TABLE OF CONTENTSat Florsheim Australia.

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, the Company2023, we employed 626608 persons worldwide, of whom 26397 were members of collective bargaining units. Future wagefull-time employees.

Brand recognition, price, quality, 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.

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

The Company makesWe make available, free of charge, copies of itsour 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’sour website,www.weycogroup.com,, as soon as reasonably practical after the Company fileswe file or furnishesfurnish those reports to

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ITEM 1ARISK FACTORS

There are various factors that affect the Company’sor might affect our business, results of operations and financial condition, many of which are beyond the Company’sour control. The following is a description of some of the significantmaterial factors that mightcould materially and adversely affect the Company’sour reputation, business, results of operations and financial condition.

Risk factors related to our operations

We rely on independent foreign sources of production and the availability of leather, rubber and other raw materials; a deterioration in our relationships, or other issues affecting such manufacturers and/or issues with the availability of raw materials could have unfavorable effects on our business.

We purchase all our products from independent foreign manufacturers, primarily in China and India.  Although we believe that we have good working relationships with our manufacturers, we do not have long-term contracts with them. Thus, we 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 our business, results of operations and financial condition. We can move production to different suppliers; however, the transition may not occur smoothly or quickly, or at the same cost, which could result in us missing customer delivery date requirements and, consequently, we could lose future orders and our reputation may be harmed.

Our use of foreign sources of production results in relatively long production and delivery lead times.  Therefore, we typically forecast demand at least five months in advance.  If our forecasts are wrong or there are significant changes in demand, it would result in a loss of sales if we do not have enough product on hand or in reduced margins if we have excess inventory that needs to be sold at discounted prices.

Our 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 (climate change may increase the frequency and severity of severe weather conditions or events), outbreaks of infectious diseases, or security requirements in the United States and other countries.  These issues could delay importation of products or require us to locate alternate ports or warehousing providers to avoid disruption to our 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 our overall profitability.  

Our 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 would have an adverse effect on our business and results of operations, unless we were able to pass such costs along to our customers.

Additional risks associated with foreign sourcing that could negatively impact our 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. It is difficult to predict the effects of current or future tariffs and other trade barriers and disputes, and our efforts to reduce the effects of tariffs through pricing and other measures may not be effective.

A disruption in our supply chain could adversely affect our profitability.

Most of our products for North American distribution are shipped to us via ocean freight carriers to ports primarily on the west coast of North America. Our reliance on ocean freight transportation for the delivery of our inventory exposes us to various inherent risks, including port congestion, severe weather conditions, labor issues, natural disasters, and terrorism, any of which could result in delivery delays and inefficiencies, increased costs and disruption of business. In 2021 and in the first half of 2022, our supply chain was disrupted by congestion throughout the supply chain, domestic port and warehousing delays, and container shortages, resulting in us incurring premium freight charges on a portion of our imports. In addition to these factors, global inflation has contributed to already higher incremental freight costs. Severe disruptions of the supply chain may force us to use more expensive methods to ship our products, and we may not be able to meet our customers’ delivery requirements, which may result in the loss of sales.

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The Company relies on independent foreign sources of production and the availability of leather, rubber and other 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.

The Company’s use of foreign sources of production results in 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 could result in the 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, suchperformance, as labor disputes and work stoppages, political unrest, 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 couldwell as have a material adversenegative impact on the Company’s overall profitability.our reputation.

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.

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

A portion of the Company’sour revenues and expenses are denominated in currencies other than the U.S. dollar, with our primary exposures being to the Australian dollar and the Canadian dollar. The Company isWe are 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’sour financial results.

The Company isWe are exposed to other risks of doing business in foreign jurisdictions, including political, economic, or social instability, armed conflicts, acts of terrorism, civil unrest, changes in government policies and regulations, outbreaks of infectious diseases, severe weather events, natural disasters, and exposure to liabilities under anti-corruption laws (such as the U.S. Foreign Corrupt Practices Act). The Company isWe are 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’sour U.S. income tax liability and adversely affect the Company’sour 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’sour 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 changesIn response to the ongoing military conflict between Russia and Ukraine, the U.S. federal income tax laws.and certain other countries imposed significant sanctions and export controls against Russia, Belarus and certain individuals and entities connected to Russian or Belarusian political, business, and financial organizations. The Company has performed a preliminary assessment ofsituation remains uncertain and it is difficult to predict 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 couldconflict and actions taken in response to it will have an adverse effect on our business. Our business resultsmay be impacted as a result of operations, financial conditionvarious factors, including inflation and cash flow.

