UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-K

x Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

x		Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended December 31, 2017,2019, or

o		Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

¨ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from ............... to ...............

Commission file number 0-9068000-09068

WEYCO GROUP, INC.

(Exact name of registrant as specified in its charter)

Wisconsin		39-0702200
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

333 W. Estabrook Boulevard,
P. O. Box 1188,
Milwaukee, WI 53201

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code:(414) 908-1600

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock —- $1.00 par value per share	WEYS	The NASDAQNasdaq Stock Market

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.YesAct.     Yeso¨     Nox

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.YesAct.      Yeso¨     Nox

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.Yesdays.     Yesx     Noo¨

Indicate by check mark whether the registrant has submitted electronically, and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).Yes.      Yesx     Noo¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulations S-K (Section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer¨   Accelerated filerx   Non-accelerated filer¨   Smaller reporting companyx   Emerging growth company¨ o		Accelerated filerx		Non-accelerated filero
Smaller reporting companyo		Emerging growth companyo

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Acto¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).Yes.    Yeso¨     Nox

The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant as of the close of business on June 30, 2017,2019, was $169,906,000.$164,547,000. This was based on the closing price of $27.88$26.71 per share as reported by Nasdaq on June 30, 2017,28, 2019, the last business day of the registrant’s most recently completed second fiscal quarter.

As of March 1, 2018,2, 2020, there were 10,243,8699,844,644 shares of common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the definitive Proxy Statement for itsthe Annual Meeting of Shareholders scheduled for May 8, 2018,5, 2020, are incorporated by reference in Part III of this report.

 

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TABLE OF CONTENTS

WEYCO GROUP, INC.

Table of Contents to Annual Report on Form 10-K

Year Ended December 31, 20172019

		Page
		Page
CAUTIONARY STATEMENTS FOR FORWARD-LOOKING INFORMATION	1
		1
PART I.
PART I. ITEM 1. BUSINESS
		2
ITEM 1.	BUSINESS	2
ITEM 1A.	RISK FACTORS	3
ITEM 1B.	UNRESOLVED STAFF COMMENTS	6
ITEM 2.	PROPERTIES	6
ITEM 3.	LEGAL PROCEEDINGS	6
ITEM 4.	MINE SAFETY DISCLOSURES	6
	INFORMATION ABOUT THE COMPANY’S EXECUTIVE OFFICERS	7
		4
PART II. ITEM 1B. UNRESOLVED STAFF COMMENTS
		9
ITEM 2. PROPERTIES		5.	9
ITEM 3. LEGAL PROCEEDINGS			9
ITEM 4. MINE SAFETY DISCLOSURES			9
EXECUTIVE OFFICERS OF THE REGISTRANT			10
PART II.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES			118
ITEM 6.	SELECTED FINANCIAL DATA			128
ITEM 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			129
ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			2414
ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA			2515
ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	44
ITEM 9A.	CONTROLS AND PROCEDURES	44
ITEM 9B.	OTHER INFORMATION	44
		60
PART III. ITEM 9A. CONTROLS AND PROCEDURES
		60
ITEM 9B. OTHER INFORMATION		10.	60
PART III.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE			6144
ITEM 11.	EXECUTIVE COMPENSATION			6144
ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS			6144
ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE			6145
ITEM 14.	PRINCIPAL ACCOUNTING FEES AND SERVICES	45
		61
PART IV.
PART IV. ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
		62
ITEM 15.	EXHIBITS, FINANCIAL STATEMENT SCHEDULES	45
ITEM 16.	FORM 10-K SUMMARY			6245

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As of December 31, 2017, the Company had a backlog of $35 million in orders compared with $38 million as of December 31, 2016. This does not include unconfirmed blanket orders from customers, which account for the majority of the Company’s orders, particularly from its larger accounts. All orders are expected to be filled within one year.

As of December 31, 2017,2019, the Company employed 626654 persons worldwide, of whom 26486 were members of collective bargaining units. Future wage and benefit increases under the collective bargaining contracts are not expected to have a significant impact on the future operations or financial position of the Company.full-time employees.

Price, quality, service and brand recognition are all important competitive factors in the shoe industry. The Company has a design department that continually reviews and updates product designs. Compliance with environmental regulations historically has not had, and is not expected to have, a material adverse effect on the Company’s results of operations, financial position or cash flows, although there can be no assurances.

The Company makes available, free of charge, copies of its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements on Schedule 14A and all amendments to those reports upon written or telephone request. Investors can also access these reports through the Company’s website,www.weycogroup.com,, as soon as reasonably practical after the Company files or furnishes those reports to the Securities and Exchange Commission (“SEC”). The contents of the Company’s website are not incorporated by reference and are not a part of this filing. Also available on the Company’s website are various documents relating to the corporate governance of the Company, including its Code of Business Ethics.

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The Company relies on independent foreign sources of production and the availability of leather, rubber and other raw materials; a deterioration in the Company’s relationship with, or other issues affecting, such manufacturers and/or issues with the availability of raw materials which could have unfavorable effects on the Company’s business.

The Company purchases all of its products from independent foreign manufacturers, primarily in China and India. Although the Company has good working relationships with its manufacturers, the Company does not have long-term contracts with them. Thus, the Company could experience increases in manufacturing costs, disruptions in the timely supply of products or unanticipated reductions in manufacturing capacity, any of which could negatively impact the Company’s business, results of operations and financial condition. The Company has the ability to move production to different suppliers; however, the transition may not occur smoothly or quickly, which could result in the Company missing customer delivery date requirements and, consequently, the Company could lose future orders.orders and its reputation may be harmed.

The Company’s use of foreign sources of production results in relatively long production and delivery lead times. Therefore, the Company typically forecasts demand at least five months in advance. If the Company’s forecasts are wrong, it couldwould result in thea loss of sales if the Company does not have enough product on hand or in reduced margins if the Company has excess inventory that needs to be sold at discounted prices.

The Company’s ability to import products in a timely and cost-effective manner may be affected by disruptions at U.S. or foreign ports or other transportation facilities, such as those due to labor disputes and work stoppages, political unrest, trade protection measures or trade wars, severe weather, or security requirements in the United States and other countries. These issues could delay importation of products or require the Company to locate alternative ports or warehousing providers to avoid disruption to its customers. These alternatives may not be available on short notice or could result in higher transportation costs, which could have a material adverse impact on the Company’s overall profitability.

Outbreaks of infectious diseases or other health pandemics, such as the recent outbreak of the coronavirus that originated in China, may cause disruptions in the Company’s supply chain and delay the production of its products. Such disruptions may occur as a result of facility closures, worker absenteeism, quarantines or other travel or health-related restrictions. While the Company believes it is positioned to sustain any short-term interruptions in its supply chain as a result of the impact of the coronavirus, it is currently unknown how long the outbreak will last or how extensive it will be. A prolonged disruption could affect the Company’s ability to meet customer demands and produce its products in a timely and cost-effective manner, which could have a material adverse effect on the Company’s business and results of operations.

The Company’s products depend on the availability of raw materials, especially leather and rubber. Any significant shortages of quantities or increases in the cost of leather or rubber could have a material adverse effect on the Company’s business and results of operations.

Additional risks associated with foreign sourcing that could negatively impact the Company’s business include adverse changes in foreign economic conditions, import regulations, restrictions on the transfer of funds, duties, tariffs, quotas and political or labor interruptions, foreign currency fluctuations, expropriation and nationalization. For example, on September 1, 2019, an additional tariff was imposed on leather footwear exported from China. As the Company sources a significant portion of its products from China, this tariff is expected to increase the overall cost of its footwear. Although the tariff did not have a material adverse effect on the Company’s results of operations in 2019, and, through various mitigation efforts, is not expected to have a material adverse effect on its results of operations in 2020 and beyond, the ultimate future impact of the tariff on the Company’s business and results of operations is unknown at this time.

The Company conducts business globally, which exposes it to the impact of foreign currency fluctuations as well as political, economic and economicsocial risks.

