|
|
7,052
|
|
|
|
350
|
|
|
|
690
|
|
|
|
674
|
|
|
|
5,338
|
|
|
Operating
leases
|
|
|
28,185
|
|
|
|
3,886
|
|
|
|
7,242
|
|
|
|
7,136
|
|
|
|
9,921
|
|
|
Purchase
obligations*
|
|
|
25,406
|
|
|
|
25,406
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Total
|
|
$
|
61,893
|
|
|
$
|
30,892
|
|
|
$
|
7,932
|
|
|
$
|
7,810
|
|
|
$
|
15,259
|
|
*
Purchase obligations relate entirely to commitments to purchase
inventory.
Future
interest payments on bank borrowings are not included in the above table as they
have variable rates of interest. Interest payments on bank borrowings
in 2008 were $62,000.
OTHER
Critical Accounting
Policies
The
Company’s accounting policies are more fully described in Note 2 of the Notes to
Consolidated Financial Statements. As disclosed in Note 2, the
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions about future events that affect the amounts reported
in the financial statements and accompanying notes. Future events and
their effects cannot be determined with absolute
certainty. Therefore, the determination of estimates requires the
exercise of judgment. Actual results inevitably will differ from
those estimates, and such differences may be material to the financial
statements. The following policies are considered by management to be
the most critical in understanding the significant accounting estimates inherent
in the preparation of the Company’s financial statements and the uncertainties
that could impact the Company’s results of operations, financial position and
cash flows.
Sales
Returns, Sale Allowances and Doubtful Accounts
The
Company records reserves for sales returns, for sales allowances and for
accounts receivable balances that will ultimately not be collected. The reserves
are based on such factors as specific customer situations, historical
experience, a review of the current aging status of customer receivables and
current and expected economic conditions. The reserve for doubtful
accounts includes a specific reserve for accounts identified as potentially
uncollectible, plus an additional reserve for the balance of
accounts. The Company evaluates the reserves and the estimation
process at least quarterly and makes adjustments when
appropriate. Historically, losses have been within the Company’s
expectations. Changes in these reserves may be required if actual
returns, discounts and bad debt activity varies from the original
estimates. These changes could impact the Company’s results of
operations, financial position and cash flows
.
Pension
Plan Accounting
The
Company’s pension expense and corresponding obligation are determined on an
actuarial basis and require certain actuarial assumptions. Management
believes the two most critical of these assumptions are the discount rate and
the expected rate of return on plan assets. The Company evaluates its
actuarial assumptions annually on the measurement date (December 31) and makes
modifications based on such factors as market interest rates and historical
asset performance. Changes in these assumptions can result in
different expense and liability amounts, and future actual experience can differ
from these assumptions.
Discount
Rate
– Pension expense and projected benefit obligation both increase as
the discount rate is reduced. The actuarial valuation used a discount
rate of 6.20% at December 31, 2008, 6.55% at December 31, 2007, and 5.90% at
December 31, 2006. This rate was based on the plan’s projected cash
flows. This method, known as the cash flow matching method, discounts
each year’s projected cash flows at the associated spot interest rate back to
the measurement date. A 0.5% decrease in the discount rate would
increase annual pension expense and the projected benefit obligation by
approximately $253,000 and $2.3 million, respectively.
Expected
Rate of Return
- Pension expense increases as the expected rate of return
on pension plan assets decreases. In estimating the expected return
on plan assets, the Company considers the historical returns on plan assets and
future expectations of asset returns. The Company utilized an
expected rate of return on plan assets of 8.0% in 2008, 2007 and
2006. This rate was based on the Company’s long-term investment
policy of equity securities: 20% - 80%; fixed income securities: 20% - 80%; and
other, principally cash: 0% - 20%. A 0.5% decrease in the
expected return on plan assets would increase annual pension expense by
approximately $96,000.
Recent Accounting
Pronouncements
In
December 2007, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 141(R), “Business Combinations,”
and SFAS No. 160, “Noncontrolling Interests in Consolidated Financial
Statements-an amendment of ARB No. 51”. See Note 2 of the Notes to
Consolidated Financial Statements.
In
February 2008, the FASB issued Staff Position (FSP) No. 157-2 which delays the
effective date of SFAS No. 157 one year for all nonfinancial assets and
nonfinancial liabilities, except those recognized or disclosed at fair value in
the financial statements on a recurring basis. See Note 2 of the
Notes to Consolidated Financial Statements.
Quantitative and Qualitative
Disclosures about Market Risk
The
Company is exposed to market risk from changes in foreign exchange and interest
rates. To reduce the risk from changes in foreign exchange rates, the
Company selectively uses forward exchange contracts. The Company does
not hold or issue financial instruments for trading purposes. The
Company does not have significant market risk on its marketable securities as
those investments consist of high-grade securities and are held to
maturity. The Company has reviewed its portfolio of investments as of
December 31, 2008 and has determined that no other-than-temporary market value
impairment exists.
Foreign
Currency
The
Company’s earnings are affected by fluctuations in the value of the U.S. dollar
against foreign currencies, primarily as a result of the sale of product to
Canadian customers. Forward exchange contracts are used to partially
hedge against the earnings effects of such fluctuations. Based on the
Company’s Canadian derivative instruments outstanding as of December 31, 2008, a
10% change in the Canadian exchange rate would not have a material effect on the
Company’s financial position, results of operations or cash
flows.
Interest
Rates
The
Company is exposed to interest rate fluctuations on borrowings under its
revolving line of credit. As of December 31, 2008, there was $1.25
million of outstanding borrowings at an average interest rate of 2.29%. The
interest expense related to the 2008 outstanding borrowings was
$62,000. A 10% increase in the Company’s weighted average interest
rate on borrowings would not have a material effect on the Company’s financial
position, results of operations or cash flows.
CONSOLIDATED
STATEMENTS OF EARNINGS
For the
years ended December 31, 2008, 2007 and 2006
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
(In
thousands, except per share amounts)
|
|
|
|
|
|
|
|
Net
Sales
|
|
$
|
221,432
|
|
|
$
|
232,616
|
|
|
$
|
221,047
|
|
|
Cost
of Sales
|
|
|
140,294
|
|
|
|
143,199
|
|
|
|
135,734
|
|
|
Gross
earnings
|
|
|
81,138
|
|
|
|
89,417
|
|
|
|
85,313
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling
and administrative expenses
|
|
|
56,639
|
|
|
|
55,285
|
|
|
|
51,869
|
|
|
Earnings
from operations
|
|
|
24,499
|
|
|
|
34,132
|
|
|
|
33,444
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
2,016
|
|
|
|
2,159
|
|
|
|
1,941
|
|
|
Interest
expense
|
|
|
(62
|
)
|
|
|
(353
|
)
|
|
|
(608
|
)
|
|
Other
income and expense, net
|
|
|
(21
|
)
|
|
|
25
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
before provision for income taxes
|
|
|
26,432
|
|
|
|
35,963
|
|
|
|
34,791
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for income taxes
|
|
|
9,407
|
|
|
|
13,062
|
|
|
|
12,935
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings
|
|
$
|
17,025
|
|
|
$
|
22,901
|
|
|
$
|
21,856
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share
|
|
$
|
1.49
|
|
|
$
|
1.98
|
|
|
$
|
1.88
|
|
|
Diluted
earnings per share
|
|
$
|
1.45
|
|
|
$
|
1.91
|
|
|
$
|
1.81
|
|
The
accompanying notes to consolidated financial statements are an integral part of
these
financial
statements.
CONSOLIDATED BALANCE SHEETS
December 31, 2008 and 2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
(Dollars
in thousands)
|
|
|
ASSETS:
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
11,486
|
|
|
$
|
7,859
|
|
|
Marketable
securities, at amortized cost
|
|
|
6,623
|
|
|
|
5,604
|
|
|
Accounts
receivable, less reserves of $3,180 and $3,172,
respectively
|
|
|
29,873
|
|
|
|
35,965
|
|
|
Accrued
income tax receivable
|
|
|
2,226
|
|
|
|
-
|
|
|
Inventories
|
|
|
47,012
|
|
|
|
44,632
|
|
|
Deferred
income tax benefits
|
|
|
579
|
|
|
|
475
|
|
|
Prepaid
expenses and other current assets
|
|
|
3,678
|
|
|
|
3,301
|
|
|
Total
current assets
|
|
|
101,477
|
|
|
|
97,836
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable
securities, at amortized cost
|
|
|
39,447
|
|
|
|
43,331
|
|
|
Deferred
income tax benefits
|
|
|
736
|
|
|
|
-
|
|
|
Other
assets
|
|
|
10,069
|
|
|
|
9,440
|
|
|
Property,
plant and equipment
|
|
|
28,043
|
|
|
|
28,677
|
|
|
Trademark
|
|
|
10,868
|
|
|
|
10,868
|
|
|
Total
assets
|
|
$
|
190,640
|
|
|
$
|
190,152
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
& SHAREHOLDERS' INVESTMENT:
|
|
|
|
|
|
|
|
|
|
Short-term
borrowings
|
|
$
|
1,250
|
|
|
$
|
550
|
|
|
Accounts
payable
|
|
|
7,494
|
|
|
|
10,541
|
|
|
Dividend
payable
|
|
|
1,589
|
|
|
|
1,270
|
|
|
Accrued
liabilities:
|
|
|
|
|
|
|
|
|
|
Wages,
salaries and commissions
|
|
|
1,772
|
|
|
|
2,254
|
|
|
Taxes
other than income taxes
|
|
|
750
|
|
|
|
725
|
|
|
Other
|
|
|
3,968
|
|
|
|
5,047
|
|
|
Accrued
income taxes
|
|
|
-
|
|
|
|
716
|
|
|
Total
current liabilities
|
|
|
16,823
|
|
|
|
21,103
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
pension liability
|
|
|
15,160
|
|
|
|
6,043
|
|
|
Deferred
income tax liabilities
|
|
|
-
|
|
|
|
2,248
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders'
investment:
|
|
|
|
|
|
|
|
|
|
Common
stock, $1.00 par value, authorized 20,000,000 shares in 2008 and
2007, issued and outstanding 11,353,121 shares in 2008 and 11,534,059
shares in 2007
|
|
|
11,353
|
|
|
|
11,534
|
|
|
Capital
in excess of par value
|
|
|
15,203
|
|
|
|
10,788
|
|
|
Reinvested
earnings
|
|
|
142,617
|
|
|
|
142,775
|
|
|
Accumulated
other comprehensive loss
|
|
|
(10,516
|
)
|
|
|
(4,339
|
)
|
|
Total
shareholders' investment
|
|
|
158,657
|
|
|
|
160,758
|
|
|
Total
liabilities and shareholders' investment
|
|
$
|
190,640
|
|
|
$
|
190,152
|
|
The
accompanying notes to consolidated financial statements are an integral part of
these financial statements.