The Company operates inactions taken to combat inflation, increased energy prices, a highly competitive environment, which may result in lower pricesslowing U.S. economy, more ocean freight disruptions, increased cyber-attacks, and reduced profits.

The footwear market is extremely competitive. The Company competes with 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 competitiveRisk factors in the shoe industry. The Company’s abilityrelated 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 results of operations and financial condition could decline.cybersecurity

The Company is

We are dependent on information and communication systems to support itsour business and internete-commerce sales. Significant interruptions could disrupt its business.

The Company acceptsour business and fillsdamage our reputation.

We accept and fill the majority of itsour larger customers’ orders through the use of Electronic Data Interchange (EDI). It relies, and we rely on itsour warehouse management system to efficiently process orders.  TheOur corporate office relies on computer systems to efficiently process and record transactions.  Significant interruptions in the Company’sEDI, information and communication systems from power loss, telecommunications failure, malicious attacks, or computer system failure could significantly disrupt the Company’sour business and operations.operations, as well as damage our reputation. In addition, the Company sellswe sell footwear on itsour websites, and failures of the Company’sour or other retailers’ websites could adversely affect the Company’sour sales, results, and results.reputation.

The Company, particularly its retail segment and its internet businesses, is

We are subject to the risk of data loss and security breaches.

The Company sellsWe sell footwear in itsour retail stores and on itsour websites, and therefore the Companywe and/or its third partyour third-party credit card processors must process, store, and transmit large amounts of data, including personal information of itsour customers. Failure to prevent or mitigate data loss or other security breaches, including breaches of Companyour technology and systems, could expose the Companyus or itsour customers to a risk of loss or misuse of such information, which could adversely affect the Company’sour operating results, result in litigation or potential liability, for the Company, andand/or otherwise harm the Company’sour business and/or reputation.  InOur technology and systems, as well as those of our partners have, and in the future may, become the target of cyberattacks. To our knowledge, we have not experienced a material breach; however, in order to address these risks, the Company haswe have secured cyber insurance and it usesuse third party technology and systems for a variety of reasons,to aid in safeguarding our 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 haswe have 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.

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

Thomas W. Florsheim, Jr., the Company’s Chairmanour operations, supply chain, distribution, and Chief Executive Officer, and John W. Florsheim, the Company’s President, Chief Operating Officer and Assistant Secretary,demand for our products, which could, in turn, have a strong heritage withinmaterial adverse effect on our business and results.

The COVID-19 pandemic had widespread, rapidly-evolving, and unpredicted impacts on global financial markets and business practices. As conditions fluctuated, governments responded by adjusting their restrictions and guidelines accordingly. The scope, nature, and duration of any future public health emergencies, including a resurgence in the CompanyCOVID-19 pandemic, is uncertain. While the COVID-19 pandemic has subsided with the normalization of living with COVID-19 following the increase in accessibility to COVID-19 vaccines and antiviral treatments, the full impact of a future public health emergency or a resurgence of the COVID-19 pandemic on our business, financial condition, and results of operations is uncertain and will continue to depend on future developments, such as the ultimate duration and scope of the health emergency, its impact on our employees, customers and suppliers, the effectiveness and adoption of vaccines and therapeutics and the footwear industry. They possess knowledge, relationships and reputations basedbroader implications on their lifetime exposurethe macro-economic environment. Such emergencies may cause or require us to and experiencetake actions that alter our business operations as may be required by federal, state, or local authorities, or which we determine to be in the Companybest interests of our employees, customers, suppliers, and shareholders.