A portion of the Company’s revenues and expenses are denominated in currencies other than the U.S. dollar, with its primary exposures being to the Australian dollar and the Canadian dollar. The Company is therefore subject to foreign currency risks and foreign exchange exposure. The Company’s primary exposures are to the Australian dollar and the Canadian dollar. Exchange rates can be volatile and could adversely impact the Company’s financial results.

The Company is exposed to other risks of doing business in foreign jurisdictions, including political, economic or social instability, acts of terrorism, changes in government policies and regulations, outbreaks of infectious diseases, and exposure to liabilities under anti-corruption laws (such as the U.S. Foreign Corrupt Practices Act). The Company is also exposed to risks relating to U.S. policy with respect to companies doing business in foreign jurisdictions. LegislationAdditional legislation or other changes in the U.S. tax laws or interpretations could increase the Company’s U.S. income tax liability and adversely affect the Company’s after-tax profitability. Changes in tax policy or trade regulations, such as the disallowance of tax deductions on imported merchandise or the imposition of new tariffs on imported products, could have a material adverse effect on the Company’s business and results of operations.

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Recently enacted U.S. tax legislation, as well as future U.S. tax legislation, may adversely affect our business, results of operations, financial condition and cash flow.

On December 22, 2017, a comprehensive tax reform bill commonly referred to as the Tax Cuts and Jobs Act (“TCJA”) was enacted. The TCJA made significant changes to the U.S. federal income tax laws. The Company has performed a preliminary assessment of the impact of the TCJA. However, as the TCJA is complex and far-reaching, there could be future effects that the Company has not identified, or future regulatory guidance, that could have an adverse effect on our business, results of operations, financial condition and cash flow.

The Company operates in a highly competitive environment, which may result in lower prices and reduced profits.

The footwear market is extremely competitive. The Company competes with numerous manufacturers, distributors and retailers of men’s, women’s and children’s shoes, some of which are larger and have substantially greater resources than the Company. The Company competes with these companies primarily on the basis of price, quality, service and brand recognition, all of which are important competitive factors in the shoe industry. The Company’s ability to maintain its competitive edge depends upon these factors, as well as its ability to deliver new products at the best value for the consumer, maintain positive brand recognition, and obtain sufficient retail floor space and effective product presentation at retail. If the Company does not remain competitive, future prospects, results of operations and financial condition could decline.

Volatility and uncertainty in the U.S. and global credit markets could adversely affect the Company’s business.

U.S. and global financial markets have at times been unstable and unpredictable, which has generally resulted in tightened credit markets with heightened lending standards and terms. Volatility and instability in the credit markets pose various risks to the Company, including, among others, a negative impact on retailer and consumer confidence, limits to the Company’s customers’ access to credit markets and interference with the normal commercial relationships between the Company and its customers. Increased credit risks associated with the financial condition of some customers in the retail industry affects their level of purchases from the Company and the collectability of amounts owed to the Company, and in some cases, causes the Company to reduce or cease shipments to certain customers who no longer meet the Company’s credit requirements.

4

In addition, weak economic conditions and unstable and volatile financial markets could lead to certain of the Company’s customers experiencing cash flow problems, which may force them into higher default rates or to file for bankruptcy protection which may increase the Company’s bad debt expense or further negatively impact the Company’s business.

Interest rate volatility may increase the cost of financing. The Company’s U.S. dollar variable rate debt currently uses London Interbank Offered Rate (“LIBOR”) as a benchmark for determining interest rates. The Financial Conduct Authority in the United Kingdom intends to phase out LIBOR by the end of 2021. While the Company does not expect that the transition from LIBOR, including any legal or regulatory changes made in response to its future phase out, or the risks related to its discontinuance, will have a material effect on its financing costs, the ultimate future impact is uncertain.

The Company is dependent on information and communication systems to support its business and internete-commerce sales. Significant interruptions could disrupt its business.

The Company accepts and fills the majority of its larger customers’ orders through the use of Electronic Data Interchange (EDI). It, and it relies on its warehouse management system to efficiently process orders. The Company’s corporate office relies on computer systems to efficiently process and record transactions. Significant interruptions in the Company’s EDI, information and communication systems from power loss, telecommunications failure, malicious attacks, or computer system failure could significantly disrupt the Company’s business and operations.operations, as well as damage its reputation. In addition, the Company sells footwear on its websites, and failures of the Company’s or other retailers’ websites could adversely affect the Company’s sales, results, and results.reputation.

The Company, particularly its retail segment and its internete-commerce businesses, is subject to the risk of data loss and security breaches.

The Company sells footwear in its retail stores and on its websites, and therefore the Company and/or its third partythird-party credit card processors must process, store, and transmit large amounts of data, including personal information of its customers. Failure to prevent or mitigate data loss or other security breaches, including breaches of Company technology and systems, could expose the Company or its customers to a risk of loss or misuse of such information, adversely affect the Company’s operating results, result in litigation or potential liability for the Company, and otherwise harm the Company’s business and/or reputation. InTo this point, the Company has not experienced a material breach; however, in order to address these risks, the Company has secured cyber insurance and it uses third party technology and systems for a variety of reasons,to aid in safeguarding the Company’s data and systems, including, without limitation, encryption and authentication technology, employee email, content delivery to customers, back-office support, and other functions. Although the Company has developed systems and processes that are designed to protect customer information and prevent data loss and other security breaches, including systems and processes designed to reduce the impact of a security breach at a third partythird-party vendor, such measures cannot provide absolute security.

The Company may not be able to successfully integrate new brands

Natural disasters and businesses.

The Company has completed a number of acquisitions in the past and intends to continue to look for new acquisition opportunities. Those search efforts could be unsuccessful and costs could be incurred in any failed efforts. Further, if and when an acquisition occurs, the Company cannot

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guarantee that it will be able to successfully integrate the brand into its current operations, or that any acquired brand would achieve results in line with the Company’s historical performance or its specific expectations for the brand.

Loss of the servicesother events outside of the Company’s top executives could adversely affectcontrol, and the business.

Thomas W. Florsheim, Jr.,ineffective management of such events, may harm the Company’s Chairmanbusiness.

The Company’s facilities and Chief Executive Officer, and John W. Florsheim, the Company’s President, Chief Operating Officer and Assistant Secretary, have a strong heritage within the Company and the footwear industry. They possess knowledge, relationships and reputations based on their lifetime exposure to and experience in the Company and the industry. The loss of either one or bothoperations, as well as those of the Company’s top executives could have an adverse impact onsuppliers and customers, may be impacted by natural disasters, and other events outside of the Company’s performance.control, including outbreaks of infectious diseases. In the event of such an event, and if the Company or its suppliers or customers are not adequately insured, the Company’s business could be harmed due to the event itself or due to its inability to effectively manage the effects of the particular event; potential harms include the loss of business continuity, the loss of inventory or business data and damage to infrastructure, warehouses or distribution centers.

The limited public float and trading volume for the Company’s stock may have an adverse impact on the stock price or make it difficult to liquidate.

The Company’s common stock is held by a relatively small number of shareholders. The Florsheim family owns approximately 35%50% of the stock and onetwo institutional shareholder holds ashareholders hold significant block.blocks. Other officers, directors, and members of management own stock or have the potential to own stock through previously granted stock options and restricted stock. Consequently, the Company has a relatively small public float and low average daily trading volume, which could affect a shareholder’s ability to sell stock or the price at which it can be sold. In addition, future sales of substantial amounts of the Company’s common stock in the public market by large shareholders, or the perception that these sales could occur, may adversely impact the market price of the stock and the stock could be difficult for the shareholder to liquidate.

Loss of the services of the Company’s top executives could adversely affect the business.

Thomas W. Florsheim, Jr., the Company’s Chairman and Chief Executive Officer, and John W. Florsheim, the Company’s President, Chief Operating Officer and Assistant Secretary, each have a strong heritage within the Company and the footwear industry. They possess knowledge, relationships and reputations based on their lifetime exposure to and experience in the Company and the industry. The unexpected loss of either one or both of the Company’s top executives could have an adverse impact on the Company’s performance. In addition, transitions of important responsibilities to new individuals include the possibility of disruptions, which could negatively impact the Company’s business and results of operations.