CONSOLIDATED STATEMENTS OF
SHAREHOLDERS' INVESTMENT
For the years ended December
31, 2008, 2007 and 2006
(In
thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
Capital in
|
|
|
|
|
|
Accumulated Other
|
|
|
|
|
|
|
|
Common
|
|
|
Class B
|
|
|
Excess of Par
|
|
|
Reinvested
|
|
|
Comprehensive
|
|
|
Comprehensive
|
|
|
|
|
Stock
|
|
|
Common Stock
|
|
|
Value
|
|
|
Earnings
|
|
|
Income/(Loss)
|
|
|
Income
|
|
|
Balance,
December 31, 2005
|
|
$
|
8,979
|
|
|
$
|
2,595
|
|
|
$
|
3,438
|
|
|
$
|
121,335
|
|
|
$
|
222
|
|
|
|
|
|
Comprehensive
Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
21,856
|
|
|
|
-
|
|
|
$
|
21,856
|
|
|
Foreign
currency translation adjustments
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
217
|
|
|
|
217
|
|
|
Minimum
pension liability (net of tax of $92)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(145
|
)
|
|
|
(145
|
)
|
|
Total
Comprehensive Income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
21,928
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
dividends declared ($.34 per share)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,962
|
)
|
|
|
-
|
|
|
|
|
|
|
Conversions
of Class B common stock to common stock
|
|
|
10
|
|
|
|
(10
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
Stock
options exercised
|
|
|
333
|
|
|
|
-
|
|
|
|
2,605
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
Issuance
of restricted stock
|
|
|
41
|
|
|
|
-
|
|
|
|
(41
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
Stock-based
compensation expense
|
|
|
-
|
|
|
|
-
|
|
|
|
25
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
Income
tax benefit from stock options exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
1,549
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
Shares
purchased and retired
|
|
|
(234
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(4,964
|
)
|
|
|
-
|
|
|
|
|
|
|
Adjustments
to initially apply SFAS No. 158, net of tax
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(5,676
|
)
|
|
|
|
|
|
Balance,
December 31, 2006
|
|
$
|
9,129
|
|
|
$
|
2,585
|
|
|
$
|
7,576
|
|
|
$
|
134,265
|
|
|
$
|
(5,382
|
)
|
|
|
|
|
|
Comprehensive
Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
22,901
|
|
|
|
-
|
|
|
$
|
22,901
|
|
|
Foreign
currency translation adjustments
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(92
|
)
|
|
|
(92
|
)
|
|
Pension
liability adjustment (net of tax of $726)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,135
|
|
|
|
1,135
|
|
|
Total
Comprehensive Income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
23,944
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
dividends declared ($.42 per share)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(4,872
|
)
|
|
|
-
|
|
|
|
|
|
|
Conversions
of Class B common stock to common stock
|
|
|
2,585
|
|
|
|
(2,585
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
Stock
options exercised
|
|
|
182
|
|
|
|
-
|
|
|
|
1,672
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
Issuance
of restricted stock
|
|
|
20
|
|
|
|
-
|
|
|
|
(20
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
Restricted
stock forfeited
|
|
|
(3
|
)
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation expense
|
|
|
-
|
|
|
|
-
|
|
|
|
316
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
Income
tax benefit from stock options exercised and vesting of restricted
stock
|
|
|
-
|
|
|
|
-
|
|
|
|
1,241
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
Shares
purchased and retired
|
|
|
(379
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(9,546
|
)
|
|
|
-
|
|
|
|
|
|
|
Adjustments
to initially apply FIN 48
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
27
|
|
|
|
-
|
|
|
|
|
|
|
Balance,
December 31, 2007
|
|
$
|
11,534
|
|
|
$
|
-
|
|
|
$
|
10,788
|
|
|
$
|
142,775
|
|
|
$
|
(4,339
|
)
|
|
|
|
|
|
Comprehensive
Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
17,025
|
|
|
|
-
|
|
|
$
|
17,025
|
|
|
Foreign
currency translation adjustments
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(665
|
)
|
|
|
(665
|
)
|
|
Pension
liability adjustment (net of tax of $3,524)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(5,512
|
)
|
|
|
(5,512
|
)
|
|
Total
Comprehensive Income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
10,848
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
dividends declared ($.53 per share)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(6,057
|
)
|
|
|
-
|
|
|
|
|
|
|
Stock
options exercised
|
|
|
213
|
|
|
|
-
|
|
|
|
1,978
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
Issuance
of restricted stock
|
|
|
20
|
|
|
|
-
|
|
|
|
(20
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
Restricted
stock forfeited
|
|
|
(1
|
)
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation
expense
|
|
|
-
|
|
|
|
-
|
|
|
|
609
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Income
tax benefit from stock options exercised
and vesting of
restricted stock
|
|
|
-
|
|
|
|
-
|
|
|
|
1,847
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
Shares
purchased and retired
|
|
|
(413
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(11,126
|
)
|
|
|
-
|
|
|
|
|
|
|
Balance,
December 31, 2008
|
|
$
|
11,353
|
|
|
$
|
-
|
|
|
$
|
15,203
|
|
|
$
|
142,617
|
|
|
$
|
(10,516
|
)
|
|
|
|
|
The
accompanying notes to consolidated financial statements are an integral part of
these financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 2008, 2007 and 2006
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
(Dollars
in thousands)
|
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
Net
Earnings
|
|
$
|
17,025
|
|
|
$
|
22,901
|
|
|
$
|
21,856
|
|
|
Adjustments
to reconcile net earnings to net cash provided by operating
activities -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
2,631
|
|
|
|
2,484
|
|
|
|
2,206
|
|
|
Amortization
|
|
|
114
|
|
|
|
90
|
|
|
|
75
|
|
|
Deferred
income taxes
|
|
|
436
|
|
|
|
80
|
|
|
|
518
|
|
|
Stock-based
compensation
|
|
|
609
|
|
|
|
316
|
|
|
|
25
|
|
|
Pension
contribution
|
|
|
(1,000
|
)
|
|
|
-
|
|
|
|
(1,000
|
)
|
|
Pension
expense
|
|
|
1,378
|
|
|
|
1,359
|
|
|
|
1,185
|
|
|
Loss
(gain) on sale of assets
|
|
|
141
|
|
|
|
(15
|
)
|
|
|
(1
|
)
|
|
Increase
in cash surrender value of life insurance
|
|
|
(566
|
)
|
|
|
(681
|
)
|
|
|
(643
|
)
|
|
Change
in operating assets and liabilities -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
6,092
|
|
|
|
(5,323
|
)
|
|
|
(2,798
|
)
|
|
Inventories
|
|
|
(2,380
|
)
|
|
|
6,369
|
|
|
|
(12,452
|
)
|
|
Prepaids
and other current assets
|
|
|
(348
|
)
|
|
|
(1,555
|
)
|
|
|
(294
|
)
|
|
Accounts
payable
|
|
|
(3,047
|
)
|
|
|
(1,858
|
)
|
|
|
176
|
|
|
Accrued
liabilities and other
|
|
|
(2,400
|
)
|
|
|
(685
|
)
|
|
|
1,909
|
|
|
Accrued
income taxes
|
|
|
(2,941
|
)
|
|
|
670
|
|
|
|
(1,149
|
)
|
|
Net
cash provided by operating activities
|
|
|
15,744
|
|
|
|
24,152
|
|
|
|
9,613
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life
insurance premiums paid
|
|
|
(155
|
)
|
|
|
-
|
|
|
|
-
|
|
|
Purchase
of marketable securities
|
|
|
(3,069
|
)
|
|
|
(8,406
|
)
|
|
|
(17,814
|
)
|
|
Proceeds
from maturities of marketable securities
|
|
|
5,820
|
|
|
|
1,343
|
|
|
|
6,942
|
|
|
Purchase
of property, plant and equipment
|
|
|
(2,178
|
)
|
|
|
(2,727
|
)
|
|
|
(3,186
|
)
|
|
Proceeds
from sales of property, plant and equipment
|
|
|
4
|
|
|
|
77
|
|
|
|
2
|
|
|
Net
cash provided by (used for) investing activities
|
|
|
422
|
|
|
|
(9,713
|
)
|
|
|
(14,056
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
dividends paid
|
|
|
(5,738
|
)
|
|
|
(4,656
|
)
|
|
|
(3,718
|
)
|
|
Shares
purchased and retired
|
|
|
(11,539
|
)
|
|
|
(9,924
|
)
|
|
|
(5,198
|
)
|
|
Proceeds
from stock options exercised
|
|
|
2,191
|
|
|
|
1,853
|
|
|
|
2,938
|
|
|
Net
borrowings (repayments) under revolving credit agreement
|
|
|
700
|
|
|
|
(10,408
|
)
|
|
|
1,405
|
|
|
Income
tax benefits from share-based compensation
|
|
|
1,847
|
|
|
|
1,241
|
|
|
|
1,549
|
|
|
Net
cash used for financing activities
|
|
|
(12,539
|
)
|
|
|
(21,894
|
)
|
|
|
(3,024
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
$
|
3,627
|
|
|
$
|
(7,455
|
)
|
|
$
|
(7,467
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
AND CASH EQUIVALENTS at beginning of year
|
|
|
7,859
|
|
|
|
15,314
|
|
|
|
22,781
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
AND CASH EQUIVALENTS at end of year
|
|
$
|
11,486
|
|
|
$
|
7,859
|
|
|
$
|
15,314
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
taxes paid, net of refunds
|
|
$
|
9,996
|
|
|
$
|
10,901
|
|
|
$
|
11,797
|
|
|
Interest
paid
|
|
$
|
62
|
|
|
$
|
400
|
|
|
$
|
576
|
|
The
accompanying notes to consolidated financial statements are an integral part of
these financial statements.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Years
Ended December 31, 2008, 2007 and 2006
1.