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Public health emergency-related factors that have impacted us, or may negatively impact, sales, gross margin and other results of operations in the industry. future include, but are not limited to: limitations on the ability of our suppliers to obtain necessary raw materials and parts to manufacture, or procure from manufacturers, the products we sell; transportation delays and other logistical challenges resulting in longer lead times; limitations on the ability of our employees to perform their work due to illness or other disruptions caused by the pandemic, including local, state, or federal orders requiring employees to remain at home; labor shortages or an increase in the cost of labor; limitations on the ability of carriers to deliver our products to customers; limitations on the ability of our customers to purchase our products; and limitations on the ability of our customers to pay us on a timely basis.

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The losspotential negative financial of either onea future public health emergency or botha resurgence of the Company’s top executivesCOVID-19 pandemic on our business and results of operations cannot be reasonably estimated but could be material and last for an extended period of time.

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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 return 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 Accounting Policies” included in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Natural disasters and other events outside of 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 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.

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ITEM 1BUNRESOLVED STAFF COMMENTS

None

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ITEM 1CCYBERSECURITY

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Risk Management and Strategy

We face various cybersecurity risks and threats that could have a material adverse effect on our business, operations, financial performance, liquidity, and reputation. We have implemented processes and systems to identify, assess, and manage these risks and threats, as well as to prevent, detect, and respond to any cybersecurity incidents that may occur, which is integrated into our overall risk management process. We also have a comprehensive cybersecurity strategy, policy, and program that aligns with our business objectives and risk appetite. We regularly review and update our cybersecurity strategy, policy, and program to address the evolving nature and scope of cybersecurity risks and threats. In addition, we consider the cybersecurity practices of our third-party service providers, through a general security assessment and contractual requirements, as appropriate, before engaging them in order to help identify and mitigate cybersecurity risks associated with those providers.

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INFORMATION ABOUT EXECUTIVE OFFICERS OF THE REGISTRANT

The following individuals were executive officers of Company as of December 31, 2017:2023:

Name		Position		Age
Thomas W. Florsheim, Jr.(1)		Chairman and Chief Executive Officer		59 65
John W. Florsheim(1)		President, Chief Operating Officer, and Assistant Secretary		54 60
John F. Wittkowske(2) Judy Anderson		Senior Vice President, Chief Financial Officer and Secretary		58 56
Judy Anderson Kate Destinon		Vice President, Finance and Treasurer		50
Mike Bernsteen		Vice President, and President of Nunn Bush Brand		61 48
Jeff Douglass		Vice President, Marketing		42
Dustin Combs		Vice President, and President of BOGS and Rafters Brands		35 41
Brian Flannery		Vice President, and President of Stacy Adams Brand		56 62
Kevin Schiff		Vice President, and President of Florsheim Brand		49 55
George Sotiros(2)	​	Vice President, Information Technology and Distribution	​	51 57
Damian Walton	​	Vice President, President of Florsheim Australia	​	50
Joshua Wisenthal		Vice President, and President of Weyco Canada		41
Allison Woss		Vice President, Supply Chain		45 51

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Thomas W. Florsheim, Jr. has served as Chairman and Chief Executive Officer for more than 5 years.

since 2002.

John W. Florsheim has served as President, Chief Operating Officer, and Assistant Secretary for more than 5 years.

John F. Wittkowske has served as Senior Vice President, Chief Financial Officer and Secretary for more than 5 years.since 2002.

Judy Anderson has served as Vice President, Chief Financial Officer, and Secretary since May 6, 2022. Prior to this role, Ms. Anderson served as Vice President of Finance and Treasurer for more than 5 years.since 2004.

Mike BernsteenKate Destinon has served as a Vice President of the Company and President of the Nunn Bush Brand for more than 5 years.since January 1, 2021. Prior to this role, Ms. Destinon served as Vice President of Nunn Bush from 2019 to 2020.

Jeff Douglass has served as Vice President of Marketing since 2015.

Dustin Combs has served as a Vice President of the Company and President of the BOGS and Rafters Brands since January 2015. Prior to this role, Mr. Combs served as Vice President of Sales for the BOGS and Rafters Brands from March 2011 to January 2015.

Brian Flannery has served as a Vice President of the Company and President of the Stacy Adams Brand for more than 5 years.since 2007.

Kevin Schiff has served as a Vice President of the Company and President of the Florsheim Brand for more than 5 years.since 2010.

George Sotiros has served as Vice President of Information TechnologySystems and Distribution since June 2017.