5

Deterioration of the municipal bond market in general or of specific municipal bonds held by the Company or its pension plan may result in a material adverse effect on the Company’s financial condition, results of operations, and liquidity.

The Company maintains an investment portfolio consisting primarily of investment-grade municipal bond investments. The Company’s investment policy only permits the purchase of investment-grade securities. The Company’s investment portfolio totaled approximately $24$21.7 million as of December 31, 2017,2019, or approximately 9%7% of total assets. If the value of municipal bonds in general or any of the Company’s municipal bond holdings deteriorate, the performance of the Company’s investment portfolio, financial condition, results of operations, and liquidity may be materially and adversely affected.

The Company’s total assets include goodwill and other indefinite-lived intangible assets. If management determines these have become impaired in the future, net earnings could be materially adversely affected. Additionally, potential tax reform changes related to such assets may adversely affect the Company’s financial results.

Goodwill represents the excess of cost over the fair market value of net assets acquired in a business combination. Indefinite-lived intangible assets are comprised of trademarks on certain of the Company’s principal shoe brands. The Company’s goodwill and trademarks totaled approximately $44 million as of December 31, 2017, or approximately 17% of total assets.

The Company analyzes its goodwill and trademarks for impairment on an annual basis or more frequently when, in the judgment of management, an event has occurred that may indicate that additional analysis is required. Impairment may result from, among other things, deterioration in the Company’s performance, adverse market conditions, adverse changes in applicable laws or regulations, including changes that restrict the activities of or affect the products sold by the Company, and a variety of other factors. The amount of any quantified impairment must be expensed as a charge to results of operations in the period in which the asset becomes impaired.

The Company did not record any goodwill or trademark impairment charges following the 2017 and 2015 impairment tests. In the fourth quarter of 2016, the Company evaluated the current state of

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its Umi business and determined the brand did not fit the long-term strategic objectives of the Company. As a result, the Company recorded a $1.8 million impairment charge ($1.1 million after tax) to write off the majority of the value of the Umi trademark in 2016. Other than this write-off, the Company did not record any other goodwill or trademark impairment charges in 2016. Any future determination of impairment of a significant portion of goodwill or other identifiable intangible assets could have an adverse effect on the Company’s financial condition and results of operations.

Goodwill and trademarks are being deducted for tax purposes in accordance with the U.S. tax policy. Any changes in the U.S. tax policy, limiting or eliminating the deductibility of such assets, could have a material adverse effect on the Company’s financial results.

Risks related to our defined benefit plan may adversely impact our results of operations and cash flow.

Significant changes in actual investment returnreturns on defined benefit plan assets, discount rates, mortality assumptions and other factors could adversely affect the Company’s results of operations and the amounts of contributions the Company must make to its defined benefit plan in future periods. As the Company marks-to-market its defined benefit plan assets and liabilities on an annual basis, large non-cash gains or losses could be recorded in the fourth quarter of each fiscal year. Generally accepted accounting principles in the U.S. require that the Company calculate income or expense for the plan using actuarial valuations. These valuations reflect assumptions about financial markets and interest rates, which may change based on economic conditions. Funding requirements for the Company’s defined benefit plans are dependent upon, among other things, interest rates, underlying asset returns and the impact of legislative or regulatory changes related to defined benefit funding obligations. For a discussion regarding the significant assumptions used to determine net periodic pension cost, refer to “Critical"Critical Accounting Policies”Policies" included in Item 7, “Management’s"Management’s Discussion and Analysis of Financial Condition and Results of Operations.”"

Natural disasters

The Company may not be able to successfully integrate new brands and other events outside ofbusinesses.

The Company continues to look for new acquisition opportunities. Those search efforts could be unsuccessful and costs could be incurred in any failed efforts. Further, if and when an acquisition occurs, the Company cannot guarantee that it will be able to successfully integrate the brand into its current operations, or that any acquired brand would achieve results in line with the Company’s control, and the ineffective management of such events, may harm the Company’s business.

The Company’s facilities and operations, as well as those of the Company’s suppliers and customers, may be impacted by natural disasters. In the event of such disasters, and if the Companyhistorical performance or its suppliers or customers are not adequately insured,specific expectations for the Company’s business could be harmed due to the event itself or due to its inability to effectively manage the effects of the particular event; potential harms include the loss of business continuity, the loss of inventory or business data and damage to infrastructure, warehouses or distribution centers.brand.

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ITEM 1B UNRESOLVED STAFF COMMENTS

None

ITEM 2 PROPERTIES

The following facilities were operated by the Company or its subsidiaries as of December 31, 2017:2019:

Location		Character				Owned/ Leased				Square Footage				% Utilized
Glendale, Wisconsin(2)			Two story office and distribution center				Owned				1,100,000				80	%
Portland, Oregon(2)			Two story office				Leased	(1)			6,300				100	%
Montreal, Canada(2)			Multistory office and distribution center				Owned	(4)			75,800				100	%
Florence, Italy(3)			Two story office and distribution center				Leased	(1)			15,100				100	%
Fairfield Victoria, Australia(3)			Office and distribution center				Leased	(1)			54,400				100	%
Honeydew Park, South Africa(3)			Distribution center				Leased	(1)			8,600				85	%
Hong Kong, China(3)			Office and distribution center				Leased	(1)			14,000				100	%
Dongguan City, China(2)			Office				Leased	(1)			4,400				100	%

⁽¹⁾These properties are used principally by the Company's North American wholesale segment.

⁽²⁾These properties are used principally by the Company's other businesses which are not reportable segments.

⁽³⁾The Company owns a 50% interest in this property. See Note 10 of the Notes to Consolidated Financial Statements.

In addition to the above-described offices and distribution facilities, the Company also operates offices, distribution facilities, and retail shoe stores under various rental agreements. All of these facilities are suitable and adequate for the Company’s current operations. See Note 138 of the Notes to Consolidated Financial Statements and Item 1, “Business”, above.

ITEM 3 LEGAL PROCEEDINGS

None

ITEM 4 MINE SAFETY DISCLOSURES

Not Applicable

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In 1998, the Company’s stock repurchase program was established.established and approved by the Board of Directors. On several occasions since the program’s inception, the Board of Directors has extendedincreased the number of shares authorized for repurchase under the program. In total, 7.5 million shares have been authorized for repurchase. This includes the additional 1.0 million shares that the Company’s Board of Directors authorized for repurchase on October 31, 2017. The table below presents information pursuant to Item 703 of Regulation S-K regarding the repurchase of the Company’s common stock by the Company in the three-month period ended December 31, 2017.2019.

Period		Total Number of Shares Purchased				Average Price Paid Per Share				Total Number of Shares Purchased as Part of the Publicly Announced Program				Maximum Number of Shares that May Yet Be Purchased Under the Program
10/01/2017 – 10/31/2017			7,623			$	27.95				7,623				1,136,841
11/01/2017 – 11/30/2017			86,005			$	27.93				86,005				1,050,836
12/01/2017 – 12/31/2017			34,200			$	27.87				34,200				1,016,636
Total			127,828				27.91				127,828

															Maximum Number
			Total				Average				Total Number of				of Shares
			Number				Price				Shares Purchased as				that May Yet Be
			of Shares				Paid				Part of the Publicly				Purchased Under
Period			Purchased				Per Share				Announced Program				the Program
10/01/2019 - 10/31/2019				53,091			$	23.62				53,091				457,209
11/01/2019 - 11/30/2019				9,359			$	24.47				9,359				447,850
12/01/2019 - 12/31/2019				5,580			$	24.53				5,580				442,270
Total				68,030				23.81				68,030

ITEM 6 SELECTED FINANCIAL DATA

ITEM 6

SELECTED FINANCIAL DATA

The following selected financial data reflects the results of operations, balance sheet data and common share information as of and for the years ended December 31, 2013 through December 31, 2017.