NATURE OF OPERATIONS
Weyco
Group, Inc. is a U.S.-based distributor of men’s branded footwear. The Company’s
principal brands include “Florsheim”, “Nunn Bush” and “Stacy Adams.” Inventory
is purchased from third-party overseas manufacturers. The majority of
foreign-sourced purchases are denominated in U.S. dollars. In the wholesale
division, the Company’s products are sold to shoe specialty stores, department
stores and clothing retailers primarily in North America, with some distribution
in Europe. The Company also 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. In addition, the Company also
operates a retail division which consists of 36 Company-owned retail stores in
the United States, two in Europe, and an Internet business. See Note 17
regarding a subsequent transaction.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
-
The consolidated financial statements are prepared in conformity with accounting
principles generally accepted in the United States of America, and include all
of the Company’s subsidiaries.
Use of Estimates
- The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America 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.
Cash and Cash Equivalents
-
The Company considers all highly liquid investments with maturities of three
months or less at the date of purchase to be cash equivalents. At December 31,
2008 and 2007, the Company’s cash and cash equivalents included investments in
tax free money market accounts and cash deposits at various banks.
Inventories
- Inventories are
valued at cost, which is not in excess of market. Substantially all inventories
are determined on a last-in, first-out (LIFO) basis. Inventory costs include the
cost of shoes purchased from third-party manufacturers, as well as related
freight and duty costs. The Company takes title to product at the time of
shipping. See Note 5.
Property, Plant and Equipment and
Depreciation
- Property, plant and equipment are stated at cost. Plant
and equipment are depreciated using primarily the straight-line method over
their estimated useful lives as follows: buildings and improvements, 10 to 39
years; machinery and equipment, 3 to 10 years; furniture and fixtures, 5 to 7
years.
Impairment of Long-Lived
Assets
- Property, plant and equipment and other long-term assets are
reviewed for impairment at least annually or more frequently if events or
changes in circumstances indicate that the carrying amount may not be
recoverable. The Company’s trademark is accounted for under Statement of
Financial Accounting Standards (SFAS) No. 142, “Goodwill and Other Intangible
Assets.” Under SFAS No. 142, indefinite lived intangible assets are not
amortized; however, they must be tested for impairment at least annually. For
long lived assets, if the sum of the expected undiscounted cash flows is less
than the carrying value of the related asset or group of assets being reviewed
for impairment, a loss is recognized for the difference between the fair value
and carrying value of the asset or group of assets. There were no adjustments to
the carrying value of any of the Company’s long-lived assets or indefinite lived
assets in fiscal 2008, 2007, or 2006.
Income Taxes
- Deferred
income taxes are provided on temporary differences arising from differences in
the basis of assets and liabilities for income tax and financial reporting
purposes. See Note 10.
Revenue Recognition
- Revenue
from the sale of product is recognized when title and risk of loss transfers to
the customer and the customer is obligated to pay the Company. Sales to
independent dealers are recorded at the time of shipment to those dealers. Sales
through Company-owned retail outlets are recorded at the time of delivery to
retail customers. All product sales are recorded net of estimated allowances for
returns and discounts. Revenue from third-party licensing agreements is
recognized in the period earned. Licensing revenues were $4.3 million in 2008
and $4.1 million in each of 2007 and 2006.
Shipping and Handling Fees
-
The Company classifies shipping and handling fees billed to customers as
revenues. The related shipping and handling expenses incurred by the Company are
included in selling and administrative expenses and totaled $1.4 million for
each of 2008 and 2007 and $1.1 million for 2006.
Cost of Sales
–
The Company’s cost of sales
includes the cost of products and inbound freight and duty costs.
Selling and Administrative
Expenses
–
Selling and administrative expenses primarily include salaries and
commissions, advertising costs, employee benefit costs, distribution costs
(e.g., receiving, inspection and warehousing costs), rent and depreciation.
Distribution costs included in selling and administrative expenses in 2008, 2007
and 2006 were $7.8 million, $7.3 million and $7.0 million,
respectively.
Advertising Costs
-
Advertising costs are expensed as incurred. Total advertising costs were $7.5
million, $7.6 million and $7.7 million in 2008, 2007 and 2006, respectively. All
advertising expenses are included in selling and administrative expenses with
the exception of co-op advertising expenses which are recorded as a reduction of
net sales. Co-op advertising expenses, which are included in the above totals,
reduced net sales by $3.4 million, $3.0 million and $3.3 million for 2008, 2007
and 2006, respectively.
Foreign Currency Translation
- Foreign currency balance sheet accounts are translated into U.S. dollars at
the rates of exchange in effect at fiscal yearend. Income and expenses are
translated at the average rates of exchange in effect during the year. The
related translation adjustments are made directly to a separate component of
Shareholders’ Investment.
Earnings Per Share
- Basic
earnings per share excludes any dilutive effects of options to purchase common
stock. Diluted earnings per share includes any dilutive effects of options to
purchase common stock. See Note 13.
Comprehensive Income
-
Comprehensive Income includes net earnings and changes in Accumulated Other
Comprehensive Income (Loss). The Company has chosen to report Comprehensive
Income and Accumulated Other Comprehensive Income (Loss) in the Consolidated
Statements of Shareholders’ Investment. The components of Accumulated Other
Comprehensive Loss as recorded on the accompanying Consolidated Balance Sheets
were as follows:
|
|
|
2008
|
|
|
2007
|
|
|
|
|
(Dollars in thousands)
|
|
|
Foreign
currency translation adjustments
|
|
$
|
(319
|
)
|
|
$
|
346
|
|
|
Pension
liability, net of tax
|
|
|
(10,197
|
)
|
|
|
(4,685
|
)
|
|
Total
accumulated other comprehensive loss
|
|
$
|
(10,516
|
)
|
|
$
|
(4,339
|
)
|
Stock-Based Compensation -
At
December 31, 2008, the Company has two stock-based employee compensation plans,
which are described more fully in Note 15. The Company accounts for these plans
under the recognition and measurement principles of SFAS No. 123(R),
“Share-Based Payment.”
Recent Accounting
Pronouncements
– In December 2007, the Financial Accounting Standards
Board (FASB) issued SFAS No. 141(R), “Business Combinations” (SFAS 141(R)), and
SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements-an
amendment of ARB No. 51” (SFAS 160). SFAS 141(R) establishes principles and
requirements for how the acquirer: (a) recognizes and measures in its financial
statements the identifiable assets acquired, the liabilities assumed and any
noncontrolling interest in the acquiree; (b) recognizes and measures the
goodwill acquired in the business combination or a gain from a bargain purchase;
and (c) determines what information to disclose to enable users of the financial
statements to evaluate the nature and financial effects of the business
combination. SFAS 160 will change the accounting and reporting for
noncontrolling interests, sometimes called minority interests. SFAS 160 changes
the way the consolidated income statement is presented, clarifies that a
noncontrolling interest in a subsidiary should be reported as equity in the
consolidated financial statements and requires expanded disclosures in the
consolidated financial statements that clearly identify and distinguish between
the interests of the parent’s owners and the interests of the noncontrolling
owners of a subsidiary. SFAS 141(R) and SFAS 160 apply prospectively to business
combinations for which the acquisition date is on or after January 1, 2009.
Accordingly, the Company’s January 23, 2009 majority interest acquisition of its
Australia, Asia Pacific and South Africa licensees will be accounted for under
these new standards in fiscal 2009. See Note 17.
In
February 2008, the FASB issued Staff Position (FSP) No. 157-2, “Effective Date
of FASB Statement No. 157,” (FSP 157-2) which delays the effective date of SFAS
No. 157 one year for all nonfinancial assets and liabilities. FSP 157-2 is
effective for the Company beginning January 1, 2009. The Company does not expect
the adoption of FSP 157-2 to have a material impact on the Company’s
consolidated financial statements. See Note 3.
3.
FAIR VALUE OF FINANCIAL INSTRUMENTS
On
January 1, 2008, the Company adopted SFAS No. 157, “Fair Value Measurements,”
(SFAS 157), which provides a single definition of fair value and a common
framework for measuring fair value, as well as new disclosure requirements for
fair value measurements used in financial statements. SFAS 157 is applicable
whenever another accounting pronouncement requires or permits assets and
liabilities to be measured at fair value, but does not require any new fair
value measurements. The SFAS 157 requirements for certain non-financial assets
and liabilities have been deferred until January 1, 2009 for the Company in
accordance with FSP 157-2 (see Note 2). Although the implementation of SFAS 157
had no impact on the Company’s consolidated financial statements as of December
31, 2008, it does result in expanded disclosures regarding fair value
measurements as discussed below and in Note 4. SFAS 157 also establishes a
three-level hierarchy for fair value measurements based upon the sources of data
and assumptions used to develop the fair value measurements. The three hierarchy
levels are broken down as follows:
Level 1 -
unadjusted quoted market prices in active markets for identical assets or
liabilities that are publicly accessible.
Level 2 -
quoted prices for similar assets or liabilities in active markets, quoted prices
for identical or similar assets or liabilities in markets that are not active
and inputs (other than quoted prices) that are observable for the asset or
liability, either directly or indirectly.
Level 3 -
unobservable inputs that reflect the Company’s assumptions, consistent with
reasonably available assumptions made by other market participants.
The
carrying amounts of all short-term financial instruments, except marketable
securities, approximate fair value due to the short-term nature of those
instruments. Marketable securities are carried at amortized cost. The fair value
disclosures of marketable securities are level 2 valuations as defined by SFAS
157, consisting of quoted prices for identical or similar assets in markets that
are not active. See Note 4. The carrying amount of short-term borrowings
approximates fair value as it bears interest at current market
rates.
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.
Below is
a summary of the amortized cost and estimated market values of investment
securities as of December 31, 2008 and 2007. The estimated market values
provided are level 2 valuations as defined by SFAS 157. See Note
3.