Damian Walton has served as a Vice President of the Company and President of Florsheim Australia since January 7, 2019. Prior to this role, Mr. SotirosWalton served as Executive General Manager of Merchandise Planning at Myer, a national department store chain in Australia, for 3 years.

Joshua Wisenthal has served as a Vice President of Information Technology for more than 5 years.the Company and President of Weyco Canada since January 1, 2022. Prior to this role, Mr. Wisenthal served as a Vice President of the Company and a manager of our legacy brands in Canada since 2014.

Allison Wosshas served as Vice President of Supply Chain since August 2016. Prior to this role, Ms. Woss served as Vice President

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PART II

ITEM 5MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

The sharesShares of theour Company’s common stock are traded on the Nasdaq Stock Market (“Nasdaq”) under the symbol “WEYS.”

COMMON STOCK DATA

		2017												2016
		Stock Prices								Cash Dividends Declared				Stock Prices								Cash Dividends Declared
Quarter:		High				Low								High				Low
First		$	32.30			$	23.75			$	0.21			$	28.23			$	22.94			$	0.20
Second		$	29.30			$	26.51			$	0.22			$	28.50			$	25.84			$	0.21
Third		$	29.00			$	26.68			$	0.22			$	29.05			$	24.52			$	0.21
Fourth		$	29.95			$	27.00			$	0.22			$	31.58			$	24.91			$	0.21
										$	0.87											$	0.83

The stock prices shown above are the high and low actual trades on the Nasdaq for the calendar periods indicated.

There were 13091 holders of record of the Company’sCompany's common stock as of March 1, 2018.

Stock Performance

The following line graph compares the cumulative total shareholder return on the Company’s common stock during the five years ended December 31, 2017 with the cumulative return on the Nasdaq-100 Index and the Russell 3000 — RGS Textiles Apparel & Shoe Index. The comparison assumes $100 was invested on December 31, 2012, in the Company’s common stock and in each of the foregoing indices and assumes reinvestment of dividends.

		2012				2013				2014				2015				2016				2017
Weyco Group, Inc.			100				126				126				118				143				148
Nasdaq-100 Global Index			100				137				163				179				192				256
Russell 3000 – RGS Textiles Apparel & Shoe Index			100				147				164				160				141				175

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In 1998, the Company’sour stock repurchase program was established.established and approved by the Board of Directors. On several occasions since the program’s inception, theour Board of Directors has extendedincreased the number of shares authorized for repurchase under the program. In total, 7.58.5 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 repurchaserepurchases of the Company’sour common stock by the Company in the three-month period ended December 31, 2017.2023.

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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

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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.RESERVED

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		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

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

GENERAL

The Company designsWe design, market, and marketsdistribute quality and innovative footwear principally for men, but also for women and children, under a portfolio of well-recognized brand names including: Florsheim, Nunn Bush, Stacy Adams, BOGS, Rafters, and Umi.Forsake.  Inventory is purchased from third-party overseas manufacturers.  The majorityAlmost all of these foreign-sourced purchases are denominated in U.S. dollars. The Company hasWe have two reportable segments, North American wholesale operations (“wholesale”Wholesale”) and North American retail operations (“retail”Retail”). In the wholesaleWholesale segment, the Company’sour products are sold to leading footwear, department, and specialty stores, as well as e-commerce retailers, primarily in the United States and Canada. The CompanyWe also hashave licensing agreements with third parties who sell itsour branded apparel, accessories, and specialty footwear in the United States, as well as itsour footwear in Mexico and certain markets overseas.  Licensing revenues are included in the Company’s wholesaleour Wholesale segment. The Company’sOur Retail segment consists of e-commerce businesses and four brick-and-mortar retail segment consisted of 10 brick and mortar retail stores and internet businesses in the United States as of December 31, 2017. Sales in retail outletsStates.  Retail sales are made directly to consumers on our websites, or by Company employees. The Company’sour employees in our stores.  Our “other” operations include the Company’sour wholesale and retail businesses in Australia, South Africa, and Asia Pacific (collectively, “Florsheim Australia”). However, we ceased operations in the Asia Pacific region in 2023, and Europe (“Florsheim Europe”).are in the final stages of winding down this business. The majority of the Company’sour operations are in the United States, and itsour results are primarily affected by the economic conditions and the retail environment in the United States.