Not Applicable

		As of or for the Years Ended December 31,
		(in thousands, except per share amounts)
		2017				2016				2015				2014				2013
Net Sales		$	283,749			$	296,933			$	320,617			$	320,488			$	300,284
Net earnings attributable to Weyco Group, Inc.		$	16,491			$	16,472			$	18,212			$	19,020			$	17,601
Diluted earnings per share		$	1.60			$	1.56			$	1.68			$	1.75			$	1.62
Weighted average diluted shares outstanding			10,314				10,572				10,859				10,888				10,865
Cash dividends per share		$	0.87			$	0.83			$	0.79			$	0.75			$	0.54
Total assets at year end		$	262,832			$	268,240			$	298,997			$	277,446			$	267,533
Bank borrowings at year end		$	—			$	4,268			$	26,649			$	5,405			$	12,000

8

ITEM 7 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ITEM 7

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

GENERAL

The Company designs and markets quality and innovative footwear for men, women and children under a portfolio of well-recognized brand names, including: Florsheim, Nunn Bush, Stacy Adams, BOGS Rafters and Umi.Rafters. Inventory is purchased from third-party overseas manufacturers. The majority of foreign-sourced purchases are denominated in U.S. dollars. The Company has two reportable segments, North American wholesale operations (“wholesale”) and North American retail operations (“retail”). In the wholesale segment, the Company’s products are sold to leading footwear, department, and specialty stores, as well as e-commerce retailers, primarily in the United States and Canada. The Company also has licensing agreements with third parties who sell its branded apparel, accessories and specialty footwear in the United States, as well as its footwear in Mexico and certain markets overseas. Licensing revenues are included in the Company’s wholesale segment. The Company’s retail segment consisted of 10eight brick and mortar retail stores and internete-commerce businesses in the United States as of December 31, 2017.2019. Sales in retail outlets are made directly to consumers by Company employees. The Company’s “other” operations include the Company’s wholesale and retail businesses in Australia, South Africa, and Asia Pacific (collectively, “Florsheim Australia”), and Europe (“Florsheim Europe”). As previously disclosed, after purchasing the remaining 45% minority interest on August 30, 2018 for $3.7 million, the Company has owned 100% of Florsheim Australia since that time. See Note 2 of the Notes to Consolidated Financial Statements for additional information. The majority of the Company’s operations are in the United States, and its results are primarily affected by the economic conditions and the retail environment in the United States.

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Since January 2020, the Company’s retail operations in China have been negatively impacted by lower customer traffic due to the impact of the coronavirus. To date, these effects have not been material, but if the coronavirus continues to spread and reduced foot traffic continues over an extended period, it could have a material adverse impact on the Company’s sales and profits in that market. Similarly, sales at the Company’s retail locations in Australia and North America may be negatively impacted by lower foot traffic as a result of coronavirus outbreaks or concerns over the spread of the virus. Furthermore, the Company’s wholesale business could be negatively impacted if our retail partners encounter significant decreases in their businesses as a result of the coronavirus. If any of the foregoing occurs over a prolonged period, it could have a material adverse effect on the Company’s business and results of operations.

This discussion summarizes the significant factors affecting the consolidated operating results, financial position and liquidity of the Company for the three-yeartwo-year period ended December 31, 2017.2019. This discussion should be read in conjunction with Item 8, “Financial Statements and Supplementary Data” below.

Non-Recurring Adjustments

There were four non-recurring adjustments that impacted the comparison of earnings results in 2017, 2016 and 2015. The first adjustment, which was recorded in the fourth quarter of 2017, reduced the Company’s income tax provision by $1.5 million due to the change in the U.S. federal corporate tax rate and its impact on the Company’s deferred tax balances, which resulted from the enactment of the TCJA on December 22, 2017. The second adjustment, which was recorded in the fourth quarter of 2016, was a charge for the impairment of long-lived assets of $1.8 million ($1.1 million after tax) related to the Umi trademark. The third adjustment, which was also recorded in the fourth quarter of 2016, was a $3.1 million adjustment to reverse the deferred tax liability on corporate-owned life insurance policies. The fourth adjustment, which was recorded in the fourth quarter of 2015, was a $458,000 ($279,000 after tax) adjustment to the final earnout payment related to the 2011 acquisition of the BOGS/Rafters brands. The final earnout payment was paid in March 2016. All non-recurring adjustments were recorded within the Company’s wholesale segment.

For a tabular presentation of the impact of non-recurring adjustments on the Company’s results, see the “Reconciliation of Non-GAAP Financial Measures” table in the “OTHER” section below.

EXECUTIVE OVERVIEW

Sales and Earnings Highlights

Consolidated net sales were $283.7.$304.0 million in 2017, a decrease2019, an increase of 4%2% compared to $296.9$298.4 million in 2016.2018. Net sales in the Company’s wholesale segment decreased $10.3rose $8.8 million, or 5%4%, for the year, primarily due to lower sales of the Nunn Bush and BOGS brands, partially offset by higher sales of the Florsheim brand.and BOGS brands. Net sales in the Company’s retail segment were down 5%up 11% for the year and netdue to higher sales ofon the Company’s websites. These increases were largely offset by lower sales from the Company’s other businesses (Florsheim Australia and Florsheim Europe). Other net sales were down 4%13% for the year.year, mainly at Florsheim Australia, due to a challenging retail environment in Australia and Asia.

Consolidated earnings from operations were $23.4$27.0 million in 2017,2019, up 3%6% from $22.8$25.5 million in 2016. Excluding non-recurring adjustments, consolidated2018. Wholesale earnings from operations as adjusted, were down 5%rose $4.6 million, or 20%, for the year. Wholesaleyear, due primarily to higher sales and gross margins. Retail earnings from operations were up 13% for the year; excluding non-recurring adjustments, wholesale earnings from operations, as adjusted, were up 3% for the year, due to higher gross margins and lower selling and administrative expenses. This increase, however, was more than offset by lower earnings from operations in the Company’s retail segment and in the Company’s other businesses. Retail earnings from operations were down2% this year, due mainly to lowerhigher sales ofon the Company’s domestic websites. Earnings from operations of the Company’s other businesses were downdeclined $3.1 million for the year, primarily due to lower sales, lower gross margins, and higher selling and administrative expenses at Florsheim Australia.

Net earnings attributable to Weyco Group, Inc. were flat at $16.5increased 2% to $20.9 million in both 2017 and 2016. As adjusted, net earnings attributable to the Company, were up 4% for the year. While adjusted consolidated earnings2019, from operations were down in 2017, reductions in certain non-operating expenses, mainly in interest and pension expense, resulted in higher net earnings, as adjusted, compared to last year.

On December 31, 2016, the Company froze its pension plan which resulted in reducing pension expense by approximately $2.2$20.5 million in 2017. Also, in 2017, the Company retrospectively adopted a new accounting rule that required the Company to reclassify the non-service cost components of pension expense from selling and administrative expenses to other expense in the Consolidated Statements of Earnings. Accordingly, $1.1 million of the cost savings was recognized in selling and administrative expenses and the remaining $1.1 million of cost savings was recognized in other expense, net in the Consolidated Statements of Earnings.

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2018. Diluted earnings per share were $1.60$2.10 per share in 2017, compared to $1.562019, up from $1.97 per share in 2016. Excluding the non-recurring adjustments described above,2018. The increases in net earnings and diluted earnings per share as adjusted, were $1.45primarily due to higher earnings from operations in the Company’s wholesale segment this year, with diluted earnings per share also benefitting from lower weighted average diluted shares outstanding compared to 2018. See Note 17 of the Notes to Consolidated Financial Statements.

In 2019, the U.S. government announced it would impose an additional 15% tariff on footwear sourced from China. The tariff on leather footwear, which primarily impacts the Florsheim, Stacy Adams, and Nunn Bush brands, took effect on September 1, 2019 and was subsequently reduced to 7.5% on February 14, 2020. The tariff on rubber and other non-leather footwear, which primarily impacts the BOGS brand, was expected to take effect on December 15, 2019, but never commenced as the U.S. government suspended it indefinitely. For 2019, the tariff on leather footwear did not have a material impact on the Company’s results of operations because most of the inventory sold in 20172019 was received before the tariff took effect. For 2020, in an effort to mitigate the overall impact of the tariff cost increases, the Company negotiated wholesale price increases with many of its customers and $1.36 per share in 2016.price reductions from many of its Chinese suppliers.