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
Market
|
|
|
Amortized
|
|
|
Market
|
|
|
|
|
Amortized Cost
|
|
|
Value
|
|
|
Cost
|
|
|
Value
|
|
|
|
|
(Dollars in thousands)
|
|
|
Municipal
bonds:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
6,623
|
|
|
$
|
6,667
|
|
|
$
|
5,604
|
|
|
$
|
5,615
|
|
|
Due
from one through five years
|
|
|
24,020
|
|
|
|
24,072
|
|
|
|
20,554
|
|
|
|
20,732
|
|
|
Due
from five through ten years
|
|
|
15,427
|
|
|
|
15,486
|
|
|
|
22,777
|
|
|
|
23,082
|
|
|
Total
|
|
$
|
46,070
|
|
|
$
|
46,225
|
|
|
$
|
48,935
|
|
|
$
|
49,429
|
|
The
unrealized gains and losses on investment securities at December 31, 2008 and
2007 were:
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
|
|
Gains
|
|
|
Losses
|
|
|
Gains
|
|
|
Losses
|
|
|
|
|
(Dollars
in thousands)
|
|
|
Municipal
bonds
|
|
$
|
523
|
|
|
$
|
368
|
|
|
$
|
531
|
|
|
$
|
37
|
|
The
Company has reviewed its portfolio of investments as of December 31, 2008 and
has determined that no other-than-temporary market value impairment
exists.
5.
INVENTORIES
At
December 31, 2008 and 2007, inventories consisted of:
|
|
|
2008
|
|
|
2007
|
|
|
|
|
(Dollars
in thousands)
|
|
|
Finished
shoes
|
|
$
|
61,955
|
|
|
$
|
57,826
|
|
|
LIFO
reserve
|
|
|
(14,943
|
)
|
|
|
(13,194
|
)
|
|
Total
inventories
|
|
$
|
47,012
|
|
|
$
|
44,632
|
|
Finished
shoes included inventory in-transit of $13.6 million and $14.6 million as of
December 31, 2008 and 2007, respectively.
6.
PROPERTY, PLANT AND EQUIPMENT
At
December 31, 2008 and 2007, property, plant and equipment consisted
of:
|
|
|
2008
|
|
|
2007
|
|
|
|
|
(Dollars
in thousands)
|
|
|
Land
and land improvements
|
|
$
|
2,693
|
|
|
$
|
2,684
|
|
|
Buildings
and improvements
|
|
|
19,719
|
|
|
|
19,719
|
|
|
Machinery
and equipment
|
|
|
16,766
|
|
|
|
16,031
|
|
|
Retail
fixtures and leasehold improvements
|
|
|
9,478
|
|
|
|
8,453
|
|
|
Construction
in progress
|
|
|
-
|
|
|
|
508
|
|
|
Property,
plant and equipment
|
|
|
48,656
|
|
|
|
47,395
|
|
|
Less:
Accumulated depreciation
|
|
|
(20,613
|
)
|
|
|
(18,718
|
)
|
|
Property,
plant and equipment, net
|
|
$
|
28,043
|
|
|
$
|
28,677
|
|
7.
OTHER ASSETS
Other
assets included the following amounts at December 31, 2008 and
2007:
|
|
|
2008
|
|
|
2007
|
|
|
|
|
(Dollars in thousands)
|
|
|
Pension asset
(See Note 9)
|
|
$
|
-
|
|
|
$
|
63
|
|
|
Cash
surrender value of life insurance
|
|
|
10,039
|
|
|
|
9,317
|
|
|
Other
|
|
|
30
|
|
|
|
60
|
|
|
Total
other assets
|
|
$
|
10,069
|
|
|
$
|
9,440
|
|
8.
SHORT-TERM BORROWINGS
At
December 31, 2008, the Company had a 364-day $50 million unsecured revolving
line of credit with a bank expiring April 30, 2009. The line of credit allows
for the issuance of up to $25 million in non-rated commercial paper at market
interest rates and additional bank borrowings at a rate of LIBOR plus 150 basis
points. The line of credit includes a minimum net worth covenant. As of December
31, 2008, the Company was in compliance with the covenant. Outstanding
borrowings under the line of credit at December 31, 2008 consisted of $1.25
million of commercial paper with an average interest rate of 2.29%. At December
31, 2007, outstanding borrowings under the $50 million line of credit were
$550,000 with an average interest rate of 5.17%.
9.
EMPLOYEE RETIREMENT PLANS
The
Company has a defined benefit pension plan covering substantially all employees,
as well as an unfunded supplemental pension plan for key executives. Retirement
benefits are provided based on employees’ years of credited service and average
earnings or stated amounts for years of service. Normal retirement age is 65
with provisions for earlier retirement. The plan also has provisions for
disability and death benefits. The Company’s funding policy for the defined
benefit pension plan is to make contributions to the plan such that all
employees’ benefits will be fully provided by the time they retire. Plan assets
are stated at market value and consist primarily of equity securities and fixed
income securities, mainly U.S. government and corporate
obligations.
The
Company follows SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension
and Other Postretirement Plans” (SFAS No. 158), which requires employers to
recognize the funded status of defined benefit pension and other postretirement
benefit plans as an asset or liability in its statement of financial position
and to recognize changes in the funded status in the year in which the changes
occur as a component of comprehensive income. In addition, SFAS No. 158 requires
employers to measure the funded status of its plans as of the date of its
yearend statement of financial position. SFAS No. 158 also requires additional
disclosures regarding amounts included in accumulated other comprehensive income
(loss).
The
Company has historically and will continue to use a yearend measurement date for
all of its pension plans.
The
Company’s pension plan’s weighted average asset allocation at December 31, 2008
and 2007, by asset category, was as follows:
|
|
|
Plan Assets at December 31,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Asset
Category:
|
|
|
|
|
|
|
|
Equity
Securities
|
|
|
44
|
%
|
|
|
52
|
%
|
|
Fixed
Income Securities
|
|
|
44
|
%
|
|
|
42
|
%
|
|
Other
|
|
|
12
|
%
|
|
|
6
|
%
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
The
Company has a Retirement Plan Committee, consisting of the Chief Executive
Officer, Chief Operating Officer and Chief Financial Officer, to manage the
operations and administration of all benefit plans and related trusts. The
committee has an investment policy for the pension plan assets that establishes
target asset allocation ranges for the above listed asset classes as follows:
equity securities: 20% - 80%; fixed income securities: 20% - 80%; and other,
principally cash: 0% - 20%. On a semi-annual basis, the committee reviews
progress towards achieving the pension plan’s performance
objectives.
To
develop the expected long-term rate of return on assets assumption, the Company
considered the historical returns and the future expectations for returns for
each asset class, as well as the target asset allocation of the pension
portfolio. This resulted in the selection of the 8.0% long-term rate of return
on assets assumption.
Assumptions
used in determining the funded status at December 31, 2008 and 2007
were:
|
|
|
2008
|
|
|
2007
|
|
|
Discount
rate
|
|
|
6.20
|
%
|
|
|
6.55
|
%
|
|
Rate
of compensation increase
|
|
|
4.5
|
%
|
|
|
4.5
|
%
|
The
following is a reconciliation of the change in benefit obligation and plan
assets of both the defined benefit pension plan and the unfunded supplemental
pension plan for the years ended December 31, 2008 and 2007:
|
|
|
Defined
Benefit Pension Plan
|
|
|
Supplemental
Pension Plan
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
(Dollars
in thousands)
|
|
|
Change
in projected benefit obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected
benefit obligation, beginning of year
|
|
$
|
25,944
|
|
|
$
|
27,664
|
|
|
$
|
6,369
|
|
|
$
|
5,527
|
|
|
Service
cost
|
|
|
717
|
|
|
|
777
|
|
|
|
142
|
|
|
|
104
|
|
|
Interest
cost
|
|
|
1,645
|
|
|
|
1,588
|
|
|
|
407
|
|
|
|
315
|
|
|
Actuarial
(gain) loss
|
|
|
1,587
|
|
|
|
(2,666
|
)
|
|
|
343
|
|
|
|
627
|
|
|
Benefits
paid
|
|
|
(1,413
|
)
|
|
|
(1,419
|
)
|
|
|
(209
|
)
|
|
|
(204
|
)
|
|
Projected
benefit obligation, end of year
|
|
$
|
28,480
|
|
|
$
|
25,944
|
|
|
$
|
7,052
|
|
|
$
|
6,369
|
|
|
Change
in plan assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
value of plan assets, beginning of year
|
|
|
26,007
|
|
|
|
26,180
|
|
|
|
-
|
|
|
|
-
|
|
|
Actual
return on plan assets
|
|
|
(5,522
|
)
|
|
|
1,296
|
|
|
|
-
|
|
|
|
-
|
|
|
Administrative
expenses
|
|
|
(50
|
)
|
|
|
(50
|
)
|
|
|
-
|
|
|
|
-
|
|
|
Contributions
|
|
|
1,000
|
|
|
|
-
|
|
|
|
209
|
|
|
|
204
|
|
|
Benefits
paid
|
|
|
(1,413
|
)
|
|
|
(1,419
|
)
|
|
|
(209
|
)
|
|
|
(204
|
)
|
|
Fair
value of plan assets, end of year
|
|
$
|
20,022
|
|
|
$
|
26,007
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Funded
status of plan
|
|
$
|
(8,458
|
)
|
|
$
|
63
|
|
|
$
|
(7,052
|
)
|
|
$
|
(6,369
|
)
|
|
Amounts
recognized in the balance sheets consist of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
assets
|
|
$
|
-
|
|
|
$
|
63
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Accrued
liabilities – other
|
|
|
-
|
|
|
|
-
|
|
|
|
(350
|
)
|
|
|
(326
|
)
|
|
Long-term
pension liability
|
|
|
(8,458
|
)
|
|
|
-
|
|
|
|
(6,702
|
)
|
|
|
(6,043
|
)
|
|
Net
amount recognized
|
|
$
|
(8,458
|
)
|
|
$
|
63
|
|
|
$
|
(7,052
|
)
|
|
$
|
(6,369
|
)
|
|
Amounts
recognized in accumulated other comprehensive loss consist
of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
loss, net of income tax benefit of
$5,529,
$2,056, $781, and $691, respectively
|
|
$
|
8,648
|
|
|
$
|
3,216
|
|
|
$
|
1,222
|
|
|
$
|
1,082
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior
service cost, net of income tax benefit of $29, $43, $180 and $205,
respectively
|
|
|
46
|
|
|
|
68
|
|
|
|
281
|
|
|
|
319
|
|
|
Net
amount recognized
|
|
$
|
8,694
|
|
|
$
|
3,284
|
|
|
$
|
1,503
|
|
|
$
|
1,401
|
|
The
accumulated benefit obligation for the defined benefit pension plan and the
supplemental pension plan was $25.3 million and $6.1 million, respectively, at
December 31, 2008 and $23.3 million and $5.3 million, respectively, at December
31, 2007.