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This discussion summarizes the significant factors affecting the consolidated operating results, financial position, and liquidity of the Companyour company for the three-yeartwo-year period ended December 31, 2017.2023. 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 changeKNOWN TRENDS IMPACTING OUR BUSINESS

Macroeconomic pressures in the U.S. federal corporate tax rate and its impactthe global economy have created a tepid retail environment. Following a period of unprecedented supply chain disruptions, retailers are being cautious with their inventory levels, which reduces wholesale customer orders.  Additionally, consumers are currently spending more of their discretionary income on experiences and services and less on footwear and apparel. Looking ahead, we expect to face continued headwinds as a result of the challenging retail environment in the first half of 2024, but we continue to focus on building our backlogs and are optimistic that demand will improve in the back half of the year.

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Diluted earnings per share were $1.60 per share in 2017, compared to $1.56 per share in 2016. Excluding the non-recurring adjustments described above, diluted earnings per share, as adjusted, were $1.45 per share in 2017 and $1.36 per share in 2016.

Financial Position Highlights

At December 31, 2017, cash and marketable securities totaled $47.1 million and there was no debt outstanding. During 2017, the Company generated $33.5 million of cash from operations, and collected $4.3 million in proceeds from stock option exercises. The Company used funds to pay off $4.3 million on its revolving line of credit, repurchase $15.2 million of its common stock, pay $9.1 million of dividends, and purchase a net of $2.0 million in marketable securities. In addition, the Company spent $1.6 million on capital expenditures.

2017 vs. 2016

SEGMENT ANALYSIS

Net sales and earnings from operationsour e-commerce businesses.  Overall, we believe we had strong direct consumer performance for the Company’s segments,year, with a solid sales increase in 2023 as well as its “other” operations, in the years ended December 31, 2017 and 2016, 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	%

North American Wholesale Segment

Net Sales

Net sales in the Company’s North American wholesale segment for the years ended December 31, 2017 and 2016, were as follows:

		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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Stacy Adams net sales were down in 2017 due to lower sales to department stores, partially offset by higher sales to online retailers. Net sales of the Nunn Bush brand were down for the year, due mainly to lower sales to department stores. Net sales of the BOGS/Rafters brands were down, due mostly to lower sales to outdoor retailers. Umi sales were down in 2017 as the Company continues to wind down operations of this brand. These sales decreases were partly offset by increased sales of the Florsheim brand this year. Florsheim net sales were up mainly with national shoe chains and department stores.

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.

Earnings from Operations

Gross earningsrecord retail operating earnings. We view our direct-to-consumer business as a percent of net sales were 33.6%growth opportunity and continue to invest in 2017 versus 32.1% in 2016. 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 $10.6 million and $11.2 million in the years ended December 31, 2017 and 2016, respectively. The Company’s wholesale shipping and handling expenses were $1.4 million and $1.6 million in the years ended December 31, 2017 and 2016, 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.our online platform.

The North American wholesale segment’s selling and administrative expenses include, and primarily consist of: distribution costs, salaries and commissions, advertising costs, employee benefit costs, and depreciation. Wholesale selling and administrative expenses were $52.8 million in 2017, down 4% compared to $55.1 million in 2016. Last year’s wholesale selling and administrative expenses included an impairment charge of $1.8 million related to the Umi trademark. Excluding this adjustment, wholesale selling and administrative expenses were down 1% between years, due mainly to lower pension and advertising expenses. Wholesale selling and administrative expenses were 24% of​

Florsheim Australia’s net sales in both 2017 and 2016. Excluding last year’s non-recurring adjustment related to the Umi trademark, wholesale selling and administrative expenseslocal currency were 23% of net sales in 2016.

Earnings from operations in the North American wholesale segment were $20.2 million in 2017, up 13% compared to $17.9 million in 2016. Excluding last year’s non-recurring adjustment related to the Umi trademark, wholesale earnings from operations were updown 3% for the year, due to higher gross margins and lower selling and administrative expenses.