9

Financial Position Highlights

At December 31, 2017,2019, cash and marketable securities totaled $47.1$31.5 million and there was no debt outstanding.$7.0 million outstanding on the Company’s $60 million revolving line of credit. During 2017,2019, the Company generated $33.5$9.4 million of cash from operations and collected $4.3drew $1.2 million in proceeds from stock option exercises.on the line of credit. The Company used funds to pay off $4.3 million on its revolving line of credit, repurchase $15.2$5.6 million of its common stock pay $9.1 million of dividends, and purchase a net of $2.0paid $9.4 million in marketable securities.dividends. In addition, the Company spent $1.6$7.4 million on capital expenditures.expenditures, primarily due to the expansion of office space within its corporate headquarters.

2017 vs. 2016

On January 1, 2019, the Company adopted the new accounting standard on leases (ASC 842). The adoption of ASC 842 resulted in the recognition of right-of-use (ROU) assets and lease liabilities totaling $26.0 million and $27.8 million, respectively, as of the adoption date. The prior year comparative information has not been restated and continues to be reported in accordance with historical accounting under Topic 840.

SEGMENT ANALYSIS

Net sales and earnings from operations for the Company’s segments, as well as its “other” operations, in the years ended December 31, 20172019 and 2016,2018, were as follows:

		Years ended December 31,
		2017				2016				% Change
		(Dollars in thousands)
Net Sales
North American Wholesale		$	217,276			$	227,537				-5	%
North American Retail			20,860				21,883				-5	%
Other			45,613				47,513				-4	%
Total		$	283,749			$	296,933				-4	%
Earnings from Operations
North American Wholesale		$	20,224			$	17,944				13	%
North American Retail			1,374				2,109				-35	%
Other			1,814				2,729				-34	%
Total		$	23,412			$	22,782				3	%

		Years ended December 31,
		2019				2018				% Change
		(Dollars in thousands)
Net Sales
North American Wholesale		$	242,127			$	233,362				4	%
North American Retail			25,231				22,683				11	%
Other			36,653				42,330				-13	%
Total		$	304,011			$	298,375				2	%
Earnings (Loss) from Operations
North American Wholesale		$	27,755			$	23,106				20	%
North American Retail			2,791				2,732				2	%
Other			(3,506	)			(379	)			NM*
Total		$	27,040			$	25,459				6	%
*NM - not meaningful

North American Wholesale Segment

Net Sales

Net sales in the Company’s North American wholesale segment for the years ended December 31, 20172019 and 2016,2018, were as follows:

		Years ended December 31,
		2019				2018				% Change
		(Dollars in thousands)
North American Wholesale Net Sales
Stacy Adams		$	66,863			$	68,963				-3	%
Nunn Bush			45,886				50,226				-9	%
Florsheim			76,261				65,102				17	%
BOGS/Rafters			50,057				46,332				8	%
Other			24				208				NM*
Total North American Wholesale		$	239,091			$	230,831				4	%
Licensing			3,036				2,531				20	%
Total North American Wholesale Segment		$	242,127			$	233,362				4	%
* NM - not meaningful

		Years ended December 31,
		2017				2016				% Change
		(Dollars in thousands)
North American Net Sales
Stacy Adams		$	65,578			$	66,620				-2	%
Nunn Bush			51,544				58,229				-11	%
Florsheim			54,239				51,563				5	%
BOGS/Rafters			41,993				46,075				-9	%
Umi			1,379				2,265				-39	%
Total North American Wholesale		$	214,733			$	224,752				-4	%
Licensing			2,543				2,785				-9	%
Total North American Wholesale Segment		$	217,276			$	227,537				-5	%

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The Company’s wholesale business faced a challenging retail environment in 2016. Foot traffic at the Company’s customers’ brick and mortar stores has been declining, as the popularity of online shopping continues to grow. Nunn Bush was particularly impacted because a significant amount of the brand’s business is with mid-tier department stores, a segment particularly struggling with this problem. Sales of the BOGS brand also declined, mainly due to the continued impact of the mild 2015/2016 winter season, as retailers carried over BOGS inventory into the 2016/2017 winter season.

Licensing revenues consist of royalties earned on sales of branded apparel, accessories and specialty footwear in the United States and on branded footwear in Mexico and certain overseas markets. The decrease in licensing revenues resulted mainly from licensee transitions that occurred in 2016.

Earnings from Operations

Gross earnings as a percent of net sales were 32.1% in 2016 versus 32.5% in 2015. Earnings from operations in the North American wholesale segment were $17.9 million in 2016, down 32% compared to $26.3 million in 2015. Wholesale operating earnings in 2016 included2019, an impairment charge of $1.8 million related$259,000 was recorded to write down the Umi trademark. Wholesale operating earningsvalue of certain retail fixed assets of underperforming stores at Florsheim Australia. This impairment charge is part of the $940,000 in 2015 included $458,000 of income representing the final adjustment to the BOGS/Rafters earnout payment. Excluding these non-recurring adjustments, wholesale earnings from operations were down 24% in 2016, due mainly to the decrease in wholesale sales.

The Company’s cost of sales does not include distribution costs (e.g., receiving, inspection or warehousing costs) or shipping and handling expenses. The Company’s wholesale distribution costs were $11.2 million and $10.4 milliondiscussed in the years ended December 31, 2016preceding paragraph. In 2018, an impairment charge of $246,000 was recorded to write down the value of certain retail fixed assets of underperforming stores at Florsheim Australia.

Other income and 2015, respectively. The Company’s wholesale shipping and handling expenses were $1.6 million and $1.9 million in the years ended December 31, 2016 and 2015, respectively. These costs were included in selling and administrative expenses. The Company’s gross earnings may not be comparable to other companies, as some companies may include distribution costs and shipping and handling expenses in cost of sales.

North American wholesale segment selling and administrative expenses include, and are primarily related to, distribution costs, salaries and commissions, advertising costs, employee benefit costs and depreciation. Wholesale selling and administrative expenses decreased $627,000 in 2016, compared to the prior year. Excluding the non-recurring adjustments related to the Umi trademark and the BOGS/Rafters earnout payment, wholesale selling and administrative expenses were down $2.3 million between years, primarily due to lower employee benefit costs and advertising costs. As a percent of net sales, wholesale selling and administrative expenses were 25% and 23% in 2016 and 2015, respectively. Excluding the non-recurring adjustments described above, wholesale selling and administrative expenses as a percent of net sales were 23% and 22% in 2016 and 2015, respectively.

North American Retail Segment

Net Sales

Net sales in the Company’s North American retail segment were $21.9 million in 2016, down 1% compared to $22.1 million in 2015. Same store sales, which include U.S. internet sales, were up 1% for the year. There were three fewer domestic retail stores operating in 2016 than there were in 2015, as four stores closed and one store opened. Stores are included in same store sales beginning in the store’s 13^th month of operations after its grand opening. The increase in same store sales was due to an increase in the Company’s U.S. internet business.

Earnings from Operations

Earnings from operations in the North American retail segment were $2.1 million in 2016, down 16% compared to $2.5 million in 2015. Retail gross earnings as a percent of net sales were 65.0% in 2016 and 65.7% in 2015. Selling and administrative expenses for the retail segment include, and are

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primarily related to, rent and occupancy costs, employee costs, advertising expense and freight. Selling and administrative expenses as a percent of net sales were 55% in 2016 compared to 54% in 2015. The decrease in retail earnings from operations was primarily due to lower net sales at the Company’s brick and mortar locations.taxes

The Company reviews its long-lived assets for impairment in accordance with Accounting Standards Codification (“ASC”) 360,Property Plant and Equipment(“ASC 360”). See Note 2 in the Notes to Consolidated Financial Statements for further information. A $113,000 impairment charge was recognized following the 2016 impairment test. No impairment charges were recognized in 2015.

Other

The Company’s other businesses include its wholesale and retail operations in Australia, South Africa, Asia Pacific and Europe. In 2016, net sales of the Company’s other businesses were $47.5 million, up 1% compared with $47.1 million in 2015. This increase was primarily due to higher net sales in Florsheim Europe’s wholesale business. Earnings from operations at Florsheim Australia and Florsheim Europe were $2.7 million in 2016, down 9% compared to $3.0 million in 2015. This decrease was primarily due to lower operating earnings at the Company’s retail store in Macau, resulting from lower sales.