Assumptions
used in determining net periodic pension cost for the years ended December 31,
2008, 2007 and 2006 were:
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Discount
rate
|
|
|
6.55
|
%
|
|
|
5.90
|
%
|
|
|
5.65
|
%
|
|
Rate
of compensation increase
|
|
|
4.5
|
%
|
|
|
4.5
|
%
|
|
|
4.5
|
%
|
|
Long-term
rate of return on plan assets
|
|
|
8.0
|
%
|
|
|
8.0
|
%
|
|
|
8.0
|
%
|
The
components of net periodic pension cost for the years ended December 31, 2008,
2007 and 2006, were:
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
(Dollars
in thousands)
|
|
|
Benefits
earned during the period
|
|
$
|
859
|
|
|
$
|
882
|
|
|
$
|
864
|
|
|
Interest
cost on projected benefit obligation
|
|
|
2,052
|
|
|
|
1,902
|
|
|
|
1,702
|
|
|
Expected
return on plan assets
|
|
|
(2,011
|
)
|
|
|
(2,053
|
)
|
|
|
(1,912
|
)
|
|
Net
amortization and deferral
|
|
|
478
|
|
|
|
628
|
|
|
|
531
|
|
|
Net
pension expense
|
|
$
|
1,378
|
|
|
$
|
1,359
|
|
|
$
|
1,185
|
|
The
Company expects to recognize $1.2 million of amortization of unrecognized loss
and $100,000 of amortization of prior service cost as components of net periodic
benefit cost in 2009, which are included in accumulated other comprehensive loss
at December 31, 2008.
The
Company does not expect to make a contribution to its defined benefit retirement
plan in 2009.
Projected
benefit payments for the plans as of December 31, 2008 were estimated as
follows:
|
|
|
Defined
Benefit
|
|
|
Supplemental
|
|
|
|
|
Pension
Plan
|
|
|
Pension
Plan
|
|
|
|
|
(Dollars
in thousands)
|
|
|
2009
|
|
$
|
1,648
|
|
|
$
|
350
|
|
|
2010
|
|
$
|
1,631
|
|
|
$
|
347
|
|
|
2011
|
|
$
|
1,616
|
|
|
$
|
343
|
|
|
2012
|
|
$
|
1,658
|
|
|
$
|
339
|
|
|
2013
|
|
$
|
1,677
|
|
|
$
|
335
|
|
|
2014-2018
|
|
$
|
8,859
|
|
|
$
|
1,711
|
|
The
Company also has a defined contribution plan covering substantially all
employees. The Company contributed approximately $200,000 to the plan in 2008,
2007 and 2006.
10.
INCOME TAXES
The
provision for income taxes included the following components at December 31,
2008, 2007 and 2006:
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
(Dollars
in thousands)
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
6,872
|
|
|
$
|
10,640
|
|
|
$
|
11,248
|
|
|
State
|
|
|
1,192
|
|
|
|
1,700
|
|
|
|
1,848
|
|
|
Foreign
|
|
|
907
|
|
|
|
642
|
|
|
|
357
|
|
|
Total
|
|
|
8,971
|
|
|
|
12,982
|
|
|
|
13,453
|
|
|
Deferred
|
|
|
436
|
|
|
|
80
|
|
|
|
(518
|
)
|
|
Total
provision
|
|
$
|
9,407
|
|
|
$
|
13,062
|
|
|
$
|
12,935
|
|
The
differences between the U.S. federal statutory income tax rate and the Company’s
effective tax rate were as follows for the years ended December 31, 2008, 2007
and 2006:
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
U.S.
federal statutory income tax rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
State
income taxes, net of federal tax benefit
|
|
|
2.9
|
|
|
|
3.0
|
|
|
|
3.5
|
|
|
Non-taxable
municipal bond interest
|
|
|
(2.5
|
)
|
|
|
(1.8
|
)
|
|
|
(1.6
|
)
|
|
Other
|
|
|
0.2
|
|
|
|
0.1
|
|
|
|
0.3
|
|
|
Effective
tax rate
|
|
|
35.6
|
%
|
|
|
36.3
|
%
|
|
|
37.2
|
%
|
The
foreign component of pretax net earnings was $2.7 million, $2.6 million and $1.0
million for 2008, 2007 and 2006, respectively.
The
components of deferred taxes as of December 31, 2008 and 2007, were as
follows:
|
|
|
2008
|
|
|
2007
|
|
|
|
|
(Dollars
in thousands)
|
|
|
Deferred
tax assets:
|
|
|
|
|
|
|
|
Accounts
receivable reserves
|
|
$
|
499
|
|
|
$
|
448
|
|
|
Pension
liability
|
|
|
6,049
|
|
|
|
2,484
|
|
|
Accrued
liabilities
|
|
|
1,876
|
|
|
|
1,535
|
|
|
|
|
|
8,424
|
|
|
|
4,467
|
|
|
Deferred
tax liabilities:
|
|
|
|
|
|
|
|
|
|
Inventory
and related reserves
|
|
|
(1,340
|
)
|
|
|
(1,187
|
)
|
|
Cash
value of life insurance
|
|
|
(2,216
|
)
|
|
|
(2,066
|
)
|
|
Depreciation
|
|
|
(1,702
|
)
|
|
|
(1,366
|
)
|
|
Trademark
|
|
|
(1,593
|
)
|
|
|
(1,350
|
)
|
|
Prepaid
and other assets
|
|
|
(258
|
)
|
|
|
(271
|
)
|
|
|
|
|
(7,109
|
)
|
|
|
(6,240
|
)
|
|
Net
deferred tax liability
|
|
$
|
1,315
|
|
|
$
|
(1,773
|
)
|
The net
deferred tax liability is classified in the Consolidated Balance Sheets as
follows:
|
|
|
2008
|
|
|
2007
|
|
|
|
|
(Dollars
in thousands)
|
|
|
Current
deferred income tax benefits
|
|
$
|
579
|
|
|
$
|
475
|
|
|
Noncurrent
deferred income tax benefits (liabilities)
|
|
|
736
|
|
|
|
(2,248
|
)
|
|
|
|
$
|
1,315
|
|
|
$
|
(1,773
|
)
|
Uncertain
Tax Positions
On
January 1, 2007 the Company adopted FASB Interpretation No. 48, “Accounting for
Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109” (FIN
48). This Interpretation clarifies the accounting and disclosures for
uncertainty in tax positions. FIN 48 provides that the tax effects from an
uncertain tax position can be recognized in the Company’s financial statements
only if the position is more likely than not of being sustained on audit, based
on the technical merits of the position. As a result of applying the provisions
of FIN 48, the Company recognized a decrease of $27,000 in Accrued Income Taxes
and a corresponding adjustment to the beginning balance of retained earnings on
the balance sheet as of January 1, 2007.
The
following table summarizes the activity related to the Company’s unrecognized
tax benefits:
|
(Dollars
in thousands)
|
|
|
|
|
Balance
at January 1, 2007
|
|
$
|
212
|
|
|
Increases
related to current year tax positions
|
|
|
125
|
|
|
Expiration
of the statute of limitations for the assessment of taxes
|
|
|
(16
|
)
|
|
Balance
at December 31, 2007
|
|
$
|
321
|
|
|
Increases
related to current year tax positions
|
|
|
70
|
|
|
Expiration
of the statute of limitations for the assessment of taxes
|
|
|
(16
|
)
|
|
Balance
at December 31, 2008
|
|
$
|
375
|
|
The
Company had unrecognized tax benefits of $375,000 and $321,000 at December 31,
2008 and 2007, respectively, all of which, if recognized, would reduce the
Company’s annual effective tax rate. The Company also accrued potential
penalties and interest related to these unrecognized tax benefits of $7,000 and
$20,000, respectively, during 2008 and $8,000 and $15,000, respectively, during
2007. Included in the Company’s balance sheet at December 31, 2008, was a
liability for potential penalties and interest of $20,000 and $42,000,
respectively. Included in the Company’s balance sheet at December 31, 2007, was
a liability for potential penalties and interest of $13,500 and $22,000,
respectively. The Company does not expect the unrecognized tax benefits to
change significantly over the next 12 months.
The
Company files a U.S. income tax return and various state income tax returns. In
general, the 2005 through 2008 tax years remain subject to examination by those
taxing authorities.
11.
OPERATING LEASES
The
Company operates retail shoe stores under both short-term and long-term leases.
Leases provide for a minimum rental plus percentage rentals based upon sales in
excess of a specified amount. The Company also leases its distribution
facilities in Canada and Europe. Total minimum rents were $4.6 million in 2008,
$4.2 million in 2007, and $3.2 million in 2006. Percentage rentals were $12,300
in 2008, $9,300 in 2007, and $26,500 in 2006.
Future
fixed and minimum rental commitments required under operating leases that have
initial or remaining non-cancelable lease terms in excess of one year as of
December 31, 2008, are shown below. Renewal options exist for many long-term
leases.
|
(Dollars
in thousands)
|
|
|
|
|
2009
|
|
$
|
3,886
|
|
|
2010
|
|
|
3,647
|
|
|
|
|
|
3,595
|
|
|
2012
|
|
|
3,558
|
|
|
2013
|
|
|
3,578
|
|
|
Thereafter
|
|
|
9,921
|
|
|
Total
|
|
$
|
28,185
|
|
12.
SHAREHOLDERS’ INVESTMENT
Prior to
July 1, 2007, the Company had common stock and Class B common stock outstanding.