North American Retail Segment

Net Sales

Net salesyear. The loss of a significant wholesale account as well as soft consumer demand presented challenges in the Company’s North American retail segmentAustralian market. We anticipate headwinds through the first half of 2024 and are focused on reducing expenses while we assess opportunities to rekindle our growth. As previously disclosed, we closed our Asia Pacific operations in 2023. Going forward, certain significant wholesale accounts that were $20.9previously served by our Asia Pacific team will be picked up by Australian wholesale division.

​

Sales and Earnings Highlights

Consolidated net sales for 2023 were $318.0 million, down 10% compared to $351.7 million in 2017, down 5% compared to $21.9 million in 2016. Same store sales, which include U.S. internet sales, were down 5% for the year, due mainly to lower sales on the Company’s websites. There were three fewer domestic brick and mortar locations operating at December 31, 2017 than there were at December 31, 2016. Stores are included in same store sales beginning in the store’s 13^th month of operations after its grand opening.

Earnings from Operations

Retail2022.  Consolidated gross earnings as a percent of net sales were 64.0%44.9% and 41.1% in 20172023 and 65.0% in 2016. Selling and administrative expenses for the retail segment include, and are primarily related to, rent and occupancy costs, employee costs, advertising expense and freight. Retail selling and administrative expenses2022, respectively. Operating earnings were $12.0a record $41.0 million, up 2% over our previous record of $40.4 million, despite lower sales.  Net earnings were a record $30.2 million, or 57% of net sales$3.17 per diluted share, in 2017 as2023, up 2% compared to $12.1$29.5 million, or 55%$3.07 per diluted share, in 2022.

Financial Position Highlights

At December 31, 2023, our cash and marketable securities totaled $75.9 million and we had no debt outstanding on our $40.0 million revolving line of net sales, in 2016. Earningscredit. During 2023, we generated $98.6 million of cash from operations, due mainly to net earnings and reductions in the North American retail segment were $1.4inventory levels. We used funds to pay $9.3 million in 2017, down 35% compareddividends and to $2.1repurchase $4.3 million in 2016. The decrease in retail earnings from operations was primarily due to lower sales on the Company’s websites.of our stock during 2023. We also had $3.3 million of capital expenditures.

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The Company’s wholesale business facedWholesale net sales were collectively down in 2023 due to lower demand following record growth in 2022.  Sales across all our brands in 2022 were positively impacted by a challenging retail environment in 2016. Foot traffic at the Company’s customers’ brickcombination of post-pandemic retailer pipeline fill 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 thestrong consumer demand. Our BOGS brand also declined, mainlyexperienced the largest decrease for the year, compared to record sales for the brand in 2022, as orders were down amid the current saturation of product in the outdoor market, and due to the continued impactmild weather in the final months of the mild 2015/2016 winter season, as retailers carried over BOGS inventory into the 2016/2017 winter season.

2023.  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 decreaseLicensing revenues increased in licensing revenues resulted mainly from licensee transitions that occurred2023, compared to 2022, in 2016.line with increased licensees’ sales of branded products.

Wholesale Earnings from Operations

GrossWholesale gross earnings as a percent of net sales were 32.1%39.7% in 20162023 versus 32.5%35.6% 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 included an impairment charge2022. Gross margins improved as a result of $1.8 million related to the Umi trademark. Wholesale operating earnings 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 distributionincreased selling prices and lower inventory 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 million in the years ended December 31, 2016 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 sellingprimarily inbound freight. Selling and administrative expenses include, and arefor the wholesale segment consist primarily related to,of distribution costs, salaries and commissions, advertising costs, employee benefit costs, and depreciation. Wholesale selling and administrative expenses decreased $627,000were $66.0 million and $68.2 million in 2016, compared to the prior year. Excluding the non-recurring adjustments related to the Umi trademark2023 and the BOGS/Rafters earnout payment, wholesale selling and administrative expenses were down $2.3 million between years,2022, respectively. The decrease in 2023 was primarily due to lower employee benefit costs, and advertising costs.mainly commission-based compensation. As a percent of net sales, wholesale selling and administrative expenses were 25%26% in 2023 and 23%24% in 20162022.  Wholesale operating earnings reached a record $33.3 million in 2023, up 2% over our previous record of $32.6 million in 2022, due to higher gross margins and 2015, respectively. Excluding the non-recurring adjustments described above, wholesalelower selling and administrative expensesexpenses.