OTHER INCOME AND EXPENSE AND TAXES

The majority of the Company’s interest income comes fromis generated by investments in marketable securities. Interest income was $773,000, $763,000$823,000 and $936,000$981,000 in 2017, 20162019 and 2015,2018, respectively. The decrease from 2015 to 2016in 2019 was primarily due to less interest earned on the lower averagecash and investment balances between years.

this year. Interest expense was $15,000, $436,000,$244,000 and $181,000$45,000 in 2017, 2016,2019 and 2015,2018, respectively. In 2017, the Company paid off its revolving line of credit which resultedThe increase in lower interest expense this year. In 2016, interest expense was up mainlylargely due to interest recognized on a 2016 tax settlement.

The major components of other expense, net, were as follows:

		2017				2016				2015
Foreign currency transaction gains/(losses)		$	146,000			$	513,000			$	(961,000	)
Non-service cost components of pension expense			(431,000	)			(1,546,000	)			(2,063,000	)
Operating losses and write-off of foreign joint venture			—				—				(473,000	)
Other			37,000				1,000				9,000
Other expense, net		$	(248,000	)		$	(1,032,000	)		$	(3,488,000	)

The Company adopted ASU 2017-07 in the first quarter of 2017 and retrospectively applied it to all periods presented. This required to Company to reclassify the non-service cost components of pension expense from selling and administrative expenses to other expense, net, in the Consolidated Statements of Earnings. The decrease in other expense from 2016 to 2017 was mainly due to a $1.1 million decrease in the non-service cost components of pension expense. Pension expense decreased in 2017higher average debt balance this year, as a result of freezing benefits underadditional inventory purchases in the pension plan, effective December 31, 2016.

The decrease in other expense from 2015 to 2016 was due mainly to the change in foreign exchange gains/(losses) recognized in those years. In 2016, the Company recognized $513,000 in foreign currency transaction gains, which resulted mainly from unrealized gains on foreign exchange contracts entered into by Florsheim Australia. In 2015, the Company recognized $961,000 in foreign currency transaction losses, which resulted mainly from unrealized losses on foreign exchange contracts entered into by Florsheim Australia, as well as losses from the revaluation of intercompany loans between the Company’s wholesale segment and Florsheim Australia. The non-service cost components of pension expense were also down in 2016, relative to 2015, mainly due to the adoptionsecond half of the spot-rate approach on January 1, 2016. See further details regarding this approach in

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Note 11year ahead of the Consolidated Financial Statements. Finally, otheranticipated tariff on footwear. Other expense totaled $535,000 in 2015 included $473,000 of expense related to the operating losses and write-off of an investment by Florsheim Australia2019 versus $638,000 in a foreign joint venture.

2018. The Company’s effective tax rate for 2017 was 30.2%, compared with 23.0%22.9% in 20162019 and 37.7%22.5% in 2015. In 2017, following the enactment of the TCJA on December 22, 2017, the Company recognized a $1.5 million tax benefit due to the revaluation of deferred tax assets and liabilities from the change in the U.S. federal corporate tax rate. This tax benefit reduced the Company’s effective rate for 2017. In 2016, the effective rate was lower due to the reversal of a deferred tax liability on corporate-owned life insurance policies. In 2015, the effective rate was up due to a higher state tax liability as well as higher effective tax rates at the Company’s foreign locations.2018.

LIQUIDITY & CAPITAL RESOURCES

The Company’s primary sources of liquidity are its cash and short-term marketable securities, which aggregated $29.4$15.7 million at December 31, 2017,2019, and $18.3$24.5 million at December 31, 2016,2018, and its revolving line of credit. In 2017, theThe Company generated $33.5$9.4 million of cash from operations, compared with generating $46.9and $13.1 million of cash from operations in 2016,2019 and using $5.4 million of cash in operations in 2015.2018, respectively. Fluctuations in net cash from operating activities over the three-year period have mainly resulted from changes in net earnings and operating assets and liabilities, and most significantly, the year-end inventory balances. In 2016, operating cash flows were up due largely to a reductionThe Company increased its inventory levels in 2019 ahead of the dates when the 15% tariff on footwear sourced from China was imposed. The Company believes that the increase in inventory levelshelped maintain margins in 2019. In addition, despite production delays that year; inventory levels were reducedare being caused by the coronavirus, the Company believes it is positioned to sustain any short-term interruptions in accordance with customer orders,its supply chain; however, it cannot provide any assurances because the extent and also to reflect a more conservative position based onlength of the outbreak of this virus, as well as its overall retail environment.impact, are unknown at this time.

The Company’s capital expenditures were $1.6 million, $6.0$7.4 million and $2.5$1.4 million in 2017, 20162019 and 2015,2018, respectively. The increase this year was primarily due to the expansion of office space within the Company’s corporate headquarters. This project is expected to be completed in April 2020. The Company expects capital expenditures will be between $2.0$3.0 million and $3.0$4.0 million in 2018. In 2016, capital expenditures were up due to improvements that were made to the Company’s distribution center in Glendale, Wisconsin to increase its capacity, as well as remodeling projects to improve two of the Company’s Florida retail stores, and the build out of the new store opened in Florida in 2016.2020.

The Company paid cash dividends of $9.1 million, $8.9$9.4 million and $8.5$9.3 million in 2017, 20162019 and 2015,2018, respectively.

The Company continues to repurchase its common stock under its share repurchase program when the Company believes market conditions are favorable. In 2017,2019, the Company repurchased 548,539222,740 shares for a total cost of $15.2$5.6 million. In 2016,2018, the Company repurchased 410,983351,626 shares for a total cost of $11.0 million. In 2015, the Company repurchased 354,741 shares for a total cost of $9.9$11.4 million. At December 31, 2017,2019, the Company had remaining totalauthorization to repurchase up to 442,270 shares available to purchase under the program was approximately 1.0 million shares.program.

At December 31, 2017,2019, the Company had a $60 million unsecured revolving line of credit with a bank expiring November 4, 2018.5, 2020. The line of credit bears interest at the daily London Interbank Offered Rate (“LIBOR”)LIBOR plus 0.75%. At December 31, 2017, there were no outstanding borrowings on the line of credit. The highest balance on the line of credit during 2017 was $4.8 million. At December 31, 2016,2019, outstanding borrowings were approximately $4.3$7.0 million at an interest rate of 1.52%2.5%. The highest balance on the line of credit during 2016the year was $28.4$18.1 million. At December 31, 2018, outstanding borrowings were approximately $5.8 million at an interest rate of 3.3%.

In connection with the Bogs acquisition, the Company had two earn-out payments due to the former shareholders of Bogs. The Company made the first earn-out payment of $1,270,000 in the first quarter of 2013. The second and final earn-out payment of $5,217,000 was made in March 2016. For additional information, see Note 10 in the Notes to Consolidated Financial Statements.

As of December 31, 2017, $2.92019, $1.9 million of cash and cash equivalents was held by the Company’s foreign subsidiaries.

In the fourth quarter of 2016, the Company reviewed its liquidity needs and sources of capital, including evaluating whether it would need the cash available under corporate-owned life insurance

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policies on two former executives. It was determined that the chances were remote that the Company would need to surrender the policies to satisfy liquidity needs, and, as a result, the Company reversed the $3.1 million deferred tax liability related to the policies.

The Company will continue to evaluate the best uses for its available liquidity, including, among other uses, capital expenditures, continued stock repurchases and additional acquisitions.

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 through March 2019,for at least one year, although there can be no assurances.

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 supplemental pension plan and its operating leases. These obligations are discussed further in the Notes to Consolidated Financial Statements. The Company also has significant obligations to purchase inventory. Future obligations under operating leases are disclosed in Note 13 of the Notes to Consolidated Financial Statements. The table below provides summary information about these obligations as of December 31, 2017.