Each share of Class B common stock had 10 votes, could only be transferred to
certain permitted transferees, was convertible to one share of common stock at
the holder’s option and shared equally with the common stock in cash dividends
and liquidation rights. All outstanding shares of Class B common stock converted
into common stock on July 1, 2007.
In April
1998, the Company’s Board of Directors first authorized a stock repurchase
program to purchase shares of its common stock in open market transactions at
prevailing prices. During 2006, the Company purchased 233,689 shares at a total
cost of $5.2 million; in 2007, the Company purchased 378,740 shares at a total
cost of $9.9 million; and in 2008, the Company purchased 413,325 shares at a
total cost of $11.5 million. At December 31, 2008, the Company was authorized to
buy back an additional 503,582 shares under the program.
13.
EARNINGS PER
SHARE
The
following table sets forth the computations of basic and diluted earnings per
share for the years ended December 31, 2008, 2007 and 2006:
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
(In
thousands, except per share amounts)
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
Net
Earnings
|
|
$
|
17,025
|
|
|
$
|
22,901
|
|
|
$
|
21,856
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
weighted average shares outstanding
|
|
|
11,397
|
|
|
|
11,566
|
|
|
|
11,633
|
|
|
Effect
of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee
stock-based awards
|
|
|
360
|
|
|
|
447
|
|
|
|
461
|
|
|
Diluted
weighted average shares outstanding
|
|
|
11,757
|
|
|
|
12,013
|
|
|
|
12,094
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share
|
|
$
|
1.49
|
|
|
$
|
1.98
|
|
|
$
|
1.88
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
earnings per share
|
|
$
|
1.45
|
|
|
$
|
1.91
|
|
|
$
|
1.81
|
|
Diluted
weighted average shares outstanding in 2008 exclude outstanding options to
purchase 128,500 shares of common stock at a weighted average price of $30.67
and 6,640 shares of common stock at a weighted average price of $30.12 because
they were antidilutive. Diluted weighted average shares outstanding for 2007 and
2006 include all outstanding options to purchase common stock as none were
antidilutive.
14.
SEGMENT INFORMATION
The
Company determines its operating segments based on the information utilized by
the chief operating decision maker, the Company’s Chief Executive Officer, to
allocate resources and assess performance. Based upon this criteria, the Company
has determined that it operates in two operating segments, wholesale
distribution and retail sales of men’s footwear, which also constitute its
reportable segments. None of the Company’s operating segments were aggregated in
determining the Company’s reportable segments.
In the
wholesale segment, shoes are marketed through more than 10,000 shoe, clothing
and department stores. Most sales are to unaffiliated customers in North
America, with some distribution in Europe. In 2008, 2007 and 2006, sales to the
Company’s largest customer were 14%, 12% and 10%, respectively, of total
sales.
In the
retail division, the Company operates 36 Company-owned stores in principal
cities in the United States, two stores in Europe, and an Internet business.
Sales in retail outlets are made directly to the consumer by Company employees.
In addition to the sale of the Company’s brands of footwear in these retail
outlets, other branded footwear and accessories are also sold in order to
provide the consumer with as complete a selection as practically
possible.
The
accounting policies of the segments are the same as those described in the
Summary of Significant Accounting Policies. The Company evaluates performance
based on earnings from operations. Summarized segment data for the years ended
December 31, 2008, 2007 and 2006 was as follows:
|
|
|
Wholesale
Distribution
|
|
|
Retail
|
|
|
Total
|
|
|
|
|
(Dollars in thousands)
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
Product
sales
|
|
$
|
188,235
|
|
|
$
|
28,913
|
|
|
$
|
217,148
|
|
|
Licensing
revenues
|
|
|
4,284
|
|
|
|
-
|
|
|
|
4,284
|
|
|
Net
sales
|
|
|
192,519
|
|
|
|
28,913
|
|
|
|
221,432
|
|
|
Depreciation
|
|
|
1,786
|
|
|
|
845
|
|
|
|
2,631
|
|
|
Earnings
from operations
|
|
|
22,735
|
|
|
|
1,764
|
|
|
|
24,499
|
|
|
Total
assets
|
|
|
179,542
|
|
|
|
11,098
|
|
|
|
190,640
|
|
|
Capital
expenditures
|
|
|
619
|
|
|
|
1,559
|
|
|
|
2,178
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
sales
|
|
$
|
197,382
|
|
|
$
|
31,147
|
|
|
$
|
228,529
|
|
|
Licensing
revenues
|
|
|
4,087
|
|
|
|
-
|
|
|
|
4,087
|
|
|
Net
sales
|
|
|
201,469
|
|
|
|
31,147
|
|
|
|
232,616
|
|
|
Depreciation
|
|
|
1,797
|
|
|
|
687
|
|
|
|
2,484
|
|
|
Earnings
from operations
|
|
|
29,550
|
|
|
|
4,582
|
|
|
|
34,132
|
|
|
Total
assets
|
|
|
178,269
|
|
|
|
11,883
|
|
|
|
190,152
|
|
|
Capital
expenditures
|
|
|
661
|
|
|
|
2,066
|
|
|
|
2,727
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
sales
|
|
$
|
187,149
|
|
|
$
|
29,763
|
|
|
$
|
216,912
|
|
|
Licensing
revenues
|
|
|
4,135
|
|
|
|
-
|
|
|
|
4,135
|
|
|
Net
sales
|
|
|
191,284
|
|
|
|
29,763
|
|
|
|
221,047
|
|
|
Depreciation
|
|
|
1,630
|
|
|
|
576
|
|
|
|
2,206
|
|
|
Earnings
from operations
|
|
|
28,727
|
|
|
|
4,717
|
|
|
|
33,444
|
|
|
Total
assets
|
|
|
179,299
|
|
|
|
10,324
|
|
|
|
189,623
|
|
|
Capital
expenditures
|
|
|
1,237
|
|
|
|
1,949
|
|
|
|
3,186
|
|
All
corporate assets are included in the wholesale distribution
segment. Net sales above exclude intersegment sales.
Sales by
geographic region based on product shipment destination were as follows for the
years ended December 31, 2008, 2007 and 2006:
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
(Dollars in thousands)
|
|
|
United
States
|
|
$
|
203,961
|
|
|
$
|
214,524
|
|
|
$
|
208,246
|
|
|
Canada
|
|
|
9,751
|
|
|
|
10,520
|
|
|
|
6,015
|
|
|
Europe
|
|
|
7,720
|
|
|
|
7,572
|
|
|
|
6,786
|
|
|
Total
|
|
$
|
221,432
|
|
|
$
|
232,616
|
|
|
$
|
221,047
|
|
15. STOCK-BASED
COMPENSATION PLANS
At
December 31, 2008, the Company has two stock-based compensation
plans: the 1997 Stock Option Plan and the 2005 Equity Incentive
Plan. Under the plans, options to purchase common stock were granted
to officers and key employees at exercise prices not less than the fair market
value of the Company’s common stock on the date of the grant. The
Company issues new common stock to satisfy stock option exercises and the
issuance of restricted stock awards.
Stock
options and restricted stock awards were granted on December 1, 2008, November
30, 2007 and December 1, 2006, for 2008, 2007 and 2006,
respectively. Stock options were granted at the fair market value of
the Company’s stock price, as defined in the 2005 Equity Incentive Plan, which
is the average of the high and low trade prices on the grant
date. The stock options and restricted stock awarded in 2008, 2007
and 2006 vest ratably over four years. Stock options expire five
years from the date of grant. These awards were granted on the date
the Board of Directors approved them. One-fourth of the restricted
stock awards and stock option grants vest annually on the anniversary of the
grant date. Options granted prior to 2006 expire ten years from the
grant date, with the exception of certain incentive stock options, which expire
five years from the grant date. As of December 31, 2008, there were
430,360 shares remaining available for stock-based awards under the 2005 Equity
Incentive Plan.
Effective
January 1, 2006, the Company adopted SFAS No. 123(R), “Share-Based Payment,”
(SFAS 123(R)) using the modified prospective method. In fiscal years
prior to the adoption of SFAS 123(R), no compensation expense was recognized as
the exercise price of all options granted under the plans was equal to the fair
market value of common stock on the date of grant. Additionally, all
of the Company’s stock options granted prior to the effective date were 100%
vested at the effective date and, therefore, no stock-based employee
compensation related to those grants was charged against income in 2008, 2007 or
2006.
The
Company’s policy is to estimate the fair market value of each option granted on
the date of grant using the Black-Scholes option pricing model that uses the
assumptions noted in the table below. The Company estimates the fair
value of each restricted stock award based on the fair market value of the
Company’s stock price on the grant date. The resulting compensation cost for
both the options and restricted stock is amortized on a straight-line basis over
the vesting period of the respective awards.
In
accordance with SFAS 123(R), stock-based compensation was recognized in the
2008, 2007 and 2006 consolidated financial statements for stock options and
restricted stock awards granted in 2008, 2007 and 2006. An estimate
of forfeitures, based on historical data, was included in the calculation of
stock-based compensation, and the estimate was adjusted quarterly to the extent
that actual forfeitures differ, or are expected to materially differ, from such
estimates. The effect of applying the expense recognition provisions
of SFAS 123(R) in 2008, 2007 and 2006 decreased Earnings Before Provision For
Income Taxes by approximately $609,000, $316,000 and $25,000,
respectively.
As of
December 31, 2008, there was $1.2 million of total unrecognized compensation
cost related to non-vested stock options granted in 2008, 2007 and 2006, which
is expected to be recognized over the remaining vesting period of 3.9
years. As of December 31, 2008, there was $1.4 million of total
unrecognized compensation cost related to non-vested restricted stock awards
granted in 2008, 2007 and 2006, which is also expected to be recognized over the
remaining vesting period of 3.9 years.