​

Our cost of sales does not include distribution costs (e.g., receiving, inspection, warehousing, shipping, and handling costs) which are included in selling and administrative expenses. Wholesale distribution costs were $15.5 million and $16.0 million for the years ended

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consist primarily related to,of freight, advertising expense, employee costs, rent and occupancy costs, employee costs, advertising expense and freight. Sellingcosts. Retail selling and administrative expenses as a percenttotaled $18.3 million in 2023, or 48% of net sales, were 55% in 2016for the year compared to 54% in 2015. The decrease in retail earnings from operations was primarily due to lower$18.1 million, or 49% of net sales, atin 2022. The Retail segment achieved record operating earnings of $6.8 million in 2023, up 11% over $6.1 million in 2022, due mainly to the Company’s brickincrease in web sales.

Other

Our other operations consist of our retail and mortar locations.

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 otherwholesale businesses include its wholesale and retail operations in Australia, South Africa, and Asia Pacific (collectively, “Florsheim Australia”). However, we ceased operations in the Asia Pacific region in 2023, and Europe. In 2016,are in the final stages of winding down this business. The winddown of our Asia-Pacific operations did not have a material impact on our full year 2023 consolidated results.  

Other net sales of the Company’s other businesses were $47.5 million, up 1% compared with $47.1totaled $29.6 million in 2015. This increase was primarily2023 down 7% from $31.8 million in 2022. In local currency, Florsheim Australia’s net sales were down 3% for the year, due mainly to the mid-year loss of a sizeable wholesale customer in Australia, partially offset by higher sales across Florsheim Australia’s retail businesses.   Other gross earnings were 62.5% of net sales in Florsheim Europe’s wholesale business. Earnings from operations at Florsheim Australia and Florsheim Europe were $2.72023 versus 61.1% of net sales in 2022. Other operating earnings totaled $1.0 million in 2016, down 9% compared to $3.02023 and $1.7 million in 2015. This decrease was primarily due to2022, down mainly as a result of lower operating earnings at the Company’s retail storesales in Macau, resulting from lower sales.Australia this year.

OTHER INCOME AND EXPENSE AND TAXES

The majorityMost of the Company’sour interest and dividend income comes fromis generated by investments in marketable securities.securities and money market mutual funds. Interest and dividend income was $773,000, $763,000totaled $1.1 million and $936,000$361,000 in 2017, 20162023 and 2015,2022, respectively. The decrease from 2015 to 2016increase in 2023 was primarily due to lower average investmentmore earnings on the higher cash balances between years.

this year.  Interest expense was $15,000, $436,000,$529,000 in 2023 and $181,000$710,000 in 2017, 2016, and 2015, respectively. In 2017, the Company2022. The decrease in 2023 was due to less interest incurred as we paid off its revolving line of credit which resultedour debt during the year. Other expense, net, totaled $738,000 in lower interest expense this year. In 2016, interest2023 and $277,000 in 2022. Other expense was up mainlyin 2023 due largely 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 2017-07an increase 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-serviceprimarily interest cost, components of pension expense. Pension expense decreased in 2017 as a result of freezing benefits under the pension plan, effective December 31, 2016.

The decrease inhigher interest rates this year. Last year’s other expense included a $894,000 pension settlement charge recorded in connection with a lump-sum benefit payment to a former executive of the Company.

Our effective tax rate was 26.1% in 2023 versus 25.7% in 2022. The current tax rate differs from 2015 to 2016 wasthe U.S. federal statutory rate of 21% 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 revaluationimpact 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 adoption of the spot-rate approach on January 1, 2016. See further details regarding this approach in

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Note 11 of the Consolidated Financial Statements. Finally, other expense in 2015 included $473,000 of expense related to the operating losses and write-off of an investment by Florsheim Australia in a foreign joint venture.

The effective tax rate for 2017 was 30.2%, compared with 23.0% in 2016 and 37.7% 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.