		Payments Due by Period (dollars in thousands)
		Total				Less Than a Year				2 – 3 Years				4 – 5 Years				More Than 5 Years
Pension obligations		$	32,605			$	416			$	936			$	1,086			$	30,167
Operating leases			36,595				9,390				15,377				7,943				3,885
Purchase obligations*			57,024				57,024				—				—				—
Total		$	126,224			$	66,830			$	16,313			$	9,029			$	34,052

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OTHER

Non-GAAP Information

The comparability of certain of the Company’s financial measures was impacted by non-recurring adjustments related to the Company’s income tax provision due to the change in the U.S. federal corporate tax rate resulting from the TCJA, the Umi trademark impairment, an adjustment to reverse the deferred tax liability on corporate-owned life insurance policies, and the gain from the final adjustment to the earnout payment related to the 2011 acquisition of Bogs. To provide additional information to investors to facilitate the comparison of past and present performance, the Company presented non-GAAP financial measures that exclude the financial impact of these non-recurring adjustments. These non-GAAP financial measures were used internally by management in evaluating the results of operations, but they are not intended to replace the presentation of financial results in accordance with GAAP. A reconciliation of the non-GAAP financial measures to their nearest comparable GAAP financial measures, as presented in the Consolidated Statements of Earnings, is provided in the table below.

Reconciliation of Non-GAAP Financial Measures

The following is a reconciliation of GAAP Financial Measures to Non-GAAP Financial Measures for the twelve-month periods ended December 31, 2017, 2016 and 2015.

		Twelve Months Ended December 31, 2017												Twelve Months Ended December 31, 2016												Twelve Months Ended December 31, 2015
		GAAP Measures (As Reported)				Adjustments				Non-GAAP Measures (As Adjusted)				GAAP Measures (As Reported)				Adjustments				Non-GAAP Measures (As Adjusted)				GAAP Measures (As Reported)				Adjustments				Non-GAAP Measures (As Adjusted)
Net sales		$	283,749							$	283,749			$	296,933							$	296,933			$	320,617							$	320,617
Cost of sales			173,056								173,056				184,890								184,890				199,008								199,008
Gross earnings			110,693								110,693				112,043								112,043				121,609								121,609
Selling and administrative expenses			87,281								87,281				89,261				(1,770	)(2)			87,491				89,761				458	(4)			90,219
Earnings from operations			23,412								23,412				22,782								24,552				31,848								31,390
Interest income			773								773				763								763				936								936
Interest expense			(15	)							(15	)			(436	)							(436	)			(181	)							(181	)
Other expense, net			(248	)							(248	)			(1,032	)							(1,032	)			(3,488	)							(3,488	)
Earnings before provision for income taxes			23,922								23,922				22,077								23,847				29,115								28,657
Provision for income taxes			7,223				1,492	(1)			8,715				5,084				3,832	(3)			8,916				10,962				(179	)(4)			10,783
Net earnings			16,699								15,207				16,993								14,931				18,153								17,874
Net earnings (loss) attributable to noncontrolling interest			208								208				521								521				(59	)							(59	)
Net earnings attributable to Weyco Group, Inc.		$	16,491							$	14,999			$	16,472							$	14,410			$	18,212							$	17,933
Basic		$	1.61				(0.15	)		$	1.46			$	1.57				(0.20	)		$	1.37			$	1.69				(0.03	)		$	1.66
Diluted		$	1.60				(0.15	)		$	1.45			$	1.56				(0.20	)		$	1.36			$	1.68				(0.03	)		$	1.65

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Critical Accounting Policies

The Company’s accounting policies are more fully described in Note 23 of the Notes to Consolidated Financial Statements. As disclosed in Note 2,3, 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 consolidated 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 consolidated 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 consolidated financial statements and the uncertainties that could impact the Company’s results of operations, financial position and cash flows.

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Sales Returns, Sales Allowances and Doubtful Accounts

The Company records reserves and allowances (“reserves”) for sales returns, sales allowances and discounts, cooperative advertising, and accounts receivable balances that it believes 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, determined based on historical trends. The Company evaluates the reserves and the estimation process and makes adjustments when appropriate. Historically, actual write-offs against the reserves 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.flows.

Pension Plan Accounting

The Company’s net periodic pension cost 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 —– Net periodic pension cost and projected benefit obligation both increase as the discount rate is reduced. See Note 1112 of the Notes to Consolidated Financial Statements for discount rates used in determining the net periodic pension cost for the years ended December 31, 2017, 20162019 and 20152018, and the funded status of the plans at December 31, 20172019 and 2016. Effective January 1, 2016, the2018. The Company adopteduses the spot-rate approach to determine the service and interest cost components of net periodic pension cost. Historically, the Company estimated the service and interest cost components using a single weighted average discount rate derived from the yield curve used to measure the benefit obligation. Under the spot-rate approach, the service and interest costs were calculated by applying specific spot rates along the yield curve to the relevant projected cash flows, to provide a better estimate of future service and interest costs. This change does not affect the measurement of the benefit obligation. A 0.5% decrease in the discount rate would increasehave a nominal impact on annual net periodic pension cost, and would increase the projected benefit obligation by approximately $27,000 and $4.5 million, respectively.$4.4 million.

The Company considered the adoption of the spot-rate approach a change in accounting estimate and recognized the effects of the change on a prospective basis. The effect of adoption was a reduction in 2016’s net periodic pension cost by approximately $522,000 ($318,000 after tax, or $0.03 per diluted share), primarily due to a reduction in interest cost.

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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 7.00% in 2017, as compared to 7.50% infor both 20162019 and 2015.2018. 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 net periodic pension expensecost by approximately $186,000.$198,000.

The Company’s unfunded benefit obligation was $28.2$28.0 million      at both December 31, 2017 and $23.5 million at December 31, 2016.2019 and 2018, respectively.

Goodwill and Trademarks

Goodwill and trademarks are tested for impairment on an annual basis and more frequently when significant events or changes in circumstances indicate that their carrying values may not be recoverable. Conditions that would trigger an impairment assessment include, but are not limited to, a significant adverse change in legal factors or business climate that could affect the value of the asset.

The Company’s $11.1 million of goodwill resulted from the 2011 acquisition of The Combs Company (“Bogs”). This goodwillthe BOGS and Rafters brands. Goodwill is testednot amortized, but is reviewed for impairment annually by comparing theon an annual basis and between annual tests if indicators of impairment are present. The applicable reporting unit’sunit for goodwill impairment testing is the wholesale segment. The Company has the option to assess goodwill for impairment by performing either a qualitative assessment or quantitative test. The qualitative assessment is the first step and determines whether it is more likely than not that the fair value toof the reporting unit is less than its carrying value. If the assessment indicates the fair value exceeds the carrying value, then there is no impairment and the quantitative test is not required. However, if the assessment indicates the fair value is less than the carrying value, then the quantitative test is required. The quantitative test compares the fair value of the reporting unit exceedsto its book value including goodwill, and if the fair value a goodwillis less than the book value, an impairment charge would be recordedloss is recognized for the difference, (uplimited to the carrying value of the goodwill).goodwill.

The Company conducted its annual impairment

In the quantitative test, of goodwill as of December 31, 2017. For goodwill impairment testing, the Company determined the applicable reporting unit is its wholesale segment. Fairfair value of the wholesale segment was estimatedwould be determined based on a discounted cash flow methodology. The rate used in determiningto determine discounted cash flows waswould be a rate corresponding tothat corresponds with the Company’s weighted average cost of capital, adjusted for risk where appropriate. In determining the estimated future cash flows, current and future levels of income werewould be considered as well as business trends and market conditions. In 2017, the impairment test determined that the fair value of the wholesale segment substantially exceeded its carrying value, therefore, goodwill was deemed not impaired. The Company performed the qualitative assessment in both 2019 and 2018, and found no impairment. There has never recordedbeen an impairment chargerecorded on this goodwill.