The
following weighted-average assumptions were used to determine compensation
expense related to stock options in 2008, 2007 and 2006:
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
(Dollars in thousands)
|
|
|
Risk-free interest
rate
|
|
|
1.35
|
%
|
|
|
3.00
|
%
|
|
|
4.37
|
%
|
|
Expected
dividend yield
|
|
|
1.96
|
%
|
|
|
1.60
|
%
|
|
|
1.60
|
%
|
|
Expected
term
|
|
3.5
years
|
|
|
3.6
years
|
|
|
3.5
years
|
|
|
Expected
volatility
|
|
|
31.7
|
%
|
|
|
28.7
|
%
|
|
|
31.7
|
%
|
The
risk-free interest rate is based on U. S. Treasury bonds with a remaining term
equal to the expected term of the award. The expected dividend yield
is based on the Company’s expected annual dividend as a percentage of the market
value of the Company’s common stock in the year of grant. The
expected term of the stock options is determined using historical experience.
The expected volatility is based upon historical stock prices over the most
recent period equal to the expected term of the award.
The
following tables summarize stock option activity under the Company’s
plans:
Stock
Options
|
|
|
Years ended December 31,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Stock Options
|
|
Shares
|
|
|
Weighted
Average
Exercise Price
|
|
|
Shares
|
|
|
Weighted
Average
Exercise Price
|
|
|
Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Outstanding
at beginning of year
|
|
|
1,189,924
|
|
|
$
|
14.49
|
|
|
|
1,252,190
|
|
|
$
|
12.62
|
|
|
|
1,537,048
|
|
|
$
|
11.44
|
|
|
Granted
|
|
|
128,500
|
|
|
|
30.67
|
|
|
|
123,300
|
|
|
|
27.52
|
|
|
|
47,900
|
|
|
|
24.09
|
|
|
Exercised
|
|
|
(213,012
|
)
|
|
|
10.29
|
|
|
|
(181,466
|
)
|
|
|
10.21
|
|
|
|
(332,758
|
)
|
|
|
8.83
|
|
|
Forfeited
|
|
|
(5,400
|
)
|
|
|
26.47
|
|
|
|
(4,100
|
)
|
|
|
24.09
|
|
|
|
-
|
|
|
|
-
|
|
|
Outstanding
at end of year
|
|
|
1,100,012
|
|
|
$
|
17.14
|
|
|
|
1,189,924
|
|
|
$
|
14.49
|
|
|
|
1,252,190
|
|
|
$
|
12.62
|
|
|
Exercisable
at end of year
|
|
|
860,962
|
|
|
$
|
13.87
|
|
|
|
1,033,774
|
|
|
$
|
12.63
|
|
|
|
1,204,290
|
|
|
$
|
12.16
|
|
|
Weighted
average fair market value of options granted
|
|
$
|
4.65
|
|
|
|
|
|
|
$
|
5.96
|
|
|
|
|
|
|
$
|
6.15
|
|
|
|
|
|
|
|
|
Weighted Average Remaining
Contractual Life (in years)
|
|
|
Aggregate Intrinsic Value
|
|
|
Outstanding
- December 31, 2008
|
|
|
3.93
|
|
|
$
|
17,503,000
|
|
|
Exercisable
- December 31, 2008
|
|
|
3.81
|
|
|
$
|
16,514,000
|
|
The
aggregate intrinsic value for outstanding and exercisable stock options is
defined as the difference between the market value at December 31, 2008 of
$33.05 and the grant price.
Unvested
Stock Options
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
Number
of
|
|
|
Average
Exercise
|
|
|
Weighted
Average
|
|
|
Unvested
Stock Options
|
|
Unvested
Options
|
|
|
Price
|
|
|
Fair
Value
|
|
|
Non-vested
- December 31, 2005
|
|
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Granted
|
|
|
47,900
|
|
|
|
24.09
|
|
|
|
6.15
|
|
|
Vested
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Non-vested
- December 31, 2006
|
|
|
47,900
|
|
|
$
|
24.09
|
|
|
$
|
6.15
|
|
|
Granted
|
|
|
123,300
|
|
|
|
27.52
|
|
|
|
5.96
|
|
|
Vested
|
|
|
(10,950
|
)
|
|
|
24.09
|
|
|
|
6.15
|
|
|
Forfeited
|
|
|
(4,100
|
)
|
|
|
24.09
|
|
|
|
6.15
|
|
|
Non-vested
- December 31, 2007
|
|
|
156,150
|
|
|
$
|
26.80
|
|
|
$
|
6.00
|
|
|
Granted
|
|
|
128,500
|
|
|
|
30.67
|
|
|
|
4.65
|
|
|
Vested
|
|
|
(40,200
|
)
|
|
|
26.64
|
|
|
|
6.01
|
|
|
Forfeited
|
|
|
(5,400
|
)
|
|
|
26.57
|
|
|
|
6.01
|
|
|
Non-vested
- December 31, 2008
|
|
|
239,050
|
|
|
$
|
28.91
|
|
|
$
|
5.27
|
|
The
following table summarizes information about outstanding and exercisable stock
options at December 31, 2008:
|
|
|
Options
Outstanding
|
|
|
Options
Exercisable
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
Remaining
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
Options
|
|
|
Contractual
|
|
|
Exercise
|
|
|
Number
of
|
|
|
Exercise
|
|
|
Range
of Exercise Prices
|
|
Outstanding
|
|
|
Life
(in years)
|
|
|
Price
|
|
|
Options
|
|
|
Price
|
|
|
$7.25
to $8.62
|
|
|
280,790
|
|
|
|
1.98
|
|
|
$
|
8.00
|
|
|
|
280,790
|
|
|
$
|
8.00
|
|
|
$12.04
to $15.46
|
|
|
180,796
|
|
|
|
3.96
|
|
|
|
12.78
|
|
|
|
180,796
|
|
|
|
12.78
|
|
|
$16.79
to $30.67
|
|
|
638,426
|
|
|
|
4.78
|
|
|
|
22.39
|
|
|
|
399,376
|
|
|
|
18.49
|
|
|
|
|
|
1,100,012
|
|
|
|
3.93
|
|
|
$
|
17.14
|
|
|
|
860,962
|
|
|
$
|
13.87
|
|
The
following table summarizes stock option activity for the years ended December
31:
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
(Dollars in thousands)
|
|
|
Total
intrinsic value of stock options exercised
|
|
$
|
4,355
|
|
|
$
|
2,885
|
|
|
$
|
4,042
|
|
|
Cash
received from stock option exercises
|
|
$
|
2,191
|
|
|
$
|
1,853
|
|
|
$
|
2,938
|
|
|
Income
tax benefit from the exercise of stock options
|
|
$
|
1,695
|
|
|
$
|
1,125
|
|
|
$
|
1,549
|
|
|
Total
fair value of stock options vested
|
|
$
|
242
|
|
|
$
|
67
|
|
|
$
|
-
|
|
Restricted
Stock
The
following table summarizes restricted stock award activity during the years
ended December 31, 2008, 2007 and 2006:
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
Shares of
|
|
|
Grant Date
|
|
|
Restricted Stock
|
|
Restricted Stock
|
|
|
Fair Value
|
|
|
Non-vested
- December 31, 2005
|
|
|
-
|
|
|
$
|
-
|
|
|
Issued
|
|
|
41,000
|
|
|
|
24.09
|
|
|
Vested
|
|
|
-
|
|
|
|
-
|
|
|
Non-vested
- December 31, 2006
|
|
|
41,000
|
|
|
$
|
24.09
|
|
|
Issued
|
|
|
20,190
|
|
|
|
27.38
|
|
|
Vested
|
|
|
(9,450
|
)
|
|
|
24.09
|
|
|
Forfeited
|
|
|
(3,200
|
)
|
|
|
24.09
|
|
|
Non-vested
- December 31, 2007
|
|
|
48,540
|
|
|
$
|
25.46
|
|
|
Issued
|
|
|
20,200
|
|
|
|
27.26
|
|
|
Vested
|
|
|
(14,247
|
)
|
|
|
25.24
|
|
|
Forfeited
|
|
|
(825
|
)
|
|
|
25.29
|
|
|
Non-vested
- December 31, 2008
|
|
|
53,668
|
|
|
$
|
26.20
|
|
At
December 31, 2008, the Company expected 53,668 shares of restricted stock to
vest over a weighted-average remaining contractual term of 2.9
years. These shares had an aggregate intrinsic value of $1.8 million
at December 31, 2008. The aggregate intrinsic value is calculated
using the market value at December 31, 2008 multiplied by the number of
non-vested restricted shares outstanding. The income tax benefit from
the vesting of restricted stock for the years ended December 31 was $152,000 in
2008 and $116,000 in 2007.
16.
QUARTERLY
FINANCIAL DATA (Unaudited)
(In
thousands, except per share amounts)
|
2008
|
|
First
Quarter
|
|
|
Second
Quarter
|
|
|
Third
Quarter
|
|
|
Fourth
Quarter
|
|
|
Year
|
|
|
Net
sales
|
|
$
|
61,278
|
|
|
$
|
53,017
|
|
|
$
|
57,172
|
|
|
$
|
49,965
|
|
|
$
|
221,432
|
|
|
Gross
earnings
|
|
$
|
22,266
|
|
|
$
|
19,733
|
|
|
$
|
20,906
|
|
|
$
|
18,233
|
|
|
$
|
81,138
|
|
|
Net
earnings
|
|
$
|
5,126
|
|
|
$
|
4,057
|
|
|
$
|
4,341
|
|
|
$
|
3,501
|
|
|
$
|
17,025
|
|
|
Net
earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.45
|
|
|
$
|
0.35
|
|
|
$
|
0.38
|
|
|
$
|
0.31
|
|
|
$
|
1.49
|
|
|
Diluted
|
|
$
|
0.43
|
|
|
$
|
0.34
|
|
|
$
|
0.37
|
|
|
$
|
0.30
|
|
|
$
|
1.45
|
|
|
2007
|
|
First
Quarter
|
|
|
Second
Quarter
|
|
|
Third
Quarter
|
|
|
Fourth
Quarter
|
|
|
Year
|
|
|
Net
sales
|
|
$
|
63,858
|
|
|
$
|
48,371
|
|
|
$
|
58,162
|
|
|
$
|
62,225
|
|
|
$
|
232,616
|
|
|
Gross
earnings
|
|
$
|
23,051
|
|
|
$
|
18,694
|
|
|
$
|
21,816
|
|
|
$
|
25,856
|
|
|
$
|
89,417
|
|
|
Net
earnings
|
|
$
|
5,695
|
|
|
$
|
4,049
|
|
|
$
|
5,334
|
|
|
$
|
7,823
|
|
|
$
|
22,901
|
|
|
Net
earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.49
|
|
|
$
|
0.35
|
|
|
$
|
0.46
|
|
|
$
|
0.68
|
|
|
$
|
1.98
|
|
|
Diluted
|
|
$
|
0.47
|
|
|
$
|
0.34
|
|
|
$
|
0.45
|
|
|
$
|
0.66
|
|
|
$
|
1.91
|
|
17.