LIQUIDITY &AND CAPITAL RESOURCES

The Company’sOur primary sources of liquidity are its cash, short-term investments, and short-term marketable securities, which aggregated $29.4$69.5 million and $18.4 million at December 31, 2017,2023 and $18.3 million at December 31, 2016,2022, respectively, and itsour revolving line of credit.  In 2017, the CompanyWe generated $33.5 million of cash from operations, compared with generating $46.9$98.6 million of cash from operations in 2016,2023, and using $5.4used $29.9 million of cash in operations in 2015.2022. Fluctuations in net cash from (used for) 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-endour inventory. Our inventory balances. In 2016, operating cash flows were up due largelybalance was $74.9 million at December 31, 2023, down from $128.0 million at December 31, 2022. We brought our inventories down in 2023 to a reduction inlevel that balances availability for in-season orders with better inventory levels that year; inventory levels were reduced in accordance with customer orders, and also to reflect a more conservative position based on the overall retail environment.turn.

The Company’s​

Our capital expenditures were $1.6 million, $6.0$3.3 million and $2.5$2.3 million in 2017, 20162023 and 2015,2022, respectively. The Company expectsThis year’s capital expenditures included costs related to equipment installed in our Glendale warehouse that automates the packing and labeling process of single pair orders. With the growth of our e-commerce and drop-ship businesses, gaining efficiency in this area allows us to give faster service with significant labor savings. Looking ahead, we expect capital expenditures will be between $2.0 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 two2024.

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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 willWe continue to evaluate the best uses for itsour available liquidity, including, among other uses, capital expenditures, continued stock repurchases and additional acquisitions.

The Company believes We believe 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 doesWe do 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’sOur 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 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’sour consolidated financial statements and the uncertainties that could impact the Company’sour results of operations, financial position and cash flows.

Sales Returns, Sales Allowances and Doubtful Accounts

The Company recordsWe record reserves and allowances (“reserves”) for sales returns, sales allowances and discounts, cooperative advertising, and accounts receivable balances that it believeswe believe 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 evaluatesWe evaluate the reserves and the estimation process and makes adjustmentsadjust when appropriate.  Historically, actualApart from unprecedented write-offs that occurred during the COVID-19 pandemic, our historical write-offs against the reserves have been within the Company’sour expectations. ChangesFuture 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’sour results of operations, financial position, and cash flows.

Pension Plan Accounting

The Company’s net periodicOur pension costexpense and corresponding obligation are determined on an actuarial basis and require certain actuarial assumptions.  Management believesWe believe the two most critical of these assumptions are the discount rate and the expected rate of return on plan assets.  The Company evaluates itsWe evaluate actuarial assumptions annually on the measurement date (December 31) and makesmake 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.

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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 considerswe consider the historical returns on plan assets and future expectations of asset returns.  The CompanyWe utilized an expected rate of return on plan assets of 7.00% in 2017, as compared to 7.50% in6.75% for both 20162023 and 2015.2022, respectively. This rate was based on theour 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 $186,000.$182,000.

The Company’sOur unfunded benefit obligation was $28.2$14.0 million at both December 31, 2017 and $16.1 million at December 31, 2016.

Goodwill2023 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.2022, respectively.

The Company’s $11.1 million of goodwill resulted from the 2011 acquisition of The Combs Company (“Bogs”). This goodwill is tested for impairment annually by comparing the applicable reporting unit’s fair value to its carrying value. If the carrying value of the reporting unit exceeds its fair value, a goodwill impairment charge would be recorded for the difference (up to the carrying value of the goodwill).

The Company conducted its annual impairment test of goodwill as of December 31, 2017. For goodwill impairment testing, the Company determined the applicable reporting unit is its wholesale segment. Fair value of the wholesale segment was estimated based on a discounted cash flow methodology. The rate used in determining discounted cash flows was a rate corresponding to 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 were 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 has never recorded an impairment charge on this goodwill.

The Company conducted its annual impairment tests of trademarks as of December 31, 2017. 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. There were no impairment charges recorded on the trademarks following the 2017 and 2015 impairment tests. In fourth quarter 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 recorded a $1,770,000 impairment charge to write off the majority of the 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 2 of the Notes to Consolidated Financial Statements.

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ITEM 7AQUANTITATIVE 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 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.Not Applicable

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.​