The Company conducted its

Trademarks are not amortized, but are reviewed for impairment on an annual impairmentbasis and between annual tests of trademarks as of December 31, 2017.when an event occurs or circumstances change that indicates the carrying value may not be recoverable. The Company uses a discounted cash flow methodology to determine the fair value of its trademarks, and a loss would be recognized if the carrying values of the trademarks exceeded their fair values. ThereThe Company conducted its annual impairment tests of trademarks as of December 31, 2019 and 2018. In 2019, no impairments were no impairment charges recorded on the trademarks following the 2017 and 2015Company’s trademarks. In 2018, an impairment tests. In fourth quartercharge of 2016, the Company evaluated the current state of the Umi business and determined the brand did not fit the long-term strategic objectives of the Company. As a result, the Company$110,000 was recorded a $1,770,000 impairment charge to write off the majority of theremaining value of the Umi trademark. This impairment charge was recorded within selling and administrative expenses in the 2016 Consolidated Statements of Earnings.

The Company can make no assurances that the goodwill or trademarks will not be impaired in the future. When preparing a discounted cash flow analysis, the Company makes a number of key estimates and assumptions. The Company estimates the future cash flows based on historical and forecasted revenues and operating costs. This, in turn, involves further estimates such as estimates of future growth rates and inflation rates. The discount rate is based on the estimated weighted average cost of capital for the business and may change from year to year. Weighted average cost of capital includes certain assumptions such as market capital structures, market beta, risk-free rate of return and estimated costs of borrowing. Changes in these key estimates and assumptions, or in other assumptions used in this process, could materially affect the Company’s impairment analysis for a given year.

Recent Accounting Pronouncements

See Note 23 of the Notes to Consolidated Financial Statements.

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ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not Applicable

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 foreign exchange contracts. The Company does not hold or issue financial instruments for trading purposes. The Company generally does not have significant market risk on its marketable securities as those investments consist of investment-grade securities and are held to maturity. The Company reviewed its portfolio of investments as of December 31, 2017, and determined that no other-than-temporary market value impairment exists.

The Company is also exposed to market risk related to the assets in its defined benefit pension plan. The Company reduces that risk by having a diversified portfolio of equity and fixed income investments and periodically reviews this allocation with its investment consultants.

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, Florsheim Australia’s purchases of its inventory in U.S. dollars and the Company’s intercompany loans with Florsheim Australia. At December 31, 2017, the Company’s majority-owned subsidiary, Florsheim Australia, had foreign exchange contracts outstanding to buy $1.0 million U.S. dollars at a price of approximately $1.3 million Australian dollars. All contracts expire in 2018. Based on the Company’s outstanding foreign contracts and intercompany loans, a 10% appreciation in the U.S. dollar at December 31, 2017 would result in a loss of approximately $152,000.

Interest Rates

The Company is exposed to interest rate fluctuations on borrowings under its revolving line of credit. At December 31, 2017, the Company had no amounts outstanding on its revolving line of credit. During the year, however, the Company used the line of credit from time to time to fund working capital needs. Interest expense on these borrowings totaled $7,000 in 2017. The highest balance of the line of credit during 2017 was $4.8 million. A 10% increase in the interest rate on these borrowings would not have a material effect on the Company’s financial position, results of operations or cash flows.

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Index to Consolidated Financial Statements

		Page
Management’s Report on Internal Control Over Financial Reporting			2616
Report of Independent Registered Public Accounting Firm			2717
Consolidated Statements of Earnings			2919
Consolidated Statements of Comprehensive Income			3020
Consolidated Balance Sheets			3121
Consolidated Statements of Equity			3222
Consolidated Statements of Cash Flows			3323
Notes to Consolidated Financial Statements	24

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the shareholders, Audit Committee and the Board of Directors of Weyco Group, Inc.

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Weyco Group, Inc. (the “Company”) as of December 31, 20172019 and 2016,2018, the related consolidated statements of earnings, comprehensive income, equity and cash flows for the threetwo years in the period ended December 21, 2017.31, 2019, and the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company’s internal control over financial reporting as of December 31, 2017,2019, based on criteria established inInternal Control —– Integrated Framework: (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20172019 and 20162018 and the results of their operations and their cash flows for each of the threetwo years in the period ended December 31, 2017,2019, in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017,2019, based on criteria established inInternal Control —– Integrated Framework: (2013) issued by COSO.

Adoption of New Accounting Standard

As discussed in Notes 3 and 8 to the consolidated financial statements, the Company has changed its method of accounting for operating leases as of January 1, 2019 due to the adoption of Accounting Standards Update 2016-02, Leases (Topic 842). 

Basis for Opinion

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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 its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Baker Tilly Virchow Krause, LLP

We have served as the Company's auditor since 2015.

Milwaukee, WI
Wisconsin 

March 13, 201812, 2020

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CONSOLIDATED STATEMENTS OF EARNINGS

For the years ended December 31, 2017, 2016 and 2015

		2017				2016				2015
		(In thousands, except per share amounts)
Net sales		$	283,749			$	296,933			$	320,617
Cost of sales			173,056				184,890				199,008
Gross earnings			110,693				112,043				121,609
Selling and administrative expenses			87,281				89,261				89,761
Earnings from operations			23,412				22,782				31,848
Interest income			773				763				936
Interest expense			(15	)			(436	)			(181	)
Other expense, net			(248	)			(1,032	)			(3,488	)
Earnings before provision for income taxes			23,922				22,077				29,115
Provision for income taxes			7,223				5,084				10,962
Net earnings			16,699				16,993				18,153
Net earnings (loss) attributable to noncontrolling interest			208				521				(59	)
Net earnings attributable to Weyco Group, Inc.		$	16,491			$	16,472			$	18,212
Basic earnings per share		$	1.61			$	1.57			$	1.69
Diluted earnings per share		$	1.60			$	1.56			$	1.68

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

For the years ended December 31, 2017, 2016 and 2015

		2017				2016				2015
		(Dollars in thousands)
Net earnings		$	16,699			$	16,993			$	18,153
Other comprehensive (loss) income, net of tax:
Foreign currency translation adjustments			1,729				198				(3,411	)
Pension liability adjustments			(2,593	)			1,696				2,360
Other comprehensive (loss) income			(864	)			1,894				(1,051	)
Comprehensive income			15,835				18,887				17,102
Comprehensive income (loss) attributable to noncontrolling interest			634				517				(673	)
Comprehensive income attributable to Weyco Group, Inc.		$	15,201			$	18,370			$	17,775

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CONSOLIDATED BALANCE SHEETS

As of December 31, 2017 and 2016

		2017				2016
		(In thousands, except par value and share data)
ASSETS:
Cash and cash equivalents		$	23,453			$	13,710
Marketable securities, at amortized cost			5,970				4,601
Accounts receivable, less allowances of $2,206 and $2,516, respectively			49,451				50,726
Income tax receivable			669				789
Inventories			60,270				69,898
Prepaid expenses and other current assets			5,770				6,203
Total current assets			145,583				145,927
Marketable securities, at amortized cost			17,669				21,061
Deferred income tax benefits			750				660
Property, plant and equipment, net			31,643				33,717
Goodwill			11,112				11,112
Trademarks			32,978				32,978
Other assets			23,097				22,785
Total assets		$	262,832			$	268,240
LIABILITIES AND EQUITY:
Short-term borrowings		$	—			$	4,268
Accounts payable			8,905				11,942
Dividend payable			2,228				2,192
Accrued liabilities:
Accrued compensation and employee benefits			6,184				3,444
Sales and advertising allowances			3,538				3,050
Taxes other than income taxes			1,182				1,193
Other			3,127				2,885
Total current liabilities			25,164				28,974
Deferred income tax liabilities			2,069				703
Long-term pension liability			27,766				27,801
Other long-term liabilities			2,174				2,482
Total liabilities			57,173				59,960
Commitments and contingencies (Note 13)
Common stock, $1.00 par value, authorized 24,000,000 shares in 2017 and 2016, issued and outstanding 10,162,225 shares in 2017 and 10,504,975 shares in 2016			10,162				10,505
Capital in excess of par value			55,884				50,184
Reinvested earnings			150,350				157,468
Accumulated other comprehensive loss			(17,859	)			(16,569	)
Total Weyco Group, Inc. equity			198,537				201,588
Noncontrolling interest			7,122				6,692
Total equity			205,659				208,280
Total liabilities and equity		$	262,832			$	268,240

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