SUBSEQUENT EVENTS (Unaudited)
On
January 23, 2009, the Company entered into a series of transactions to acquire a
majority interest in the licensees of its Florsheim, Stacy Adams and Nunn Bush
branded shoes in the Australian, Asia Pacific and South African
markets. As part of the transactions, the Company entered into an
agreement to purchase a 60% equity interest in a newly formed entity, Florsheim
Australia Pty Ltd (“Florsheim Australia”) for approximately $3.5
million. Additionally, Weyco Investments, Inc., a wholly-owned
subsidiary of the Company, entered into a loan agreement with Florsheim
Australia. The loan agreement provides for a $4.8 million secured
term loan (to amortize over four years) and a one-year $2.1 million secured
revolving credit loan. The term loan was fully funded at closing and
$1.5 million of the revolving credit loan was advanced to Florsheim
Australia. The subscription agreement provides that the Company’s
equity interest in Florsheim Australia will decrease to 51% as the loan
agreement is paid in accordance with its terms.
Florsheim
Australia subsequently acquired the operating assets and certain liabilities
related to the Florsheim business from Figgins Holdings Pty Ltd, the former
Australian licensee, and acquired the stock of Florsheim South Africa Pty Ltd
and Florsheim Asia Pacific Ltd, the Company’s other licensees, for a total
purchase price of approximately $10 million. Total net sales for the
combined businesses acquired were approximately $25 million for their fiscal
year ended June 30, 2008, with the vast majority of sales under the Florsheim
brand name. The acquisition includes both wholesale and retail businesses, with
24 Florsheim retail stores in Australia, one Florsheim retail store in New
Zealand and one retail store in Macau. Management believes the
acquisition provides the opportunity to further develop the Florsheim business
and present a more unified brand image worldwide. The assets and
liabilities acquired by Florsheim Australia principally included inventory,
accounts receivable, leasehold improvements, accounts payable and accrued
employee benefits.
The
acquisition of Florsheim Australia will be accounted for as a business
combination under FAS 141(R), and the noncontrolling interest will be accounted
for and reported in accordance with FAS 160 in the first quarter of
2009.
In
February 2009, the Company’s Board of Directors authorized the repurchase of an
additional 1.0 million shares of its common stock under its repurchase program,
bringing the total available to purchase to approximately 1.5
million.
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Shareholders and Board of Directors of
Weyco
Group, Inc.:
We have
audited the accompanying consolidated balance sheets of Weyco Group, Inc. and
subsidiaries (the “Company”) as of December 31, 2008 and 2007, and the related
consolidated statements of earnings, shareholders’ investment, and cash flows
for each of the three years in the period ended December 31,
2008. 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 the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our
opinion, such consolidated financial statements present fairly, in all material
respects, the financial position of Weyco Group, Inc. and subsidiaries as of
December 31, 2008 and 2007, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 2008, in
conformity with accounting principles generally accepted in the United States of
America.
As
described in Note 9 to the consolidated financial statements, on December 31,
2006, the Company adopted Statement of Financial Accounting Standards
No. 158, “Employers Accounting for Defined Benefit Pension and Other
Postretirement Plans.”
We have
also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the Company's internal control over financial
reporting as of December 31, 2008, based on the criteria established in
Internal Control—Integrated
Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission and our report dated March 9, 2009 expressed an unqualified
opinion on the Company's internal control over financial reporting.
/s/
DELOITTE & TOUCHE LLP
Milwaukee,
Wisconsin
March 9,
2009
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Shareholders and Board of Directors of
Weyco
Group, Inc.:
We have
audited the internal control over financial reporting of Weyco Group, Inc. and
subsidiaries (the "Company") as of December 31, 2008, based on criteria
established in
Internal
Control—Integrated Framework
issued by the Committee of Sponsoring
Organizations of the Treadway Commission. The Company's management is
responsible for maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control over financial
reporting, included in the accompanying “Management’s Report on Internal Control
Over Financial Reporting.” Our responsibility is to express an opinion on
the Company's internal control over financial reporting based on our
audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all
material respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness
of internal control, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a
reasonable basis for our opinion.
A
company's internal control over financial reporting is a process designed by, or
under the supervision of, the company's principal executive and principal
financial officers, or persons performing similar functions, and effected by the
company's board of directors, management, and other personnel to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company's internal control
over financial reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial
statements.
Because
of the inherent limitations of internal control over financial reporting,
including the possibility of collusion or improper management override of
controls, material misstatements due to error or fraud may not be prevented or
detected on a timely basis. Also, projections of any evaluation of the
effectiveness of the internal control over financial reporting to future periods
are subject to the risk that the controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
In our
opinion, the Company maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2008, based on the criteria
established in
Internal
Control—Integrated Framework
issued by the Committee of Sponsoring
Organizations of the Treadway Commission.
We have
also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated financial statements as of and
for the year ended December 31, 2008 of the Company and our report dated March
9, 2009 expressed an unqualified opinion on those financial
statements.
/s/
DELOITTE & TOUCHE LLP
Milwaukee,
Wisconsin
March 9,
2009
MANAGEMENT’S
REPORT ON INTERNAL CONTROL
OVER
FINANCIAL REPORTING
Management
of Weyco Group, Inc. (the “Company”) is responsible for establishing and
maintaining adequate internal control over financial reporting. The
Company’s internal control system was designed to provide reasonable assurance
to the Company’s management and board of directors regarding the preparation and
fair presentation of published financial statements.
All
internal control systems, no matter how well designed, have inherent
limitations. Therefore, even those systems determined to be effective
can provide only reasonable assurance with respect to financial statement
preparation and presentation.
The
Company’s management assessed the effectiveness of the Company’s internal
control over financial reporting as of December 31, 2008. In making
this assessment, management used the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission in
Internal Control – Integrated
Framework
. Based on our assessment we believe that, as of
December 31, 2008, the Company’s internal control over financial reporting is
effective based on those criteria.
The
Company’s independent registered public accounting firm has issued an audit
report on the effectiveness of the Company’s internal control over financial
reporting, as stated in their report which is included herein.
/s/
Thomas W. Florsheim, Jr.
Chairman
and Chief Executive Officer
March 9,
2009
/s/ John
Wittkowske
Senior
Vice President and Chief Financial Officer
March 9,
2009
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DIRECTORS
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Thomas
W. Florsheim
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Thomas
W. Florsheim, Jr.
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John
W. Florsheim
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Chairman
Emeritus
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Chairman
and Chief
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President,
Chief
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Operating
Officer and
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Assistant
Secretary
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Robert
Feitler
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Tina
Chang
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Cory
L. Nettles
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Chairman,
Executive
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Chairman
of the Board
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Managing
Director,
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Committee
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and
Chief Executive
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Generation
Growth Capital, Inc.
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Officer,
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SysLogic,
Inc.
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Frederick
P. Stratton, Jr.
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Chairman
Emeritus
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Briggs
& Stratton Corporation
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EXECUTIVE
OFFICERS
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Thomas
W. Florsheim, Jr.
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John
W. Florsheim
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Peter
S. Grossman
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Chairman
and Chief
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President,
Chief
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Senior
Vice President, and
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Executive
Officer
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Operating
Officer and
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President
Nunn Bush Brand
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and
Retail Division
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John
F. Wittkowske
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Senior
Vice President,
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Chief
Financial Officer
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and
Secretary
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OFFICERS
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Judy
Anderson
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Steele
Davidoff
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Matthew
J. Engerman
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Vice
President, Finance
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Vice
President, Licensing
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Vice
President Sales,
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and
Treasurer
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Nunn
Bush Brand
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Brian
Flannery
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Beverly
Goldberg
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Al
Jackson
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Vice
President, and
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Vice
President Sales,
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Vice
President, Customer
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President
Stacy Adams Brand
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Florsheim
Brand
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Relations/Vendor
Compliance
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James
G. Kehoe
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David
McGinnis
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Keven
Ringgold
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Vice
President, Distribution
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Vice
President, and
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Vice
President, Design
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President
Florsheim Brand
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Kevin
Schiff
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George
Sotiros
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Tim
Then
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Vice
President Sales,
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Vice
President, Information
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Vice
President, Retail Division
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Stacy
Adams Brand
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Technology
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Allison
Woss
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Vice
President, Purchasing
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SUPPLEMENTAL
INFORMATION
Annual
Meeting
Shareholders
are invited to attend Weyco Group, Inc.’s 2009 Annual Meeting at 10:00 a.m. on
May 5, 2009, at the general offices of the Company, 333 W. Estabrook Boulevard,
Glendale, Wisconsin.
Stock
Exchange
The
Company’s Common Stock (symbol WEYS) is listed on the NASDAQ Market System
(NMS).
Transfer
Agent and Registrar
American
Stock Transfer & Trust Company
59 Maiden
Lane
New York,
New York 10038
Company
Headquarters
Weyco
Group, Inc.
333 W.
Estabrook Boulevard
Glendale,
WI 53212
414-908-1600
www.weycogroup.com
Other
Information
Copies
of the Company’s Annual Report to the Securities and Exchange Commission (Form
10-K), its Quarterly Reports to the Securities and Exchange Commission (Form
10-Q’s) and its Code of Business
Ethics are available on the Company’s website at
www.weycogroup.com
.
Copies will be
furnished without charge to any shareholder (including beneficial owners) upon
written or telephone request. Written requests should be sent to
Investor Relations, Weyco Group, Inc., P. O. Box 1188, Milwaukee, Wisconsin
53201 or
e-mailed
to
Investor.Relations@weycogroup.com
. Telephone
inquiries should be made to (414) 908-1600.
